Roger Lee Williams

1eCast is the assignee of Bank of America/FIA Card Services, formerly MBNA, Bank of
America, NA (USA), Direct Merchants Credit Card Bank (Metris), and GE Money Bank JC Penney
Dual Card.
2 In the Eastern District of North Carolina, it is the trustees' practice to file a motion for
confirmation of the plan, and if there are no objections, the plan is usually confirmed.
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
ROGER LEE WILLIAMS
DEBTOR
CASE NO.
07-00396-5-ATS
ORDER DENYING OBJECTION TO CONFIRMATION
The matter before the court is the objection filed by eCast Settlement Corporation1 (“eCast”)
to confirmation of the chapter 13 plan filed by Roger Lee Williams. The chapter 13 trustee, John
F. Logan, filed a motion for confirmation but now contends that the plan was not filed in good faith
and should not be confirmed. 2 A hearing took place in Raleigh, North Carolina on October 2, 2007.
Roger Lee Williams filed a petition for relief under chapter 13 of the Bankruptcy Code on
February 28, 2007. eCast holds five unsecured claims against the debtor, representing various credit
card account balances ranging from $833.11 to $34,180.49. The pertinent facts are undisputed. The
debtor’s annualized current monthly income is well above the North Carolina median family income.
SO ORDERED.
SIGNED this 25 day of October, 2007.
________________________________________
A. Thomas Small
United States Bankruptcy Judge
____________________________________________________________
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3Despite eCast’s calculation of a three percent return to unsecured creditors, the trustee’s
motion for confirmation provides that the debtor shall pay 36 monthly payments of $199, with the
obligation to make payments terminating upon payment in full of allowed administrative priority
claims. The motion further states, “[i]n this case, general unsecured creditors will receive: $-0-.”
It follows that the return to unsecured creditors will be zero percent, rather than three percent.
2
The debtor’s Statement of Current Monthly Income and Calculation of Commitment Period and
Disposable Income (“Form 22C”) shows a negative monthly disposable income of (-$26.65). In
completing Form 22C, the debtor claimed the Internal Revenue Service (“IRS”) Local Standard
allowance for housing in the amount of $1,005. The debtor’s current actual monthly residential
mortgage payment is $541. The proposed plan calls for payments of $199 to the trustee for 36
months. According to eCast, after paying the administrative priority claims (consisting of attorneys
fees and the trustee’s commission), the plan will yield a return of approximately three percent to
unsecured creditors. 3
eCast contends that the plan fails to commit all of the debtor’s disposable income to the
payment of unsecured creditors as required by 11 U.S.C. § 1325(b)(1)(B). In calculating disposable
income, eCast argues that the debtor improperly utilized the IRS Local Standard allowance for
housing instead of his actual monthly housing expense. eCast contends that the proper deduction
for housing is either the Local Standard allowance or the debtor’s actual housing expenses,
whichever is less. According to eCast, if the debtor had limited his housing deduction to the actual
expense, his expenses would decrease by $464, resulting in a net projected disposable income of
$437.35.
eCast further argues that the debtor should pay his disposable income into the plan for five
years (rather than the three proposed), because the debtor’s “applicable commitment period” under
§ 1325(b)(4) is five years. It is eCast’s position that the debtor must stay in the plan for five years
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because the applicable commitment period is a temporal period set by statute. The debtor argues
that the applicable commitment period is instead a multiplier used to determine the total required
payout to unsecured creditors. 	The debtor contends that the term of the plan may therefore be
shorter than the applicable commitment period if the unsecured creditors receive the total payout to
which they are entitled in that shorter time.
Notwithstanding his motion for confirmation of the plan, the trustee argued at the hearing
that the plan was not filed in good faith because of the minimal expected return to unsecured
creditors and the administrative burden it would place on the trustee’s office. 	For the reasons
discussed below, the court will deny eCast’s and the trustee’s objections to confirmation, and the
plan will be confirmed.
I. 	Issues
The creditor’s objection raises multiple issues, many of which have arisen frequently since
the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(“BAPCPA”). First, is monthly disposable income determined by the means test or is something
more required? When applying the means test, may the debtor deduct the full IRS Local Standard
allowance for housing or only actual housing expenses? And in the context of § 1325(b)(1)(B), is
the “applicable commitment period” a multiplier used in a calculation, or is it a minimum time
period that may affect the plan term? As courts have begun to address these issues in light of the
BAPCPA revisions, a number of different views have developed.
eCast’s objection to confirmation of the proposed plan triggered the application of §
1325(b)(1), which reads as follows:
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4
If the trustee or the holder of an allowed unsecured claim objects to the confirmation
of the plan, then the court may not approve the plan unless, as of the effective date
of the plan–
(A) the value of the property to be distributed under the plan on account of such
claim is not less than the amount of such claim; or
(B) the plan provides that all of the debtor’s projected disposable income to be
received in the applicable commitment period beginning on the date that the first
payment is due under the plan will be applied to make payments to unsecured
creditors under the plan.
11 U.S.C. § 1325(b)(1). Because the proposed plan distributions to eCast will not satisfy its claim,
subparagraph (A) does not apply, and the requirements of subparagraph (B) must be met in order
to confirm the debtor’s plan. Subparagraph (B) contains the defined term “disposable income,” as
well as a new term, “applicable commitment period,” which was added by BAPCPA. The BAPCPA
revisions also tailored subparagraph (B) to focus specifically on payments to creditors holding
unsecured claims.
II. 	Determining “Disposable Income”
“Disposable income” as it applies to § 1325 is defined as follows, in relevant part:
For purposes of this subsection, “disposable income” means current monthly income
received by the debtor (other than child support payments, foster care payments, or
disability payments for a dependent child . . . ) less amounts reasonably necessary
to be expended–
(A)(i) for the maintenance or support of the debtor or a dependent of the debtor, or
for a domestic support obligation . . . ; and
(ii) for charitable contributions . . . ; and
(B) if the debtor is engaged in business, for the payment of expenditures necessary
for the continuation, preservation, and operation of such business.
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4Section 1325(b)(3) provides, “[a]mounts reasonably necessary to be expended under
paragraph (2) shall be determined in accordance with subparagraphs (A) and (B) of section
707(b)(2), if the debtor has current monthly income, when multiplied by 12, greater than . . . the
median family income of the applicable State . . . .” 11 U.S.C. § 1325(b)(3).
5
11 U.S.C. § 1325(b)(2). 	Prior to BAPCPA, disposable income was determined by the debtor’s
Schedules I and J. 	Now, § 1325(b)(3) requires above-median debtors to use the means test to
calculate disposable income.4
Many have expressed concern regarding this new method of determining disposable income,
particularly questioning both the accuracy of the methodology and the implications of the results.
In fact, during a hearing in which Judge J. Rich Leonard of this district heard several related cases
involving the determination of disposable income, three of the four local chapter 13 trustees reported
frustration with the new method. 	In re Alexander, 344 B.R. 742 (Bankr. E.D.N.C. 2006).
Specifically, the issue was raised because “[a] debtor who may have had disposable income under
the old law may now have little or no disposable income using the new calculation method.” Id. at
746. 	The Alexander court examined the new statutory text and found that despite the trustees'
expressed concerns about using the means test, Ҥ 1325(b)(2)-(3) plainly sets forth a new definition
and method for calculating disposable income, and Form B22C is the tool for arriving at that
disposable income figure under the new law.” Id. at 747. Similarly, the court in In re Barr found
that
[t]here are new definitions of the income and expenses to be used for determining
disposable income that are much different than under the former statute. 	These
definitions are detailed and inflexible, particularly as to expenses and deductions for
above-median-income debtors. . . . The use of “shall” in section 1325(b)(3) is
mandatory and leaves no discretion with respect to the expenses and deductions that
are to be deducted in arriving at disposable income.
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5 The court in In re Rezentes, 368 B.R. 55 (Bankr. D. Haw. 	2007), held that an above-
median chapter 13 debtor may deduct the Local Standard for housing ownership or the actual
amount spent, whichever is less. That court noted a line of cases holding (primarily in the context
of vehicle ownership expenses) that debtors may not deduct Local Standard amounts for expenses
that are not actually incurred.
6
341 B.R. 181, 184-85 (Bankr. M.D.N.C. 2006). The court agrees with Alexander and Barr that the
court is limited to use of the means test in determining the debtor’s deductions and expenses for
purposes of calculating disposable income.
III. 	Application of the Means Test: Proper Deduction for Housing Expenses
Relying on a recent case addressing Form 22C housing expense deductions, eCast contends
that in applying the means test, the debtor should either deduct the Local Standard allowance or his
actual mortgage expense, whichever is less.5 However, in the IRS deductions section of Form 22C,
the debtor entered the applicable IRS Local Standard allowance for housing ($1,005), less his actual
monthly mortgage payment of $541 (as directed by the form), for a net mortgage expense of $464.
In the section of the form entitled “Future payments on secured claims,” the debtor entered his actual
mortgage payment of $541. 	Thus, eCast argues that had the debtor deducted only his actual
mortgage expense of $541, his overall expenses would decrease enough to have disposable income
to commit to the payment of eCast’s claim.
The debtor contends, relying on another line of cases, that § 707(b)(2)(A)(ii)(I) permits the
deduction of the Local Standard allowance despite his lower actual mortgage expense. Section
707(b)(2)(A)(ii)(I) provides, in relevant part:
The debtor’s monthly expenses shall be the debtor’s applicable monthly expense
amounts specified under the National Standards and Local Standards . . . issued by
the Internal Revenue Service for the area in which the debtor resides, as in effect on
the date of the order for relief . . . .
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11 U.S.C. § 707(b)(2)(A)(ii)(I). The cases interpreting this provision seem to turn on two factors:
whether this section operates as a fixed allowance or a cap, and the meaning of the word
“applicable.” 	This court previously addressed these issues in the context of vehicle ownership
expenses in In re Taylor, Case No. 06-01348-5-ATS (Bankr. E.D.N.C. Dec. 18, 2006). The court
finds that the same reasoning applied in Taylor applies to the present case regarding housing
ownership expense deductions. As stated in Taylor, regarding § 707(b)(2)(A)(ii)(I):
This court is persuaded by and adopts the reasoning in In re Fowler, 349 B.R.
414 (Bankr. D. Del. 2006), and In re Prince, 2006 WL 3501281 (Bankr. M.D.N.C.
Nov. 30, 2006), which hold that the section operates as a fixed allowance and that
the term “applicable” means the standards applicable to the debtor, not the actual
expenses that are applicable to the debtor. 	See Prince at *3 (“[t]o read section
707(b)(2)(A)(ii)(I) as permitting the courts to comb through the Internal Revenue
Manual in order to pick and choose provisions to apply in a given case injects great
uncertainty into the process of determining a debtor’s expenses for purposes of the
means test.”); Fowler, 349 B.R. at 417-418 (“applicable” refers to the number of
vehicles owned by the debtor, as opposed to “actual,” which is used elsewhere in the
section); see also Eugene R. Wedoff, Means Testing in the New § 707(b), 79 Am.
Bankr. Inst. L.J. 231 (2005).
Taylor at 3. The court therefore holds that the debtor in this case is entitled to deduct the Local
Standard allowance for housing ownership expenses in applying the means test to determine his
disposable income.
IV. The Effect of the “Applicable Commitment Period”
eCast further objects to confirmation of the debtor’s proposed plan because the plan will be
completed in three years. eCast argues that the debtor’s “applicable commitment period” under §
1325(b)(4) is five years, based on the debtor’s above-median income status, and that the debtor must
therefore remain in the plan for five years. On the other hand, the debtor argues that the applicable
commitment period is a multiplier, used to determine the total amount that must be paid to unsecured
creditors during the plan, regardless of the plan’s duration.
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Section 1325(b)(1)(B) requires the plan to direct all of the debtor’s projected disposable
income to be received in the applicable commitment period to the payment of unsecured creditors.
“Applicable commitment period” is defined within § 1325 as follows:
For purposes of this subsection, the ‘applicable commitment period’–
(A) subject to paragraph (B), shall be–
(i) 3 years; or
(ii) not less than 5 years, if the current monthly income of the debtor and the
debtor’s spouse combined, when multiplied by 12, is not less than–
(I) in the case of a debtor in a household of 1 person, the median family
income of the applicable State for 1 earner . . . [.]
11 U.S.C. § 1325(b)(4). The court agrees with the debtor and many other courts and commentators
that have addressed this provision: the applicable commitment period is a multiplier, not a minimum
plan term. When an unsecured creditor objects to confirmation, the court may not approve the plan
unless it meets the requirements of either subparagraph (A) or subparagraph (B) of § 1325(b)(1).
Subparagraph (A) only applies if the objecting creditor’s claim will be paid in full under the plan.
To satisfy subparagraph (B), the debtor must multiply his annualized projected disposable income
by the time period indicated by the applicable commitment period – either the number three or the
number five, depending on whether the debtor’s income falls below or above the state median
income, respectively. Essentially, the applicable commitment period is a time period, but it does
not set a minimum plan duration. The chapter 13 plan term is of course governed by a separate Code
section, § 1322(d). The applicable commitment period may incidentally coincide with the plan term,
but a debtor who is able to fulfill his obligations to unsecured creditors under the plan in a term that
is shorter than the applicable commitment period is permitted to do so.
This issue recently came before the Bankruptcy Appellate Panel (“BAP”) for the Eighth
Circuit in In re Frederickson, in which the court held:
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6Judge Haines’ article contains an analysis of chapter 11 provisions similar to the chapter 13
provisions in question, suggesting that chapter 11 may be useful in addressing certain chapter 13
shortfalls. However, for the purposes of the present case, this court does not find it necessary to
draw such an analogy.
9
the definition of “applicable commitment period” in § 1325(b)(4) as five years for
an above-median debtor does not refer to a minimum plan duration. 	It refers,
instead, to the time during which the debtor must pay projected disposable income
to the Trustee for payment to unsecured creditors. Another statutory provision, §
1322(d), discusses the length of the plan related to above-median income debtors.
Section 1322(d) would be superfluous if § 1325(b)(4) set the length of the plan.
In re Frederickson, ___ B.R. ___, 2007 WL 2752769, at *5, (8th Cir. BAP Sept. 24, 2007). The
BAP cited a recent article in support of its position, in which Judge Randolph J. Haines discusses
the present issue, as well as other current chapter 13 issues. Judge Haines views the applicable
commitment period as a specified period of time, but not a minimum plan term. Referring to the
applicable commitment period, Judge Haines states:
To render 	“applicable commitment period” a minimum plan term requires
something more than it being a temporal concept. The decisions that find it also to
impose a minimum plan term generally fail to indicate why it carries any such
additional meaning. Also, it is not an easy matter to divine this additional meaning,
since the Code tells us precisely what it means - it means three years or five years,
nothing more or less. This definition found in § 1325(b)(4) says nothing about a
minimum plan duration. 	Also, here there is not even an additional word like
“projected” that could suggest to courts the term “applicable commitment period”
must mean something more than what it is defined to be: “3 years; or . . . not less
than 5 years.” 	When that number is multiplied by $/year, the result is a dollar
amount, not a temporal concept at all.
Randolph J. Haines, Chapter 11 May Resolve Some Chapter 13 Issues, 8 Norton Bankr. L. Adviser
1, 3 (Aug. 2007) (quoting 11 U.S.C. § 1325(b)(4)). 6 Further, if a debtor wants to pay into the plan
the total amount due to unsecured creditors in a time shorter than his applicable commitment period,
it seems inefficient and unnecessarily costly to require the debtor to stay in the plan longer than
necessary.
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In the present case, the debtor has no disposable income. 	It follows that his projected
disposable income is zero. As an above-median income debtor, his applicable commitment period
would be five years. However, because the debtor has no disposable income, the amount that must
be committed to pay unsecured creditors is zero (5 years x $0 = $0). The debtor’s plan term is
governed by § 1322(d)(1), which caps an above-median debtor’s plan length at five years. The
debtor’s thirty-six month plan term is less than five years and is therefore permitted under the Code.
V. Good Faith
At the hearing, the trustee argued that local debtors’ attorneys are disguising chapter 7 cases
as chapter 13 cases, with plans that primarily pay attorney’s fees and provide little return to
creditors. Because the trustee does not vary his commission depending on the plan filed, the trustee
argues that this practice has an onerous administrative impact on his office. Counsel for the debtor
contends that a plan is not filed in bad faith simply because it proposes to pay no more or no less
than what is required under the Bankruptcy Code. The court agrees that the plan was not filed in
bad faith. If the Code allows the case to be filed in a certain way, then the court cannot find that it
is bad faith to do what the Code allows. The trustee’s objection is overruled.
Accordingly, the court holds that (1) disposable income is determined by applying the means
test; (2) the debtor may deduct the IRS Local Standard allowing for housing ownership expenses;
and (3) the applicable commitment period is a multiplier used to determine the amount owed to
unsecured creditors under the plan. The creditor’s objection to confirmation of the plan is DENIED
and the debtor’s plan is confirmed.
SO ORDERED.
END OF DOCUMENT
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