In re Brooks

Case No. 14-2856
The Seventh Circuit affirmed the district court's order affirming confirmation of the debtor's chapter 13 plan, holding that as a general matter an above-median debtor may categorically exclude child support payments from the calculation of "disposible income" under section 1325(b)(2) of the Bankruptcy Code. The Seventh Circuit reasoned that: (1) a plain reading of 1325(b)(2) and the applicable Illinois domestic relations statute supports the categorical exclusion, as both relate to "reasonable and necessary" expenses for the support of the child; (2) the means test found in section 707(b)(2) and the related exclusion framework reflect Congress's policy of strongly protecting support payments in favor of intended beneficiaries; (3) the chapter 13 trustee's proposed case-by-case approach of evaluating whether child support payments are "reasonably necessary" for the support of the child would place an unworkable burden on bankruptcy courts to conduct evidentiary hearings of the type that Congress intended to eliminate through use of the means test; (4) in any event, child support orders are rarely sufficient to cover all childcare expenses, even with an above-median debtor, and this case is no exception; and (5) bankruptcy courts still retain the authority to scritinize the exclusion of child support payments in the extremely rare case in which such payments are so excessive in comparison to acceptable expenditures that they cannot be deemed to be "reasonably necessary" for the support of the child.
Procedural context:
The chapter 13 trustee appealed the district court's order affirming confirmation of the debtor's plan. The Seventh Circuit affirmed.
Before filing for bankruptcy, an Illinois divorce court awarded the debtor, Stephanie Brooks, monthly child support payments of $400. Thereafter, she filed a chapter 13 petition and calculated her "disposable income" on Official Form 22C by (i) adding the child support payments to her regular monthly wages, (ii) taking the applicable standardized deduction for living expenses (e.g. food, apparel, and services) for a household of three, (iii) taking a further deduction for the monthly child care support payments, and (iv) taking a further deduction for day care expenses. These calculations led to a negative "disposable income," and the debtor filed a chapter 13 plan that called for de minimis monthly payments for 60 months, resulting in a 0% distribution to general unsecured creditors. The chapter 13 trustee objected to the plan, arguing that the debtor improperly took duplicate, overlapping deductions (i.e. the standardized deduction for household living expenses, plus the deduction for child support payments that he argued were largely designed to cover similar-type expenses). The bankruptcy court overruled the objection and confirmed the debtor's chapter 13 plan, and the district court affirmed the order on appeal. The Seventh Circuit also affirmed.
Bauer, Flaum, Williams

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