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Pliler v. Stearns (In re Pliler)

Pliler v. Stearns (In re Pliler), Case No. 13-1445 (4th Cir. Mar. 28, 2014)
In a published opinion, the Fourth Circuit affirmed the bankruptcy court holding that above-median debtors are obligated to maintain chapter 13 plans for 5 years where unsecured creditors are not paid in full, even if the debtors have negative disposable income. The Fourth Circuit first found that the applicable commitment period under § 1325(b) is a temporal requirement, which dovetails with the 2005 BAPCPA amendments that debtors devote their full disposable income to repaying creditors. The court next disregarded the debtors' argument that, due to the phrasing of § 1325(b)(1) linking projected disposable income to applicable commitment period, their negative disposable income cancels out any plan length requirement. The Fourth Circuit concluded that the plain meaning of § 1325(b) requires a definite plan length, emphasizing that the debtors' disposable income could increase over the length of a 5-year plan and that creditors should benefit from any such increase. Although the debtors argued that "applicable commitment period" only exists within the confines of § 1325(b)(1)(B) to support their argument that the terms are linked, the court noted that § 1329 also relied on the applicable commitment period for purposes of plan modification. Finally, the Fourth Circuit found that the bankruptcy court did not err in looking beyond Form 22C to determine the debtors' projected disposable income. Although the Fourth Circuit found problematic the bankruptcy court's abandonment of the Bankruptcy Code's disposable income formula in favor of Schedules I and J, it ultimately concluded that the debtors themselves provided sufficient evidence of projected disposable income when they proposed a chapter 13 plan with monthly payments of more than $1,700 for the first 15 months. The Fourth Circuit remanded the case, however, because the bankruptcy court's order had arisen from a joint hearing and the debtors must be provided a chance to present evidence, including on feasibility.
Procedural context:
The debtors sought permission for an interlocutory appeal to the district court of the order directing the Trustee to file the confirmation order without the early termination language. The Trustee requested certification of a direct appeal on the issue arising from the debtors' above-median status, § 1325, and the early termination language. The bankruptcy court certified a direct appeal on three issues: (1) whether projected disposable income under § 1325(b) is "forward looking"; (2) whether the applicable commitment period is a temporal requirement; and (3) whether a plan with early termination language that pays only priority and secured claims is proposed in good faith under § 1325.
The chapter 13 debtors had above-median household income but also calculated negative disposable income. They proposed a chapter 13 plan with early termination language such that the plan would conclude after 55 months, resulting in payment in full of allowed priority claims and allowed secured claims (to the extent dealt with by the plan) but nothing to unsecured creditors. The Trustee objected to the plan under 11 U.S.C. § 1325 and filed a motion to dismiss for failure to file a plan in good faith and failure to pay a sufficient amount under § 1325(b) during the applicable commitment period. The motion was argued in a joint hearing in conjunction with other similar motions pending in the district. The bankruptcy court denied the Trustee's objection and motion, but directed the Trustee to file a motion for confirmation of the plan with the same monthly payment and without the early termination language. This resulted in an 84% dividend to unsecured creditors. The bankruptcy court held that the "applicable commitment period" of §§ 1325(b)(1) and (b)(4) is a temporal requirement mandating that above-median income debtors commit to a 60-month plan (or commit to paying 100% to unsecured creditors) regardless of their projected disposable income. The bankruptcy court also found that projected disposable income for purposes of § 1325(b) uses a "forward-looking approached" as opposed to the calculation of disposable income on Form B22C.
Duncan, Wynn, and Thacker (Opinion written by Wynn)

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