Hamilton v. Lanning (In Re Lanning)

FILED
United States Court of Appeals
Tenth Circuit

November 13, 2008
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

In re: STEPHANIE KAY LANNING,

Debtor,

------------------------------ No. 08-3009

JAN HAMILTON, Chapter 13 Trustee,

Appellant,

v.

STEPHANIE KAY LANNING,

Appellee,

------------------------------

UNITED STATES OF AMERICA;
UNITED STATES TRUSTEE,

Amici Curiae.

APPEAL FROM THE UNITED STATES BANKRUPTCY APPELLATE
PANEL OF THE TENTH CIRCUIT
(BAP No. KS-07-067)
(Bankr. No. 06-41037)

Submitted on the briefs: *

*
After examining the briefs and appellate record, this panel has determined
(continued...)
Teresa L. Rhodd, Jan Hamilton, Chapter 13 Trustee’s Office, Topeka, Kansas,
for Appellant.

Jeffrey S. Bucholtz, Acting Assistant Attorney General, William Kanter, Edward
Himmelfarb, Appellate Staff, Civil Division, Department of Justice, Washington,
D.C., Roberta A. Deangelis, Acting General Counsel, P. Matthew Sutko,
Associate General Counsel, Executive Office for United States Trustees,
Department of Justice, Washington, D.C., Counsel for Amici Curiae.

Before MURPHY, Circuit Judge, BRORBY, Senior Circuit Judge, and
TYMKOVICH, Circuit Judge.

BRORBY, Senior Circuit Judge.

This bankruptcy appeal presents a question of first impression in this

circuit: What is the proper way to calculate the “projected disposable income” of

an above-median Chapter 13 debtor under amendments to the bankruptcy code

effected by the Bankruptcy Abuse Prevention and Consumer Protection Act of

2005, Pub. L. No. 109-8, 119 Stat. 23 (BAPCPA)? In this case, the United States

Bankruptcy Court for the District of Kansas adopted the “forward-looking

approach,” which is the method adopted by the majority of bankruptcy courts and

bankruptcy appellate panels (BAPs) that have considered the question. Under that

approach, a Chapter 13 debtor’s six-month, pre-petition “disposable income” (as

*
(...continued)
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.

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defined by statute) is presumed to be the debtor’s “projected disposable income”

for purposes of establishing the monthly sum that the debtor must commit to

repayment of unsecured creditors in order to advance a confirmable payment plan

and overcome objections to it. The forward-looking approach permits the amount

of projected disposable income to be rebutted upon a showing of special

circumstances at the time of plan confirmation.

In the course of its analysis, the bankruptcy court rejected a different

method, the “mechanical approach,” which equates a Chapter 13 debtor’s

projected disposable income with the statutorily defined “disposable income” and

then “projects” that amount over the length of the applicable commitment period.

It does not permit adjustment to projected disposable income to account for

special circumstances at the time of plan confirmation.

In affirming the bankruptcy court’s decision, the Tenth Circuit BAP also

adopted the forward-looking approach and its rebuttable presumption. See In re

Lanning, 380 B.R. 17 (10th Cir. B.A.P. 2007). For the reasons discussed below,

we also adopt the “forward-looking approach.” Exercising our jurisdiction under

28 U.S.C. §§ 158(d)(1) and 1291, we affirm the BAP’s decision.

I. Factual Background

The parties stipulated to the relevant facts. The debtor, Stephanie Kay

Lanning, is a single woman with no children and a Kansas resident. She filed a

Chapter 13 petition on October 16, 2006, to address $36,793.36 in unsecured

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debt. Her annual gross income was $43,147 in 2004, and $56,516 in 2005.

During the six-month period before filing her petition, Ms. Lanning took a buyout

from her employer, Payless, that increased her monthly gross income to

$11,990.03 in April 2006 and $15,356.42 in May 2006.

As part of her petition, Ms. Lanning filed Schedule I (“Current Income of

Individual Debtor(s)”), which showed a monthly net income of $1,922 ($23,604

annually), apparently reflecting actual income from a job she started after leaving

Payless. App. at 31. She also filed Schedule J (“Current Expenditures of

Individual Debtor(s)”), which showed actual monthly expenses of $1,772.97 and,

consequently, excess monthly income of $149.03. Id. at 32. In addition,

Ms. Lanning completed Form B22C (now denominated Form 22C), “Statement of

Current Monthly Income and Disposable Income Calculation.” Id. at 40-43.

Form B22C first requires a debtor to calculate “current monthly income” as an

average of income for the six calendar months immediately preceding the month

in which the petition is filed. Id. at 40. Under this formula, Ms. Lanning’s

“current monthly income” was $5,343.70, which included the buyout from

Payless. When that figure was annualized, her income ($64,124.34) was greater

than the median income for a family of one in Kansas ($36,631.00), so she was

required to complete the remainder of Form B22C, on which most expenses and

other deductions are calculated by reference to standard sums issued by the

Internal Revenue Service (National and Local IRS Standards). Id. at 41-43.

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According to her Form B22C, Ms. Lanning’s total monthly expenses were

$4,228.71, leaving her with “Monthly Disposable Income Under [11 U.S.C.]

§ 1325(b)(2)” of $1,114.98. Id. at 43.

Based on the excess monthly income of $149 shown on Schedule J,

Ms. Lanning proposed a repayment plan of $144 per month for thirty-six months

($5,184) as satisfaction of the $36,793.36 in unsecured debt. She moved the

bankruptcy court to determine that 11 U.S.C. § 1325(b)(1)(B) did not require her

to commit the $1,114.98 in monthly disposable income calculated on Form B22C

(which included her buyout) to repayment of the unsecured creditors.

Section 1325(b)(1)(B) is the primary statute involved in this case, and when, as

here, a Chapter 13 debtor proposes a plan that contemplates less than full

repayment of all allowed unsecured claims and there is an objection, that section

conditions plan confirmation as follows:

(b)(1) 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--

...

(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.

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11 U.S.C. § 1325(b)(1)(B) (emphasis added). 1

Although none of the unsecured creditors objected to the proposed plan, the

Chapter 13 Trustee did, arguing that § 1325(b)(1)(B) provides a rigid formula for

determining projected disposable income that is based on a debtor’s historical

monthly income as calculated on Form B22C. The Trustee proposed that a

monthly payment of $756 (less than Ms. Lanning’s Form B22C “monthly

disposable income” of $1,114.98) for sixty months would repay the unsecured

creditors in full, despite acknowledging that Ms. Lanning did not have the means

to fund such a plan.

II. The Bankruptcy Court’s Decision

The bankruptcy court rejected the mechanical approach that the Trustee

advocated. The court noted that the term “projected disposable income” is not

defined in § 1325(b)(1)(B), but that § 1325(b)(2), as amended by the BAPCPA,

defines “disposable income”:

(2) For purposes of this subsection, the term “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 made in accordance with applicable
nonbankruptcy law to the extent reasonably necessary to be expended
for such 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

1
All statutory citations are to the current, post-BAPCPA versions unless
otherwise noted.

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 obligation, that first becomes payable after the date the
petition is filed; and

(ii) for charitable contributions (that meet the definition
of “charitable contribution” under section 548(d)(3) to a
qualified religious or charitable entity or organization
(as defined in section 548(d)(4)) in an amount not to
exceed 15 percent of gross income of the debtor for the
year in which the contributions are made; and

(B) if the debtor is engaged in business, for the payment
of expenditures necessary for the continuation,
preservation, and operation of such business.

11 U.S.C. § 1325(b)(2) (emphasis added).

In turn, the bankruptcy court looked to the statutory definition of “current

monthly income” that Congress added with the BAPCPA. In relevant part,

“current monthly income”

(A) means the average monthly income from all sources that the
debtor receives . . . without regard to whether such income is taxable
income, derived during the 6-month period ending on--

(i) the last day of the calendar month immediately
preceding the date of the commencement of the case if
the debtor files the schedule of current income required
by section 521(a)(1)(B)(ii) [i.e., Schedule I][.]

Id. § 101(10A)(A)(i). The court also found relevant a new clause added to

§ 1325(b) by the BAPCPA that, for above-median debtors, requires the use of the

standardized expenses and deductions calculated on Form B22C as the “[a]mounts

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reasonably necessary to be expended” under § 1325(b)(2) (with the exception of

charitable contributions under (b)(2)(A)(ii)). Id. § 1325(b)(3). 2

In light of these statutory provisions, the bankruptcy court presumed that

the “monthly disposable income” reflected on Form B22C constituted “projected

disposable income” under § 1325(b)(1)(B), subject to a showing “that there has

been a substantial change in circumstances such that the numbers contained in

Form B22C are not commensurate with a fair projection of the debtor’s budget in

the future.” App. at 126 (quotation omitted). The court observed that the words

“projected” and “to be received” in § 1325(b)(1)(B) would be superfluous if a

debtor’s historical average income was the only consideration. Id. at 123. The

court also placed significance on Schedule I’s mandate that a debtor provide an

“‘[e]stimate of average or projected monthly income at time case filed,’” an

estimate of “‘monthly overtime,’” and a description of “‘any increase or decrease

in income reasonably anticipated to occur within the year following the filing of

2
Section 1325(b)(3) does not refer to Form B22C, but it does provide that
expenses for above-median debtors must be calculated in accordance with
11 U.S.C. § 707(b)(2)(A) & (B), commonly referred to as the “means test,” which
is used for determining whether a debtor is abusing the Chapter 7 process. The
means test requires the use of National and Local IRS Standards in determining
expenses and deductions, and “current monthly income” to determine income.
The Judicial Conference of the United States created Form B22C, see
Fed. R. Bankr. P. 9009 (Official Forms are those “prescribed by the Judicial
Conference”), and since passage of the BAPCPA, above-median Chapter 13
debtors use that form (now Form 22C) to determine income and expenses
according to the means test, see In re Skvorecz, 369 B.R. 638, 642
(Bankr. D. Colo. 2007).

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[Schedule I].’” Id. at 123-24 (quoting Schedule I). 3 The court reasoned that

“Schedule I tries to capture what income debtors actually will have to fund a

plan.” Id. at 124. The court also noted that the prefatory portion of § 1325(b)(1)

requires the determination of “projected disposable income” to be made “‘as of

the effective date of the plan.’” Id. (quoting 11 U.S.C. § 1325(b)(1)). As to each

of these observations, the court pointed out that “Schedule I assists courts in

determining whether the plan is properly committing all this income, and clearly

calls for the Court to consider income to be received during the life of the plan.”

Id.

Finally, the bankruptcy court reasoned that the mechanical approach “leads

to absurd results that are at odds with both congressional purpose and common

sense.” Id. Specifically, where a debtor’s income at the time of confirmation has

dropped significantly from the six-month pre-petition average (i.e., the current

monthly income calculated on Form B22C), the court observed that the debtor

would be unable to file a feasible and confirmable plan under the mechanical

approach. Id. This would deny Chapter 13 protection to those most in need of

bankruptcy protection—debtors whose “financial situation has significantly

deteriorated over the six months prior to filing.” Id. at 125. The court further

3
The copy of Ms. Lanning’s Schedule I in the appendix appears to be a
truncated version (or possibly an earlier version) of Schedule I. See App. at 31.
The currently available form contains in full the language quoted by the
bankruptcy court.

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noted that even when, at the time of plan confirmation, a debtor has more

disposable income than indicated by Form B22C, the mechanical approach would

require confirmation of a plan over objection even though the debtor would not be

paying all that she was able to pay to unsecured creditors. Id. at 126.

Applying its interpretation of § 1325(b)(1)(B), the bankruptcy court

determined that the monthly disposable income shown on Ms. Lanning’s

Form B22C ($1,114.98) was not controlling. Instead, the court used her

Schedule I income ($1,922) and then subtracted her Form B22C expenses

($4,228), which yielded a negative number. The court stated, however, that if

Ms. Lanning were to pay nothing to the unsecured creditors, she could not

formulate a feasible plan that meets the requirements of § 1325(a), which, among

other things, requires a showing that “the debtor will be able to make all

payments under the plan and to comply with the plan,” 11 U.S.C. § 1325(a)(6).

The court then concluded that “[n]othing prevents debtors from electing to pay

more than the statutory means test requires, in order to meet the requirement that

a plan must be feasible.” App. at 131. Accordingly, the court agreed to confirm

Ms. Lanning’s $144-per-month plan provided that it continued for sixty months

rather than thirty-six months. 4

4
The ruling on the relevant duration of the commitment period is not at issue
in this appeal. Also not at issue is the bankruptcy court’s holding that
Ms. Lanning’s Form B22C expenses were the relevant expenses for purposes of
arriving at her “projected disposable income,” even though those expenses were
(continued...)

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 III. The BAP Decision

The Trustee appealed to the BAP, which affirmed, holding that if “it is

shown that Form B22C disposable income fails accurately to predict a debtor’s

actual ability to fund a plan, that figure may be subject to modification.” In re

Lanning, 380 B.R. at 25. The BAP discussed the judicial camps of thought on the

issue, then pointed out that the BAPCPA added a definition of “disposable

income” but left unchanged the term “projected disposable income,” which had an

established meaning under pre-BAPCPA law—essentially Schedule I income

minus Schedule J expenses, subject to adjustment if there was reason to believe

that those schedules did not accurately predict a debtor’s actual ability to pay.

The BAP concluded that although the BAPCPA amendments “specify the formula

by which to determine a debtor’s median standing, as well as the monthly

disposable income as of the date of the petition, they give us no reason to believe

that Congress intended to eliminate the bankruptcy courts’ discretion to deviate

from an application of that formula where significant circumstances support doing

so.” Id. at 24; see also id. n.23 (quoting Cohen v. de la Cruz, 523 U.S. 213, 221

(1998), for the proposition that “the Bankruptcy Code should not be read ‘to

erode past bankruptcy practice absent a clear indication that Congress intended

such a departure’” (further quotation omitted)). The BAP adopted a rebuttable

4
(...continued)
greater than her actual, Schedule J expenses.

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presumption that the Form B22C figures were correct subject to a showing of “a

substantial change in circumstances” by way of documentation similar to that

required by Chapter 7 debtors under the means test. In re Lanning, 380 B.R.

at 25. The BAP “emphasize[d] that deviation from the Form B22C determination

of disposable income will be the exception rather than the rule.” Id.

Unsuccessful before the BAP, the Trustee filed the present appeal.

Ms. Lanning has not participated in this appeal (and she did not participate in the

appeal to the BAP), but the United States and the United States Trustee have filed

a combined amicus brief opposing the Trustee’s position (as they did before the

BAP).

IV. Standard of Review

“On appeal from BAP decisions, we independently review the bankruptcy

court’s decision.” Lampe v. Williamson (In re Lampe), 331 F.3d 750, 753

(10th Cir. 2003). The issue in this case is one of statutory interpretation, which is

reviewed de novo. See Office of Thrift Supervision v. Overland Park Fin. Corp.

(In re Overland Park Fin. Corp.), 236 F.3d 1246, 1251 (10th Cir. 2001).

V. BAPCPA Amendments and Interpretive Judicial Decisions

The issue to be resolved is whether the “projected disposable income”

referred to in § 1325(b)(1)(B) is calculated by mechanical application of the

definitions of “disposable income” and “current monthly income” set forth in

§§ 1325(b)(2) and 101(10A)(A)(i), respectively, or whether it is permissible to

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adjust the “monthly disposable income” calculated on Form B22C to account for a

debtor’s actual ability to fund a plan as of the effective date of the plan. “It is

well established that when [a] statute’s language is plain, the sole function of the

courts—at least where the disposition required by the text is not absurd—is to

enforce it according to its terms.” Lamie v. U.S. Trustee, 540 U.S. 526, 534

(2004) (quotation omitted). Here, the statutory language may be plain, but it is

unclear in its meaning. Thus, before turning to an analysis of the statutory

language, we briefly will review the relevant changes Congress made (and did not

make) when it enacted the BAPCPA, and then consider a number of judicial

decisions representative of the two methods used to calculate “projected

disposable income.”

A. BAPCPA Amendments

In passing the BAPCPA, Congress left § 1325(b)(1)(B) substantially

unchanged (for present purposes), the only differences being that the

pre-BAPCPA version (1) referred to a “three-year period” rather than the

“applicable commitment period” as the relevant time period over which the

debtor’s plan must apply “projected disposable income” to plan payments (now

three years for below-median debtors and five years for above-median debtors);

and (2) required all such “projected disposable income” to be “applied to make

payments under the plan,” 11 U.S.C. § 1325(b)(1)(B) (2000), rather than, more

narrowly now, to make payments to the unsecured creditors. Thus, the relevant

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language of § 1325(b)(1)(B) is substantially the same now as it was before

passage of the BAPCPA, i.e., that all “projected disposable income to be received

in the applicable commitment period . . . will be applied to make payments.” As

the BAP pointed out, the pre-BAPCPA language meant that “projected disposable

income” was the difference between a debtor’s Schedule I income and her

Schedule J expenses, subject to adjustment by the court if there was reason to

believe that those schedules “did not accurately predict a debtor’s actual ability to

pay.” In re Lanning, 380 B.R. at 24; see also In re Nahat, 315 B.R. 368, 378-79

(Bankr. N.D. Tex. 2004).

Next, prior to passage of the BAPCPA, “disposable income” was defined as

“income which is received by the debtor and which is not reasonably necessary to

be expended” for the debtor’s maintenance, support, charitable contributions, and

business expenses. 11 U.S.C. § 1325(b)(2)(A) (2000). With the BAPCPA,

Congress changed the definition of “disposable income” by tying it to a new term,

“current monthly income,” 11 U.S.C. § 1325(b)(2), and adding the definition of

“current monthly income” that in relevant part, as noted above, looks at the

debtor’s six-month pre-petition income, id. § 101(10A)(A)(i). Finally, the

BAPCPA added a new clause to § 1325(b) that, for above-median debtors,

requires the use of the standardized expenses and deductions calculated on

Form B22C as the “[a]mounts reasonably necessary to be expended” under

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§ 1325(b)(2) (with the exception of charitable contributions under (b)(2)(A)(ii)).

See id. § 1325(b)(3).

With this understanding of the relevant changes to the BAPCPA, we now

turn to judicial decisions representative of the two interpretations of

post-BAPCPA § 1325(b)(1)(B).

B. Courts adopting the “forward-looking approach”

The first court to address the issue appears to be In re Hardacre, 338 B.R.

718 (Bankr. N.D. Tex. 2006). 5 In Hardacre, the court expressed concern about

the consequences when “current monthly income” derived from Form B22C is

used as the sole determinant of the “income” side of the “projected disposable

income” calculation. Id. at 722. The court reasoned that a debtor expecting a

significant increase in future income would file as quickly as possible, resulting

in the commitment of less money to repay unsecured creditors than the debtor

would actually be capable of paying during the commitment period. Id.

Conversely, the court observed that a debtor who experiences a decrease in

income after filing might not be able to confirm a plan because she would be

unable to commit the amount of disposable income calculated on Form B22C. Id.

The Hardacre court offered three justifications in support of its conclusion

that “‘projected disposable income’ must be based upon the debtor’s anticipated

5
Although the discussion in Hardacre is judicial dicta, we find the analysis
enlightening and persuasive.

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income during the term of the plan, not merely an average of her prepetition

income.” Id. First, noting the rule of statutory construction that requires a court

“to presume that ‘Congress acts intentionally when it includes particular language

in one section of a statute but omits it in another,’” the court reasoned that

“Congress must have intended ‘projected disposable income’ to be different than

‘disposable income’” when it chose to define only the latter term. Id. at 723

(quoting BFP v. Resolution Trust Corp., 511 U.S. 531, 537 (1994)). Second, the

court viewed the phrase “to be received” in § 1325(b)(1)(B) as an expression of

congressional intent “to refer to the income actually to be received by the debtor

during the commitment period, rather than the prepetition average income”; an

alternative interpretation, the court said, would render “to be received”

superfluous. Id. And third, the court considered § 1325(b)(1)’s prefatory

language—“as of the effective date of the plan”— to be an indication that

“‘projected disposable income’ . . . refers to income that a debtor reasonably

expects to receive during the term of her plan.” Id.

A number of other courts, including one circuit court recently, have applied

Hardacre’s reasoning in adopting the forward-looking approach. See, e.g., Coop

v. Frederickson (In re Frederickson), No. 07-3391, ___ F.3d ___, 2008 WL

4693132 (8th Cir. Oct. 27, 2008); Hildebrand v. Petro (In re Petro), No. 08-8009,

___ B.R. ___, 2008 WL 4601471 (6th Cir. B.A.P. Oct. 17, 2008); Kibbe v. Sumski

(In re Kibbe), 361 B.R. 302 (1st Cir. B.A.P. 2007) (per curiam); In re Watson,

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366 B.R. 523 (Bankr. D. Md. 2007); In re Pak, 357 B.R. 549 (Bankr. N.D. Cal.

2006), aff’d, 378 B.R. 257 (9th Cir. B.A.P. 2007), abrogated by Maney v.

Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. 2008); In re Grady, 343

B.R. 747 (Bankr. N.D. Ga. 2006); and In re Jass, 340 B.R. 411 (Bankr. D. Utah

2006). Most courts applying this approach view Form B22C as presumptively

correct regarding income. 6

C. Courts adopting the mechanical approach

To date, only one circuit court (other than a BAP) has adopted the

mechanical approach. See Maney v. Kagenveama (In re Kagenveama), 541 F.3d

868 (9th Cir. 2008). There the court reasoned:

The substitution of any data not covered by the § 1325(b)(2)
definition in the “projected disposable income” calculation would
render as surplusage the definition of “disposable income” found in
§ 1325(b)(2). There can be no reason for § 1325(b)(2) to exist other
than to define the term “disposable income” as used in
§ 1325(b)(1)(B). “If ‘disposable income’ is not linked to ‘projected
disposable income’ then it is just a floating definition with
no apparent purpose.” In re Alexander, 344 B.R. 742, 749
(Bankr. E.D.N.C. 2006). The plain meaning of the word “projected,”
in and of itself, does not provide a basis for including other data
in the calculation because “projected” is simply a modifier of the
defined term “disposable income.” Therefore, to give meaning to
every word of § 1325(b), “disposable income,” as defined in
§ 1325(b)(2), must be “projected” in order to derive “projected
disposable income.”

6
At least one court has disregarded Form B22C and looked instead to the
debtor’s Schedule I. See In re Demonica, 345 B.R. 895, 900 (Bankr. N.D. Ill.
2006).

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Id. at 872-73. Regarding the pre-BAPCPA treatment of “projected disposable

income,” the court concluded that

[a]ny change in how “projected disposable income” is calculated
only reflects the changes dictated by the new “disposable income”
calculation; it does not change the relationship of “projected
disposable income” to “disposable income.” Pre-BAPCPA,
“projected disposable income” was determined by taking the debtor’s
“disposable income,” under § 1325(b)(2)(A) & (B), and projecting
that amount over the “applicable commitment period.”

Id. at 873 (footnote omitted). The court refused to “read the word ‘projected’ to

be synonymous with the word ‘anticipated’ in this context.” Id. at 874.

In addition to Kagenveama, a number of bankruptcy courts have adopted

the mechanical approach. See, e.g., In re Austin, 372 B.R. 668 (Bankr. D. Vt.

2007); In re Kolb, 366 B.R. 802 (Bankr. S.D. Ohio 2007); In re Hanks, 362 B.R.

494 (Bankr. D. Utah 2007); In re Miller, 361 B.R. 224 (Bankr. N.D. Ala. 2007);

In re Tranmer, 355 B.R. 234 (Bankr. D. Mont. 2006); In re Alexander, 344 B.R.

742 (Bankr. E.D.N.C. 2006); and In re Barr, 341 B.R. 181, 185 (Bankr. M.D.N.C.

2006). Three of these cases, In re Alexander, In re Hanks, and In re Austin,

discuss matters of particular note.

In In re Alexander, the court observed that Congress elected to adopt the

redefinition of “disposable income” in § 1325(b)(2) as written despite the

warnings of Chapter 13 trustees that strict use of the Form B22C formula would

lead to an anomalous result in some cases, namely, that some above-median

debtors would pay less than they would prior to BAPCPA. 344 B.R. at 747. The

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trustees apparently asked that deducting expenses from “current monthly income”

result in a minimum—not a maximum—for repayment to unsecured creditors.

See id. The Alexander court reasoned that the legislature’s nonresponse to this

concern supported a presumption of legislative awareness and intent regarding the

consequences of the language with respect to making debtors pay what they can

and preventing abuse. Id. at 748.

In the second case of note, In re Hanks, the court followed In re Alexander,

concluding that under the BAPCPA, the “new function” of the word “projected”

in § 1325(b)(1)(B) “is solely to multiply the net ‘disposable income’ figure as

calculated on Form B22C by the applicable commitment period. No more, no

less.” 362 B.R. at 499. Hanks viewed the interpretation given to the statute by

the majority line of cases to mean that post-BAPCPA, nothing had changed with

regard to the calculation of “projected disposable income.” Id. Alternately, the

court opined that the word “projected” could be deleted as surplusage because it

is repugnant to the rest of the BAPCPA. Id.

Hanks also rejected policy arguments the majority camp has relied on, such

as affording bankruptcy protection and a fresh start to debtors who voluntarily

and in good faith seek to repay creditors with money they have on hand. Id.

at 500. The court pointed to competing policies that might have informed

Congress’s choice of language:

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 It is not at all clear that Congress did not actually intend to
keep people out of bankruptcy altogether if possible or perhaps to
push them into individual chapter 11 cases, nor is it clear that a
“fresh start” is still the overriding policy of the portions of the
Bankruptcy Code at issue in this case. Perhaps the concept of
current monthly income is an expression of Congress’ intent that
debtors should attempt to resolve their financial difficulties outside
of bankruptcy for a period of time before filing. Indeed, this view
would jibe with the new prepetition briefing requirement in
[11 U.S.C.] § 109(h)(1) that contemplates meaningful credit
counseling and the performance of budget analyses within six months
of filing as well as the requirement in [11 U.S.C.] § 521(b)(2) that
the debtor file a copy of any debt repayment plan developed during
the prepetition counseling session.

In re Hanks, 362 B.R. at 500. The court found “statements such as the one in the

Purpose and Summary section of the BAPCPA House Report expressing the view

that the means testing mechanism ‘is intended to ensure that debtors repay

creditors the maximum they can afford[,]’ H.R. 109-031, Part I, Bankruptcy

Abuse Prevention and Consumer Protection Act of 2005,” to be “insufficient to

overcome both the plain language of the statute and the statements’ apparent

conflict with other policies at play in the BAPCPA.” Id. at 500 n.23.

The Chapter 13 Trustee quotes at length from the third case of note, In re

Austin, where the debtors’ Form B22C “monthly disposable income” was negative

but their I-minus-J calculation left some excess income. The relevant point made

in Austin is that, in the BAPCPA,

Congress declared that the historical income data from the six
months prior to the filing of the bankruptcy petition is a more
reliable indicator of a debtor’s future financial situation than the
income on the day the debtor filed for bankruptcy relief, and has

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 directed courts to adjust their starting point for analyzing Chapter 13
plans accordingly.

372 B.R. at 679. If this statement is accurate, then an obvious problem arises in

cases like Ms. Lanning’s, where the factual circumstances differ: despite the

view under Austin that Ms. Lanning’s pre-petition income is a more reliable

indicator of her future financial situation, and hence would lead one to believe

that she would be capable of paying her Form B22C disposable income to

unsecured creditors, she cannot get her plan confirmed because she cannot show

that she “will be able to make all payments under the plan and to comply with the

plan,” as required for confirmation by 11 U.S.C. § 1325(a)(6).

VI. Analysis

As is evident from the foregoing discussion, each interpretation of the

statutory language is not without problems. The difficulty with the

forward-looking approach is that it renders the new definition of “disposable

income,” with its link to historic “current monthly income,” nearly meaningless

unless one reads a presumption into the statute—that the defined term “disposable

income” is just the starting point—which can be rebutted by showing a substantial

change in circumstances bearing on how much the debtor realistically can commit

to repayment of unsecured creditors as of the effective date of the plan. This was

the solution reached in the present case. It is compatible with the statutory

language of § 1325(b)(1)(B), the new definition of disposable income, and the use

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of the means test to standardize an above-median Chapter 13 debtor’s expenses,

but requires a certain disregard of the notion that Congress knows how to create a

presumption when it intends one, see In re Kagenveama, 541 F.3d at 874.

The main problem with the analysis in decisions adopting the mechanical

approach is that little heed is given to three statutory phrases: “as of the effective

date of the plan,” 11 U.S.C. § 1325(b); “to be received in the applicable

commitment period,” id. § 1325(b)(1)(B); and “will be applied to make

payments,” id. “[A] cardinal principle of statutory construction [is] that a statute

ought, upon the whole, to be so construed that, if it can be prevented, no clause,

sentence, or word shall be superfluous, void, or insignificant.” TRW Inc. v.

Andrews, 534 U.S. 19, 31 (2001) (quotation omitted). We think that these textual

problems, discussed below, outweigh the concern about implying a presumption.

Under § 1325(b)(1)(B), a bankruptcy court may not approve a Chapter 13

plan over objection unless “as of the effective date of the plan” 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.” (Emphasis added.) The first emphasized phrase, “as of the

effective date of the plan,” indicates that the court should determine, at that time,

whether the plan meets the remaining requirements of subparagraph (b)(1)(B).

The term “effective date” is not defined in the Bankruptcy Code, but for purposes

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of § 1325(b)(1), “the most logical interpretation . . . is the date of plan

confirmation, as a chapter 13 plan is not binding on the debtor and other

interested parties until it is confirmed.” In re Pak, 378 B.R. at 265 (relying on

11 U.S.C. § 1327(a)), abrogated on other grounds by In re Kagenveama, 541 F.3d

868. The date of plan confirmation is practically certain to be later than the date

on which the petition is filed, and it is the filing date that starts the

backward-looking assessment of “current monthly income.” Thus, determining

whether or not a debtor has committed all projected disposable income to

repayment of the unsecured creditors “as of the effective date of the plan”

suggests consideration of the debtor’s actual financial circumstances as of the

effective date of the plan.

In turn, the remaining statutory requirements are subject to conflicting

interpretations. As viewed by mechanical-approach courts, “projected” could

mean that a plan simply must project the Form B22C disposable income over the

applicable commitment period to determine the amount that “will be applied to

make payments” to the unsecured creditors. See, e.g., In re Kagenveama,

541 F.3d at 872-73; In re Hanks, 362 B.R. at 499. Alternately, under the

forward-looking approach, “projected” links “disposable income” and “to be

received in the applicable commitment period,” requiring the debtor to commit all

“disposable income” (as defined by § 1325(b)(2) and its reliance on the definition

of “current monthly income”) that is “projected . . . to be received in the

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applicable commitment period.” Under this reading, the debtor’s actual

circumstances at the time of plan confirmation are taken into account in order to

“project” (in other words, to “forecast”) how much income the debtor will

actually receive during the commitment period, which, after deducting permitted

expenses, then “will be applied to make payments” to the unsecured creditors, as

the statute requires.

The second reading, i.e., the forward-looking approach, strikes us as the

better one. As the Hardacre court said, Congress defined “disposable income,”

not “projected disposable income,” meaning that “Congress must have intended

‘projected disposable income’ to be different than ‘disposable income’” when it

chose to define only the latter term for purposes of § 1325(b). In re Hardacre,

338 B.R. at 723. Unlike the Ninth Circuit in Kagenveama, we do not think the

forward-looking approach leaves the definition of “disposable income” floating

with no apparent purpose. Through its reliance on the statutory definition of

“current monthly income,” the definition of “disposable income” serves to

“describe[] the sources of revenue that constitute income, as well as those that do

not.” In re Hardacre, 338 B.R. at 723.

Also, the forward-looking approach gives effect to the phrase “to be

received in the applicable commitment period,” which otherwise would be

rendered superfluous. Under the mechanical approach, the amount “to be

received in the applicable commitment period” would be a fiction if, as of the

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effective date of the plan, the debtor had no realistic expectation of earning

enough to produce the amount of “disposable income” calculated on Form B22C.

Furthermore, such a debtor could not get the plan confirmed due to infeasibility.

See id. § 1325(a)(6). This undermines the importance given to historical income

as a “better” predictor of “projected disposable income” in In re Austin, 372 B.R.

at 679. 7

In addition, language used on Form B22C supports the forward-looking

approach. Part VI of Form B22C is titled “Determination of Disposable Income

Under § 1325(b)(2).” App. at 43. Similarly, the last line in Part VI of the form is

termed “Monthly Disposable Income Under § 1325(b)(2).” Id. Although the

form is subservient to the statute, see In re Pak, 378 B.R. at 271 (concurring

opinion), abrogated on other grounds by In re Kagenveama, 541 F.3d 868, the

7
As the Trustee points out, the definition of “disposable income” is also
used in a Chapter 11 provision added by the BAPCPA that permits confirmation
of a plan over the objection of an unsecured creditor only if “the value of the
property to be distributed under the plan is not less than the projected disposable
income of the debtor (as defined in section 1325(b)(2)) to be received during the
5-year period beginning on the date that the first payment is due under the plan,
or during the period for which the plan provides payments, whichever is longer.”
11 U.S.C. § 1129(a)(15)(B) (emphasis added). But § 1129(a)(15)(B) also uses the
phrase “to be received,” suggesting a forward-looking, realistic assessment of the
debtor’s anticipated income during the commitment period, and only the term
“disposable income” is defined in § 1325(b)(2), not “projected disposable
income.” Thus, reference to § 1129(a)(15)(B) offers little support for the
Trustee’s interpretation of § 1325(b)(1)(B).

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absence of the word “projected” and any reference to the phrase “projected

disposable income” are consistent with the forward-looking approach. 8

Legislative materials are of limited assistance in trying to divine the intent

of Congress when it defined “disposable income” rather than “projected

disposable income.” Perhaps the best statement of the overarching purpose of the

consumer aspects of the BAPCPA comes from a House Report issued by the

Committee on the Judiciary just prior to enactment of the bill: “The heart of

[BAPCPA’s] consumer bankruptcy reforms consists of the implementation of an

income/expense screening mechanism (‘needs-based bankruptcy relief’ or

‘means-testing’), which is intended to ensure that debtors repay creditors the

maximum they can afford.” H.R. Rep. No. 109-31, pt. 1, at 2 (2005), reprinted in

2005 U.S.C.C.A.N. 88, 89. Commenting on this statement, one bankruptcy court

has pointed out that “[t]he words ‘maximum’ and ‘afford’ tell the story. Congress

intended that debtors pay the greatest amount within their capabilities. Nothing

more; nothing less.” In re Kibbe, 361 B.R. at 314. While the statement in the

House Report is exceedingly general for our purposes and expresses the view only

8
Committee notes on the bankruptcy rules also support the forward-looking
approach. See 11 U.S.C. App’x—Bankruptcy Rules, Committee Notes on
Rules—2005, D.3., at 230 (explaining that the check box on Form B22C that
indicates whether “the applicable commitment period under § 1325(b)(4) is three
or five years and whether the means test deductions are required by § 1325(b)(3)
to be used in determining the debtor’s disposable income” is “intended to inform
standing trustees and other interested parties about these items, but does not
prevent the debtor from arguing that the calculations required by the form do not
accurately reflect the debtor’s disposable income”).

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of the members of the Judiciary Committee, it is consistent with the

forward-looking approach, which assists a Chapter 13 debtor to propose a

confirmable plan and repay creditors the maximum she can afford—no more and

no less.

Other courts that have examined congressional intent when confronted with

the issue we face have found nothing more definitive. For example, one court

applying the mechanical approach has posited that by standardizing income and

most expenses to be used in the means test, and in applying the means test to

Chapter 13, it may be that Congress intended to limit the judicial discretion

historically exercised in determining what was or was not income or a necessary

and reasonable expense under the pre-BAPCPA standard, and to make uniform

the often disparate results that the courts had reached regarding the fact of a

debtor’s ability to pay as well as the amount a debtor could pay. In re Kolb,

366 B.R. at 817-18. The inference of congressional intent drawn in In re

Alexander concerning the apparently unheeded warnings chapter 13 trustees gave

to Congress—that Congress adopted the definition of “disposable income”

knowing that it might let some Chapter 13 debtors off easy, 344 B.R. at 747—is

one other possible inference. But as the U.S. Trustee points out, “[f]or all anyone

knows, Congress may have believed that chapter 13 trustees were mistaken and

that section 1325 actually would allow bankruptcy courts to do precisely what the

chapter 13 trustees thought it would not.” Amicus Br. at 24.

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 Moreover, when an above-median debtor has Form B22C disposable

income under the means test, she will not qualify for Chapter 7 protection. But

when that debtor seeks Chapter 13 protection and no longer earns her prepetition

income, she will be unable to confirm a plan over objection if bound to historical

income and the mechanical approach to § 1325(b)(1)(B). If, as stated in In re

Hanks, 362 B.R. at 500, Congress may have intended that such a debtor then

could seek Chapter 11 protection, it appears the debtor would encounter the same

bar to confirmation due to the application of the definition of “disposable

income” in 11 U.S.C. § 1129(a)(15)(B) noted above. Alternately, it could be that

Congress intended to foreclose bankruptcy protection to such debtors altogether,

but there is no obvious support for attributing such intent to Congress.

Finally, we note that the mechanical approach advocated by the Trustee

would effectively foreclose bankruptcy protection to debtors like Ms. Lanning,

who lack adequate income going into the commitment period to pay the amount of

disposable income on Form B22C, while at the same time permitting

above-median debtors who have greater income at the time of plan confirmation

to pay less to unsecured creditors than they are able to. While the latter situation

could be rectified by post-confirmation modification of the plan under 11 U.S.C.

§ 1329, the former situation cannot be addressed in this manner because the plan

would be infeasible and therefore unconfirmable in the first place. A Chapter 13

debtor may modify the plan prior to confirmation under 11 U.S.C. § 1323(a), but

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any effort by the debtor to deviate from Form B22C “disposable income” through

pre-confirmation modification begs the question of whether the forward-looking

approach is proper or not.

VII. Conclusion

For the foregoing reasons, we hold that, as to the income side of the

§ 1325(b)(1)(B) inquiry, the starting point for calculating a Chapter 13 debtor’s

“projected disposable income” is presumed to be the debtor’s “current monthly

income,” as defined in 11 U.S.C. § 101(10A)(A)(i), subject to a showing of a

substantial change in circumstances. We have not been asked to determine

whether the change in Ms. Lanning’s particular circumstances was substantial,

and we leave it to the bankruptcy courts to determine whether an adequate

showing of changed circumstances has been made in each particular case. The

judgment of the BAP is AFFIRMED.

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