United States Court of Appeals
For the First Circuit
No. 08-9007
IN RE GLEN H. RUDLER,
Debtor.
_____________________
PHOEBE MORSE, United States Trustee,
Appellant,
v.
GLEN H. RUDLER,
Appellee.
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL
OF THE FIRST CIRCUIT
Before
Lynch, Chief Judge,
Boudin and Lipez, Circuit Judges.
Teal Luthy Miller, with whom Phoebe Morse, United States
Trustee for the Districts of Maine, Massachusetts, New Hampshire
and Rhode Island; Ramona D. Elliott and P. Matthew Sutko, Executive
Office for United States Trustees, U.S. Department of Justice;
Geraldine Karonis and Ann Marie Dirsa, Office of the United States
Trustee, District of New Hampshire; Gregory G. Katsas, Assistant
Attorney General; and William Kanter, Attorney, Appellate Staff,
Civil Division, were on brief, for appellant.
Scott W. LaPointe, with whom Brown & LaPointe, P.A. was on
brief, for appellee.
August 5, 2009
LIPEZ, Circuit Judge. This bankruptcy appeal requires us
to resolve a question of statutory construction that has divided
bankruptcy courts and has not yet been addressed by any other
circuit: whether the means test for identifying an abusive Chapter
7 petition allows a debtor to deduct from his income the
installment payments due for property he plans to surrender in the
bankruptcy. See 11 U.S.C. § 707(b)(2). Both the bankruptcy court
and the Bankruptcy Appellate Panel ("BAP") held that such a
deduction is permitted because, at the time the disposable income
calculation is performed, such payments remain – in the words of
the statute – "scheduled as contractually due." We agree, and
therefore affirm.
I.
A. Applicable Law
The Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005 ("BAPCPA") was enacted in response to an upward trend
in consumer bankruptcy filings and concerns that bankruptcy relief
was "too readily available" and "sometimes used as a first resort,
rather than a last resort." H.R. Rep. No. 109-31(I), at 4 (2005),
reprinted in 2005 U.S.C.C.A.N. 88, 90. Of particular concern was
the pursuit of Chapter 7 liquidations instead of Chapter 13 debt
repayment plans by consumer debtors who could afford to repay some
of their debts. See 151 Cong. Rec. S2459, 2468-70 (daily ed. Mar.
-2-
10, 2005) (Statement of Sen. Hatch); In re Hardacre, 338 B.R. 718,
720 (Bankr. N.D. Tex. 2006) (citing 151 Cong. Rec. at 2469-70).1
The BAPCA was designed to lessen the resort to Chapter 7
filings by, among other measures, amending section 707(b) of the
Bankruptcy Code to relax the standard for dismissing a Chapter 7
case as abusive. See, e.g., In re King, No. 08-41975, 2009 WL
62252, at *3 (Bankr. E.D. Tex. Jan. 6, 2009). Previously, a
showing of "substantial abuse" was required, and "[t]here was a
presumption in favor of granting the relief sought by the debtor."
Id. As amended by the BAPCA, section 707(b) drops the qualifying
word "substantial," permitting a bankruptcy court to dismiss a
Chapter 7 proceeding brought by an individual debtor who has mostly
consumer debts "if [the court] finds that the granting of relief
would be an abuse." 11 U.S.C. § 707(b)(1). In order to "ensure
that debtors repay creditors the maximum they can afford," the
BAPCPA established a mathematical formula, known as a "means test,"
by which some Chapter 7 cases are deemed presumptively abusive.
See H.R. Rep. No. 109-31(I), at 1, reprinted in 2005 U.S.C.C.A.N.
at 89 (describing the "income/expense screening mechanism" as
"[t]he heart of the bill's consumer bankruptcy reforms"); 11 U.S.C.
1
Chapter 13 debtors commit their projected disposable income
to repaying creditors and receive a less comprehensive discharge of
their debts than would be granted under Chapter 7. See Marrama v.
Citizens Bank of Mass. (In re Marrama), 430 F.3d 474, 481 (1st Cir.
2005) (contrasting "chapter 7 debt-liquidation cases" with "the
less debtor-friendly, debt restructuring chapter 13 regime"); see
also 11 U.S.C. §§ 1325(b)(1), (b)(4)(A)(ii)(I).
-3-
§ 707(b)(1), (2); see also Ross-Tousey v. Neary (In re Ross-
Tousey), 549 F.3d 1148, 1151 (7th Cir. 2008) ("The purpose of the
means test is to distinguish between debtors who can repay a
portion of their debts and debtors who cannot.").2
Only those debtors whose monthly income exceeds the state
median for their family size are subject to means testing. 11
U.S.C. § 707(b)(7). The formula calculates the debtor's average
monthly disposable income, over a sixty-month period,3 by deducting
statutorily prescribed expenses from current monthly income. See
id. at § 702(b)(2)(A)(ii)-(iv). If the resulting income figure
exceeds a threshold amount specified in the statute – $167 per
month at the time relevant here – the bankruptcy case is
presumptively abusive. 11 U.S.C. § 707(b)(2)(A)(i).4 Upon motion
by the United States Trustee, the bankruptcy court may either
2
Abuse also may be shown under subsection (b)(3)(B) based on
the totality of the debtor's financial circumstances. See 11
U.S.C. § 707(b)(3). Only the means test is at issue here.
3
The five-year time period "corresponds to the maximum term
of a case under Chapter 13 of the Bankruptcy Code." In re Randle,
358 B.R. 360, 361 (Bankr. N.D. Ill. 2006), aff'd, Randle v. Neary
(In re Randle), No. 07 C 631, 2007 WL 2668727 (N.D. Ill. Jul. 20,
2007).
4
The debtor is given the opportunity to rebut the presumption
of abuse by showing that "special circumstances," such as a serious
medical condition or active duty military service, justify an
income adjustment or additional expenses. 11 U.S.C.
§ 707(b)(2)(B)(i). The possibility of special circumstances has
not been raised in this case.
-4-
dismiss such a case or, with the debtor's consent, convert it into
a Chapter 13 proceeding. 11 U.S.C. § 707(b)(1).
The deductible expenses under the means test include
standard living expenses prescribed by the Internal Revenue
Service, see, e.g., id. at § 707(b)(2)(A)(ii)(I); certain
"reasonably necessary" actual expenses (such as for health and
disability insurance), id.; and other actual expenses up to a
maximum allowable deduction (for example, expenses for the
education of a minor child "not to exceed" $1650 per year), id. at
§ 707(b)(2)(A)(ii)(IV). At issue here is the allowable deduction
"on account of secured debts," such as mortgage or car payments.
Id. at § 707(b)(2)(A)(iii)(I). The critical language describes the
deductible amount of such debts to be "the total of all amounts
scheduled as contractually due to secured creditors in each month
of the 60 months following the date of the petition," divided by
-5-
60. Id.5 The resulting amount is the debtor's average monthly
expense for secured debt.
Debtors submit their calculations under the means test on
Form B22A ("Chapter 7 Statement of Current Monthly Income and
Means-Test Calculation"), one of the documents a debtor must file
with a Chapter 7 bankruptcy petition. See 11 U.S.C.
§ 707(b)(2)(C); Fed. R. Bankr. P. 1007(b)(4).6 Debtors also must
5
Section 707(b)(2)(A)(iii) states in full:
(iii) The debtor's average monthly payments on account of
secured debts shall be calculated as the sum of–
(I) the total of all amounts scheduled as
contractually due to secured creditors in each month of
the 60 months following the date of the petition; and
(II) any additional payments to secured creditors
necessary for the debtor, in filing a plan under chapter
13 of this title, to maintain possession of the debtor's
primary residence, motor vehicle, or other property
necessary for the support of the debtor and the debtor's
dependents, that serves as collateral for secured debts;
divided by 60.
6
Form B22A is a six-page form that asks the debtor to
calculate, inter alia, his current monthly income and the total
deductions allowed under section 707(b)(2). Subpart C of the
Deductions section inquires about future payments on secured debts
and states, in relevant part:
Future payments on secured claims. For each of your
debts that is secured by an interest in property that you
own, list the name of [the] creditor, identify the
property securing the debt, and state the Average Monthly
Payment. The Average Monthly Payment is the total of all
amounts contractually due to each Secured Creditor in the
60 months following the filing of the bankruptcy case,
divided by 60. Mortgage debts should include payments of
taxes and insurance required by the mortgage.
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file "a schedule of current income and current expenditures," known
as Schedules I and J, respectively, and a Statement of Intention
that discloses plans to retain or surrender the properties that are
securing the debts listed on a separate schedule of assets and
liabilities. See 11 U.S.C. § 521(a)(1)(B)(ii); id. at §
521(a)(2)(A); Fed. R. Bankr. P. 1007(b)(1), (2).
The type of dispute that underlies this case arises when
a debtor announces an intention to surrender certain property –
here, a house that secures two mortgages – but includes future
mortgage payments in calculating the amount of secured debt to be
deducted from monthly income on Form B22A. Given that the property
will be surrendered and the mortgage will no longer be paid, the
question is whether such payments are "scheduled as contractually
due . . . in each month of the 60 months following the date of the
petition."
B. Factual Background
Appellee Glen H. Rudler filed a Chapter 7 bankruptcy
petition in August 2006. Since his monthly income at the time of
the filing exceeded the applicable state median for his family
size, Rudler was subject to the means test to determine if his
Part VI of the form, labeled "Determination of § 707(b)(2)
Presumption," asks the debtor to subtract his total of allowable
deductions from his calculation of "Current monthly income for §
707(b)(2)." After completing that "means test" calculation, the
debtor is directed to check the appropriate box on the front of the
form indicating whether the presumption of abuse does, or does not,
arise.
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bankruptcy case should be categorized as presumptively abusive. In
a Statement of Intention, Rudler reported that he intended to
surrender his home, which was secured by two mortgages with a
combined monthly payment of approximately $4,000. Despite his
plans to give up the house, Rudler deducted the $4,000 in mortgage
payments when calculating his monthly disposable income on Form
B22A. That calculation produced a monthly disposable income of
negative $2,376, avoiding the presumption of abuse.
If Rudler were unable to deduct the mortgages, he instead
could claim a statutorily prescribed housing allowance of $1,439.7
In that event, his monthly disposable income under the formula
would be $1,461, far in excess of the $167 monthly amount that
triggers the presumption of abuse.8 Based on these figures, the
United States Trustee moved under section 707(b)(1) to dismiss
Rudler's Chapter 7 case as abusive, arguing that Rudler should not
have included the mortgage debt in his calculation of secured debt
because he intended to surrender the property and, consequently,
would not be making payments on the mortgages.
7
Rudler actually deducted both the housing allowance and his
mortgage debt, which is clearly impermissible. Accordingly, his
disposable income amount needs to be revised regardless of the
treatment of his mortgage debt.
8
This calculation, which is undisputed by the parties,
reflects a $162 deduction for Chapter 13 administrative expenses,
which would be allowed as an offset if Rudler were required to file
under Chapter 13 rather than Chapter 7.
-8-
The bankruptcy court denied the motion to dismiss,
concluding that Rudler was entitled to deduct the mortgage payments
under the means test notwithstanding his intention to surrender the
property. The Trustee appealed the decision to the Bankruptcy
Appellate Panel ("BAP") for the First Circuit, which affirmed. The
BAP held that the means test calculation is meant to be "a 'snap-
shot' of the debtor's situation as of the petition date," rather
than a "'forward-looking'" consideration of "only those payments
that will actually be made." In re Rudler, 388 B.R. 433, 438
(B.A.P. 1st Cir. 2008). On appeal to this court, the Trustee
reiterates her contention that section 707(b)(2) does not permit a
debtor to deduct payments on debts secured by property the debtor
intends to surrender.
II.
We briefly address the threshold issue of whether we have
jurisdiction to review the BAP's decision. Circuit courts have
jurisdiction over "all final decisions, judgments, orders, and
decrees" issued by a bankruptcy appellate panel on appeal from a
bankruptcy court. 28 U.S.C. § 158(d)(1). To be final, "a
bankruptcy order need not resolve all of the issues in the
proceeding, but it must finally dispose of all the issues
pertaining to a discrete dispute within the larger proceeding."
Perry v. First Citizens Fed. Credit Union (In re Perry), 391 F.3d
282, 285 (1st Cir. 2004). "'Finality' is given a flexible
-9-
interpretation in bankruptcy" because "bankruptcy cases typically
involve numerous controversies bearing only a slight relationship
to each other." In re Northwood Props., LLC, 509 F.3d 15, 21 (1st
Cir. 2007) (quotation marks and citation omitted); see also Ross-
Tousey, 549 F.3d at 1152 ("Finality does not require the
termination of the entire bankruptcy proceeding; rather, an
adjudication by the bankruptcy court 'is definitive because it
cannot be affected by the resolution of any other issue in the
proceeding, and therefore no purpose would be served by postponing
the appeal to the proceeding's conclusion.'") (quoting In re
Oakley, 344 F.3d 709, 711 (7th Cir. 2003)).
Four circuits, addressing an earlier version of section
707(b), have characterized orders on motions to dismiss for abuse
as final. See Ross-Tousey, 549 F.3d at 1153; In re Cortez, 457
F.3d 448, 453-54 (5th Cir. 2006); Stuart v. Koch (In re Koch), 109
F.3d 1285, 1288 (8th Cir. 1997); Matter of Christian, 804 F.2d 46,
47-48 (3d Cir. 1986).9 We also are persuaded that, at least where
9
The Eighth and Third Circuits explicitly held that orders
denying trustee motions to dismiss are sufficiently final to permit
review by the court of appeals, while the Seventh and Fifth Circuit
cases involved appeals of district court reversals of bankruptcy
courts' denials of such a motion (i.e., district court judgments
that would result in conversion to Chapter 13 or dismissals for
abuse). In Ross-Tousey, however, the Seventh Circuit additionally
characterized the bankruptcy court's denial of the motion to
dismiss as final because that "decision resolved all of the
contested issues on the merits and left only the [ministerial act
of] distribution of estate assets to be completed." 549 F.3d at
1153.
-10-
the dispute at issue turns on a question of law, it is appropriate
to treat such orders as final under the amended version of section
707(b)(2). But see Barben v. Donovan (In re Donovan), 532 F.3d
1134, 1137 (11th Cir. 2008) (holding that an order denying a motion
to dismiss a Chapter 7 case for substantial abuse, under the
earlier version of section 707(b), was not appealable).10
This case involves only the purely legal question of
whether secured debts may be deducted under section 707(b) if the
secured property will be surrendered as part of the bankruptcy
proceedings. Further development of the case will shed no new
light on that issue. Delaying consideration of the question,
however, may frustrate both principles of judicial economy and
Congress's goal of ensuring that debtors allocate as much of their
resources as possible toward repaying their debts. See Koch, 109
F.3d at 1288 ("Requiring trustees to complete Chapter 7 proceedings
before appealing denial of their § 707(b) motions wastes debtor
resources that should be used to pay creditors, and forces trustees
and bankruptcy courts to expend their scarce institutional
resources on abusive Chapter 7 petitioners."); see also id. (noting
that, if such an order cannot be appealed, "bankruptcy proceedings
10
The Eleventh Circuit in Donovan concluded that a bankruptcy
court's order denying a motion to dismiss, which was affirmed by
the district court, was not final because the court's action "did
not conclusively resolve the bankruptcy case as a whole, nor did
the court resolve any adversary proceeding or claim." 532 F.3d at
1137.
-11-
must 'be completed before it can be determined whether they were
proper in the first place.'" (quoting Christian, 804 F.2d at 48)).
Moreover, motions to dismiss for abuse under section
707(b) are subject to statutory deadlines, presumably foreclosing
renewed requests for dismissal as the Chapter 7 case proceeds.11
Thus, from a pragmatic standpoint, the "discrete dispute" over a
debtor's abuse of Chapter 7 will be finally resolved when a court
denies a motion to dismiss under section 707(b) and, consequently,
an immediate appeal of the ruling will not interfere with further
action on the issue by the lower courts.
We therefore proceed to address the deductibility of
secured debts on property that will be surrendered. Our review is
de novo. Marrama, 430 F.3d at 477 (holding that, on an appeal from
11
Under section 704(b)(2), the United States trustee's motion
to dismiss must be made within thirty days from the time the
trustee files an initial statement on whether the case is presumed
abusive, see 11 U.S.C. § 704(b)(1)(A), and the initial statement
must be submitted within ten days of the meeting of the creditors.
Id. The creditors' meeting ordinarily must be held "no fewer than
20 and no more than 40 days" after the date of a voluntary Chapter
7 petition. See Fed. R. Bankr. P. 2003 (specifying that twenty-day
period, but allowing the trustee to set a later date "if there is
a motion to dismiss the case"); 11 U.S.C. § 301(b). Similarly,
Bankruptcy Rule 1017(e)(1), which applies to "any party in
interest" as well as the trustee, see 11 U.S.C. § 707(b)(1),
provides that a motion to dismiss for abuse may be filed "only
within 60 days after the first date set for the meeting of
creditors," unless the bankruptcy court extends that period for
cause. Fed. R. Bankr. P. 1017(e)(1). These various provisions
ensure that motions under section 707(b) are made early in the
bankruptcy case and mean that, as here, the issue of abuse will be
finally resolved by the bankruptcy court's order on those motions.
-12-
a BAP decision, the appeals court reviews the bankruptcy court's
legal rulings de novo).
III.
In arguing her view of section 707(b)(2)(A)(iii)(I), the
Trustee relies heavily on Congress's purpose in enacting the
BAPCPA, i.e., to ensure that individuals who are able to repay a
portion of their debts do so. However, we must defer our
consideration of Congressional intent because our examination of
the statute must begin "where all such inquiries must begin: with
the language of the statute itself." United States v. Ron Pair
Enters., Inc., 489 U.S. 235, 241 (1989); Stornawaye Fin. Corp. v.
Hill (In re Hill), 562 F.3d 29, 32 (1st Cir. 2009). If the
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. United States,
540 U.S. 526, 534 (2004) (quoting Hartford Underwriters Ins. Co. v.
Union Planters Bank, N.A., 530 U.S. 1, 6 (2000)); Ron Pair, 489
U.S. at 242. We thus look first to the specific language at issue,
which defines deductible secured debt as amounts that are
"scheduled as contractually due to secured creditors in each of the
60 months following the date of the petition." Unless that
language is ambiguous, we consider Congress's intent only to be
certain that the statute's plain meaning does not lead to "absurd"
results. Lamie, 540 U.S. at 534.
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A. Statutory Language
Although the precedent runs both ways, the vast majority
of bankruptcy courts to consider the issue have concluded that the
plain language of section 707(b)(2) permits a Chapter 7 debtor to
deduct payments on a secured debt even when the debtor plans to
surrender the collateral underlying that debt. See, e.g., In re
Norwood-Hill, 403 B.R. 905, 910 (Bankr. M.D. Fla. 2009); In re
Crawley, No. 08-14419-SSM, 2009 WL 902359, at *3 (Bankr. E.D. Va.
Feb. 23, 2009); In re Hayes, 376 B.R. 55, 63 (Bankr. D. Mass.
2007); In re Hartwick, 359 B.R. 16, 19-20 (Bankr. D.N.H. 2007);
Randle, 358 B.R. at 363-64; In re Sorrell, 359 B.R. 167, 186
(Bankr. S.D. Ohio 2007); In re Haar, 360 B.R. 759, 766-67 (Bankr.
N.D. Ohio 2007); In re Chang, No. 07-50484-ASW, 2007 WL 3034679, at
*3 (Bankr. N.D. Cal. Oct. 16, 2007); In re Walker, No. 05-15010-
WHD, 2006 WL 1314125, at *4 (Bankr. N.D. Ga. May 1, 2006). But
see, e.g., In re Naut, No. 07-20280REF, 2008 WL 191297, at *8
(Bankr. E.D. Pa. Jan. 22, 2008); In re Harris, 353 B.R. 304, 309-
310 (Bankr. E.D. Okla. 2006); In re Skaggs, 349 B.R. 594, 599-600
(Bankr. E.D. Mo. 2006).12 The courts have focused in particular on
12
We do not address here the construction of section
707(b)(2)(A)(iii)(I) in the context of a Chapter 13 case. See
Norwood-Hill, 403 B.R. at 910 (explaining that "a distinct
analysis" of the provision must be undertaken in Chapter 7 and 13
cases because "there are different considerations with respect to
how issues arising under these respective chapters are handled");
see also 11 U.S.C. § 1325(b)(3) (referencing section 707(b)(2) for
the calculation of disposable income for above-median debtors in a
Chapter 13 case). Thus, the Seventh Circuit's recent decision
-14-
two aspects of the text: the significance of the phrase "scheduled
as contractually due" and the forward-looking nature of the
reference to the period "following the date of the petition." See,
e.g., Hayes, 376 B.R. at 61-64; Haar, 360 B.R. at 764-66.
The Trustee asserts that, read in combination, the two
phrases call for a projection of the actual payments the debtor
will make on secured debts after the bankruptcy proceedings have
ended. She emphasizes that, in many cases, nothing remains
"contractually due" after a debtor surrenders the collateral
securing a debt and points out that, even if a deficiency payment
is owed, "the remaining liability is not 'contractually due to [a]
secured creditor,' as required by the statute." We turn to an
evaluation of these arguments.
1. "Scheduled as Contractually Due"
At the time a debtor files a bankruptcy petition and
completes Form B22A, which includes the means test calculation and
the inquiry about secured debts that are "scheduled as
contractually due," see supra note 6, the debtor will not yet have
given up any secured property identified for surrender in his or
her Statement of Intention. Thus, even if the debtor plans to
surrender a house on which he is paying a mortgage, he will at that
briefly discussing the provision's language in the context of a
Chapter 13 proceeding, see In re Turner, No. 08-2163, 2009 WL
2136867 (7th Cir. Jul. 20, 2009), which was called to our attention
by counsel for the Trustee, is not directly applicable here.
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point still have "contractually due" payments that are "scheduled"
to be paid during the upcoming months. This is so whether or not
the debtor has already defaulted on the mortgage by failing to make
such payments in previous months because the fact of default does
not release him from the ongoing obligation. See Randle, 358 B.R.
at 365 ("[T]he debtor must fill out Form B22A as of the petition
date, and on that date her mortgage payments were 'due' under the
contract whether the debtor planned to make them in the future or
not.").
The instructions on Form B22A confirm that the debtor is
expected to provide current information for all secured debt. It
identifies the "Future payments on secured claims" that must be
listed on Line 42, pursuant to section 707(b)(2)(A)(iii), as
follows:
For each of your debts that is secured by an
interest in property that you own, list the
name of [the] creditor, identify the property
securing the debt, and state the Average
Monthly Payment. The Average Monthly Payment
is the total of all amounts contractually due
to each Secured Creditor in the 60 months
following the filing of the bankruptcy case,
divided by 60.
(Emphasis added.) The form, like the statute itself, asks in the
present tense for a list of debts secured by property. The list is
not limited to debts on property the debtor plans to retain, nor
does it exclude debts that recently have gone unpaid. The
statutory provision is stated comprehensively, asking for the total
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of all payments scheduled during the five-year period, without
reference to whether other documents filed in connection with the
bankruptcy show that the payments are likely to stop during that
period. See, e.g., Hartwick, 359 B.R. at 19; Randle, 358 B.R. at
363.13 In sum, any debt that "is secured" is covered by the
statute's inquiry.
The Trustee argues that "reading the phrase 'scheduled as
contractually due' to include all current contractual obligations
fails to give independent meaning to the words 'scheduled as.'" If
that is what Congress meant, she asserts, it could simply have
defined the relevant payments as those "contractually due . . .
following the date of the petition." To give effect to the
separate term "scheduled as," she maintains that the statute must
be read as asking for a forward-looking assessment of whether the
payments actually will be made.
13
The court in Randle emphatically observed:
Here, the plain language of § 707(b)(2)(A)(iii) says that
the debtor "shall" deduct the amounts "scheduled as
contractually due in each month of the 60 months
following the date of the petition." It does not say
that the debtor can deduct this amount only if she
intends to keep the collateral post-petition. It does
not say that the debtor can deduct this amount only if
she intends to continue making the payments due post-
petition. And it does not refer to the debtor's
Statement of Intention with respect to the collateral.
The provision requires the court to consider only the
amounts due under the contract itself.
358 B.R. at 362-63.
-17-
The word "scheduled," however, does not connote the
confirmation of payments to be made that the Trustee ascribes to
it. Indeed, it implies the contrary recognition that such
payments, although "scheduled," may in fact not be made; otherwise,
the request would more logically have been for information about
all payments that will be made to creditors during the targeted
sixty-month period, or all payments the debtor expects or intends
to make during that time frame. See Walker, 2006 WL 1314125, at *4
(noting that the word "scheduled" "implies the possibility that the
payments may not be made as required under the contract"). As
other courts have observed, if Congress had sought to exclude
secured debt on properties the debtor has stated an intention to
surrender, "it could easily have said so." Randle, 358 B.R. at
363; see also, e.g., Hartwick, 359 B.R. at 19; Walker, 2006 WL
1314125, at *4 (noting that "Congress could have specified that the
payments to be deducted are only those payments to be made on
secured debts that the debtor intends to reaffirm"). Congress's
"choice of language shows a clear intent not to impose any such
limit on debtors." Randle, 358 B.R. at 363.
The Trustee points out fairly that, under this
interpretation, the term "scheduled as" appears to play no role in
defining the payments covered by section 707(b)(2)(A)(iii)(I). The
same result would be achieved by referring only to payments that
were, at the time of the bankruptcy filing, "contractually due."
-18-
Still, we fail to see how that apparent surplusage warrants
limiting the words "scheduled as" – which are stated in the present
tense – to only those payments that will be made in the future.
See Lamie, 540 U.S. at 536 ("Surplusage does not always produce
ambiguity and our preference for avoiding surplusage constructions
is not absolute."). Although our construction of the statutory
language cannot turn on the language of Form B22A – the official
document on which debtors must report their means test calculations
– we think it worth noting that the phrase "scheduled as" is
omitted from the form's instructions for calculating secured debt.
See supra note 6 & p. 17. The absence of that language may reflect
a recognition by those tasked with creating the document that the
term adds nothing to the inquiry.
The Trustee alternatively argues that "scheduled as"
must be construed in the specific context of the Bankruptcy Code,
where the word "schedule" and the phrase "scheduled as" are used as
terms of art. This argument invokes a debate in the cases that
address section 707(b)(2)(A)(iii)(I) between "two main interpretive
camps" – one concluding that the word "scheduled" refers to a debt
being listed on the debtor's formal bankruptcy "schedules," and the
other adopting "the common, dictionary-defined meaning of
'scheduled' as 'planned for a certain date.'" Hayes, 376 B.R. at
61; see also Haar, 360 B.R. at 764-65; Skaggs, 349 B.R. at 599.
The Trustee argues here that the Code refers to claims or debts
-19-
being "scheduled as" due if the debt is properly listed on a
debtor's bankruptcy schedules, and she asserts that "scheduled as
contractually due" should thus be limited to those contractual
obligations "properly listed on a bankruptcy schedule because the
debtor intends to honor them."
The primary problem with this argument, as recognized in
Hayes and other cases cited therein, see 376 B.R. at 62, is that
section 707(b)(2)(A)(iii)(I) does not refer directly to any
bankruptcy schedules, and there is no schedule that asks a debtor
to identify obligations that are "contractually due" at the time of
the petition, but that may be resolved through surrender of the
collateral. See id.; see also Sorrell, 359 B.R. at 185 ("[A]
debtor's statement of intention is not a schedule."); Randle, 358
B.R. at 365; In re Nockerts, 357 B.R. 497, 502 (Bankr. E.D. Wis.
2006) (noting that, when describing the bankruptcy schedules,
Congress "include[s] in the statute a reference to the schedules,
either directly by name or indirectly by reference to § 521, the
provision that requires the debtor to file bankruptcy schedules").
Moreover, to the extent that appearance on a "schedule" is a
prerequisite for including a debt in the means test calculation,
Schedule J, which lists the debtor's expenses as of the petition
date, could be expected – as in this case – to include any mortgage
payments due at that time, without regard for the debtor's future
intentions with respect to the underlying property. See Randle,
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358 B.R. at 365 (noting that Schedule J "normally includes mortgage
and car payments due" at the time the bankruptcy petition is
filed).14
In addition, the Code uses the word "scheduled" in two
places in the dictionary-definition sense to refer to "scheduled
payments," making an ordinary construction of the term a
possibility in this context as well. See Hayes, 376 B.R. at 61-62
(citing, as an example, 11 U.S.C. § 1326(a)(1)(B), which provides
that a debtor "shall make pre-confirmation payments 'scheduled in
a lease of personal property directly to the lessor'"). Hence, the
Code's other uses of "scheduled" or "scheduled as" fail to
illuminate the meaning of the term here, giving us no reason to
14
In Naut, however, the court relied on the fact that the
debtor had not included the disputed mortgage debt on his Schedule
J, concluding that "debts must be included on a debtor's Schedule
J to be deducted from income through the means test." 2008 WL
191297, at *8. We need not address whether listing a debt on
Schedule J is a statutory prerequisite for the deduction. Rudler's
mortgage debts were listed on both Schedule D ("Creditors Holding
Secured Claims") and Schedule J ("Current Expenditures of
Individual Debtor").
In another variation, the court in In re Singletary, 354 B.R.
455, 467 (Bankr. S.D. Tex. 2006), concluded that "scheduled" refers
to a debt being listed on the debtors' official schedules, but
rejected the Trustee's argument that declaring an intent to
surrender collateral was enough to make the debt no longer
scheduled for purposes of section 707(b)(2)(A)(iii)(I). The court
instead held that debts were "scheduled as contractually due"
unless, by the time a motion to dismiss for abuse was filed, the
debtor already had surrendered the collateral, id. at 469-70,
triggering an obligation to amend the debtors' schedules to reflect
the change, id. at 467.
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depart from the provision's plain meaning, i.e., that the debtor
may deduct all payments owed at the time of the bankruptcy filing.
The "scheduled as" language may not be construed in
isolation, however, Hayes, 376 B.R. at 63, and we therefore
consider whether the other critical statutory language points to a
different outcome.
2. "[F]ollowing the date of the petition"
The Trustee argues that Congress, in using the word
"following," contemplated a projection of future expenses – i.e.,
expenses that will exist "following" the bankruptcy proceedings –
rather than a snapshot of current expenses. Again, however, that
interpretation is not supported by the words themselves, which are
forward-looking only in the sense that the required current
calculation is for debts that are scheduled into the future. See
Hayes, 376 B.R. at 63 (noting that the provision is "'forward-
looking' in the sense that it takes into account payments" required
in the future, but that "it is clear from the plain language of the
provision that this determination is to be made at the time the
petition is filed"); Haar, 360 B.R. at 766. The Trustee attempts
to change this plain meaning by analogy, asserting that other
deductions allowed by the means test are forward-looking and that
the deduction for secured debts should be treated consistently with
the treatment of such other expenses.
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As the Trustee acknowledges, however, the statute sets
allowable expenses by means of several different methods, and,
"[l]ike section 707(b)(2)(A)(iii), many other provisions of the
means test appear to operate contrary to the goal of accurately
determining the amount of income that would actually be available
for payments to unsecured creditors in a Chapter 13 case." Walker,
2006 WL 1314125, at *6. For example, the starting point for the
means test, current monthly income, is calculated as the average
income earned by the debtor in the six months preceding the
bankruptcy filing. See 11 U.S.C. § 101(10A)(A); Crawley, 2009 WL
902359, at *4; Walker, 2006 WL 1314125, at *5. By the time of the
filing, the amount of actual income could be dramatically different
from the previous six-month average – for example, if the debtor
has just lost his job or secured a new one. See Hayes, 376 B.R. at
65; Walker, 2006 WL 1314123, at *5.
Even on the expense side of the calculation, the means
test relies on standard deduction amounts for certain types of
expenses that may be "either significantly less than or greatly in
excess of the debtor's actual expenses." Walker, 2006 WL 1314123,
at *7; see also Hayes, 376 B.R. at 65; Randle, 358 B.R. at 364.
For example, the IRS has prescribed standard amounts to be used in
the means test calculation, instead of the individual debtor's
actual costs, for certain categories of expenses (food,
housekeeping supplies, and transportation). See 11 U.S.C. §
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707(b)(2)(A)(ii)(I); Eugene R. Wedoff, Means Testing in the New
§ 707(B), 79 Am. Bankr. L.J. 231, 251-261 (2005). Thus, the future
inaccuracy of the snapshot-in-time approach to the expense for
secured debt does not help the Trustee's argument. See Hayes, 376
B.R. at 65 ("It cannot be fairly said, therefore, that Congress was
overly-concerned with capturing an accurate, precise financial
picture to determine whether the case would be presumed abusive.");
Randle, 358 B.R. at 364 ("Congress adopted a test for the
presumption of abuse that relies primarily on standardized
estimates of expenses, not the debtor's actual expenses."); Walker,
2006 WL 1314125, at *6 ("[M]any other provisions of the means test
appear to operate contrary to the goal of accurately determining
the amount of income that would actually be available for payments
to unsecured creditors . . . .").
3. "[O]n account of secured debt"
The Trustee also invokes a third phrase from section
707(b)(2)(A) in support of her position, arguing that the
requirement that payments be made "on account of secured debts"
excludes debts that will remain after the property serving as
collateral for them has been surrendered. She reasons that, after
title has transferred following surrender, the debtor's obligation
either will be eliminated entirely or changed into an unsecured
debt – meaning that any future payments will not be "on account of
secured debts." The Trustee asserts that the transformation of
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such debts is "relevant to the debtor's monthly expenses, and thus
relevant to whether granting the debtor a chapter 7 discharge would
be an abuse." Indeed, she points out, the purpose of surrendering
collateral is to reduce monthly living expenses. See Harris, 353
B.R. at 309; In re Love, 350 B.R. 611, 614-15 (Bankr. M.D. Ala.
2006).
Other courts have closely examined the impact of a
debtor's surrender of property and whether the original contractual
obligation remains even after the debtor has defaulted on a loan.
See, e.g., Randle, 358 B.R. at 362-63; see also Rudler, 388 B.R. at
438 ("[T]hose amounts remain contractually due, regardless of
whether said payments will actually be made, whether the debtor
will reaffirm the debt, or whether the debtor will surrender the
property to the secured party."); Walker, 2006 WL 1314125, at *4,
*7. In our view, this issue is largely beside the point. The
pertinent question is not the debtor's status vis-a-vis the loan
after it is renounced, but whether the means test calculation is to
be performed coincident with the bankruptcy filing, based on then-
current information. As we have explained, the statute as written
plainly requires such a pre-surrender calculation.
Our conclusion that the language of the statute is
unambiguous allows us to consider Congressional intent only if
literal application of the statute would lead to absurd results.
Lamie, 540 U.S. at 534; see also Ron Pair, 489 U.S. at 242
-25-
(describing the inquiry as whether "literal application . . . will
produce a result demonstrably at odds with the intentions of its
drafters") (quotation marks and citation omitted). That exception
is not triggered here. As we shall explain, a "snapshot" approach
to the deduction for secured debts fits rationally within the
statutory scheme.
B. Congressional Intent
The Trustee argues that allowing debtors to deduct only
payments they will actually make, rather than all payments
scheduled at the time of the bankruptcy filing, better serves the
purpose behind the means test because it more accurately reflects
the debtor's resources following the bankruptcy proceedings. This
argument has force – but it misses the point. There are a number
of ways Congress could have effectuated its goal of increased
debtor responsibility, and calculating projected income based on
actual anticipated expenses is unquestionably one of them.
However, based on the plain language of the statute, that is not
the approach Congress enacted into law, and we cannot rewrite the
statute simply because we think a different method of assessing
abuse would be more effective.
A test that relies on a snapshot of the debtors'
circumstances at the time of the bankruptcy filing is not an
"absurd" alternative. To the contrary, a fixed approach to the
secured debt deduction makes sense because the actual amount the
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debtor will pay on secured debts in the relevant sixty-month period
is subject to a number of variables:
[A] debtor might state an intention to
reaffirm but the creditor might refuse to
agree, preferring to take the collateral back
because of the debtor's bad payment history.
Or the debtor might be able to reaffirm the
debt at a more favorable interest rate or
lower monthly payment. Or the debtor might
state an intention to redeem but later be
unable to obtain redemption financing.
Randle, 358 B.R. at 364; see also Haar, 360 B.R. at 767; Walker,
2006 WL 1314125, at *4 (noting that, after filing the statement of
intention, the debtor may decide to amend it and to reaffirm the
debt or redeem the property). Although Congress could have chosen
to give bankruptcy judges the discretion to address such
uncertainties on a case-by-case basis, there is nothing absurd
about Congress's choice to adopt a rigid formula.
A number of courts have in fact concluded that a specific
intent to limit the bankruptcy court's discretion underlies the
means test and accounts for Congress's adoption of a "'mechanical
formula' for presuming abuse of Chapter 7." Randle, 358 B.R. at
363 (citing Report of the Committee on the Judiciary, House of
Representatives, to Accompany S. 256, H.R. Rep. No. 109-31, pt. 1,
at 553, 109th Cong., 1st Sess. (2005) ("[T]he formula remains
inflexible and divorced from the debtor's actual circumstances."
(dissenting views))); see also Hayes, 376 B.R. at 65 (noting that
"the intent of Congress in creating the specific mechanics of the
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means test under § 707(b)(2) appears more to have been a plan to
reduce judicial discretion on the question of whether a particular
case is presumed 'abusive'"); Hartwick, 359 B.R. at 21 ("The major
objective of Congress in adding the means test in § 707(b)(2) was
to limit judicial discretion from the process of determining abuse
by providing an objective standard for establishing a presumption
of abuse."); In re Barr, 341 B.R. 181, 185 (Bankr. M.D.N.C. 2006)
("[I]t appears that Congress intended to adopt a specific test to
be rigidly applied rather than a standard to be applied according
to the facts and circumstances of the case."); Walker, 2006 WL
1314125, at *6 ("The means test is . . . a mechanical estimate of
the debtor's abilities to fund a Chapter 13 plan and was not
intended to be a perfect indicator of ability to pay.").
Indeed, choosing the certainty of a mechanical approach
over an "actual circumstances" evaluation under section 707(b)(2)
complements the totality-of-the-circumstances inquiry prescribed by
section 707(b)(3)(B), which remains a backup option when the
Trustee is dissatisfied by the results of the means test. See,
e.g., Rudler, 388 B.R. at 439; Hartwick, 359 B.R. at 21; id. at 20
("Under the totality of the circumstances test, courts may take
into account both current and foreseeable circumstances, including
a debtor's ability to repay his debts under a chapter 13 plan.");
Singletary, 354 B.R. at 465 ("To allow a movant to include the
outcome of future events as part of the means test would eliminate
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the distinction between the presumption of abuse test and the
totality of the circumstances test."). If a review of all of a
debtor's bankruptcy documents shows that the means test is too
generous, a finding of abuse may be appropriate under that
subsection. Norwood-Hill, 403 B.R. at 911 ("[A] determination that
the presumption of abuse does not arise pursuant to the means
test[] does not close the door on conversion or dismissal.");
Crawley, 2009 WL 902359, at *5 ("The fact that the debtors 'pass'
the means test does not, however, end the inquiry. . . . [T]he
case may nevertheless be dismissed as an abuse if 'the totality of
the circumstances . . . demonstrates abuse.'" (quoting 11 U.S.C. §
707(b)(3))); Hartwick, 359 B.R. at 21-22; see also Singletary, 354
B.R. at 465.
The court in Walker also observed that the BAPCPA's goals
extend beyond increasing debtors' accountability for their debts.
Still part of the Code is the longstanding objective to "provid[e]
honest debtors with a fresh start, as well as encouraging
financially responsible behavior and rehabilitation." 2006 WL
1314125, at *7; see also Susan Jensen, A Legislative History of the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79
Am. Bankr. L.J. 485, 566-67 (2005) (quoting President Bush's
remarks upon signing the Act, stating that bankruptcy laws "give
those who cannot pay their debts a fresh start" and that the new
law will require those with ability to "pay back at least a portion
-29-
of their debts"). If section 707(b)(2)(A)(iii)(I) were interpreted
as the Trustee urges – excluding debts on property that will be
surrendered – debtors might be inclined to unwisely reaffirm such
debts to avoid triggering the presumption of abuse. Walker, 2006
WL 1314125, at *8. Although other provisions of the Code may
defeat such a strategy, see, e.g., 11 U.S.C. § 524(m) (giving the
court authority to disapprove reaffirmation agreements), the
possibility of manipulation – and the other uncertainties, noted
above, surrounding the decision to reaffirm or surrender – further
support a plain-language reading of the secured-debt deduction. A
calculation that is more generous to the debtor, but has the
advantage of certainty, is not inevitably at odds with Congress's
intent.15
IV.
We thus conclude that, in calculating monthly income
under the means test, the plain language of section
707(b)(2)(A)(iii)(I) allows debtors to deduct payments due on a
secured debt notwithstanding the debtor's intention to surrender
the collateral. That plain language is consistent with other
provisions that rely on standardized estimates of expenses rather
than the debtor's actual circumstances. The mechanical approach
avoids the uncertainties that surround a debtor's announced, but
15
Indeed, the policy considerations emphasized in the
concurrence reinforce this outcome.
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not yet executed, plan to surrender property or reaffirm secured
debts. Hence, allowing the deduction does not produce an "absurd"
result and the plain language of section 707(b)(2)(A)(iii)(I) must
govern.
Accordingly, the judgment of the bankruptcy court is
affirmed.
So ordered.
– Concurring Opinion Follows –
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LYNCH, Chief Judge, concurring in the judgment. I join
the judgment of the court affirming the bankruptcy court's
application of the means test.
The underlying problem concerns whether a bankruptcy
petition filed under chapter 7 should be converted to a chapter 13
petition (with the debtor's consent), or be dismissed, because it
is abusive. See 11 U.S.C. § 707(b)(1). Chapter 7, which
discharges the debtor's debts, is more favorable to the debtor than
chapter 13, which commits the debtor's projected disposable income
toward paying his creditors.
In the structure of the bankruptcy act, Congress provided
two different mechanisms for determining whether a chapter 7
petition is abusive. The first test, which presumes abuse if the
debtor's monthly income as calculated under the statute exceeds a
certain threshold -- here, $167 per month -- is the means test
under 11 U.S.C. § 707(b)(2)(A)(i). The second test allows the
court to consider whether the petition was filed in bad faith and
whether the "totality of the circumstances . . . of the debtor's
financial situation demonstrates abuse." Id. § 707(b)(3). Here,
the trustee argued that the chapter 7 petition was presumptively
abusive under the means test; she did not seek a finding of abuse
under the totality of the circumstances test.
The question before us is the meaning of the statutory
phrase "scheduled as contractually due," id.
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§ 707(b)(2)(A)(iii)(I), as it applies to collateral which the
debtor intends to surrender at the time he files his schedules and
statement of intentions. Although the language of the statute
tends to support the debtor's position, I do not think the plain
text resolves the issue one way or the other. The word
"scheduled," even standing alone, is ambiguous. If Congress had
wanted to include all future payments regardless of the debtor's
intentions to make those payments, it could have used explicit
language to that effect. Conversely, if only those debts the
debtor intends to repay were meant to be counted, Congress could
have used language to that effect, including by referencing the
debtor's statement of intentions in the statute.
The textual ambiguity is not resolved by the rule of
construction that no statutory term should be read to be surplusage
or unnecessary. The trustee's surplusage argument does not compel
adoption of her view. The term "scheduled as" is certainly not
surplusage under the trustee's reading because the term indicates
where a court should look to determine whether a particular debt
should be counted under the means test. Likewise, the term
"scheduled as" is not necessarily surplusage under the debtor's
reading, which uses the term colloquially.
Nor is the interpretive issue resolved, for several
reasons, by the fact that the means test uses rough approximations
of certain inputs into the calculation, such as the debtor's
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current monthly income or expenses for food, housekeeping supplies,
and transportation. This does not tell us whether a similar
approximation should be made for the debtor's future payments on
certain secured debts. For example, a debtor's future income may
be hard to predict for various reasons, making an approximation
based upon the debtor's recent income history the most accurate and
convenient indicator of the debtor's future income from the
information available to the bankruptcy court. But the same
accuracy and convenience factors that justify a rough approximation
of income are not present for the debtor's future payments to
secured creditors, especially because the analysis could easily be
refined by looking to the debtor's statement of intentions to
determine whether he plans to surrender the collateral securing a
particular debt. Moreover, the fact that the means test allows the
debtor to use standard deduction amounts for some expenses, such as
expenses for food, housekeeping supplies, and transportation, see
id. § 707(b)(2)(A)(ii)(I), does not mean that other inputs into the
means test should disregard the debtor's actual expenses. Indeed,
other inputs into the means test, such as the debtor's expenses in
caring for a family member, include only the debtor's actual
expenses paid. See id. § 707(b)(2)(A)(ii)(II).
All that one can conclude with certainty is that
Congress, after balancing the occasionally competing concerns of
accuracy and convenience, intended some inputs into the means test
-33-
to be generalized approximations and others to be derived more
closely from the debtor's actual financial situation. Because
Congress's treatment of the other inputs may well have been driven
by policy considerations unique to those factors, one cannot draw
a conclusion about how Congress intended to account for a debtor's
future payments to secured creditors from the ways in which
Congress treated those other inputs.
The combination of the text, the structure of the
statute, and considerations of administrative ease of enforcement,
to my mind, provides more guidance. See Pierce v. Underwood, 487
U.S. 552, 558-60 (1988) (reviewing the language, structure, and
practical considerations to determine the meaning of the statutory
phrase "substantially justified"); In re Hannaford Bros. Co.
Customer Data Sec. Breach Litig., 564 F.3d 75, 79 n.6 (1st Cir.
2009) (rejecting an interpretation of a statute where, in addition
to the direction of the plain text, the proposed reading would have
created "serious administrability problems"); Stonawaye Fin. Corp.
v. Hill (In re Hill), 562 F.3d 29, 34-35 (1st Cir. 2009) (using the
"language, structure, and evident purpose" to understand the
meaning of the bankruptcy act). The means test -- if applied
without regard to the debtor's intentions -- becomes more
complementary to the totality of the circumstances test, which
requires more of an inquiry into a number of facts. That is,
Congress may have designed the means test as an efficient way to
-34-
weed out those for whom a quick look at their filing reveals an
ability to repay their creditors, making treatment of their
petitions under chapter 13 more appropriate. At the same time,
Congress may have intended the totality of the circumstances test
to function as a backstop to catch those whose petitions are not
presumptively abusive under the means test but for whom a closer
look at their actual financial situation shows that they have the
means to repay their creditors under chapter 13 and that they have
tried to avoid that repayment.
Moreover, this view of the means test has certain
advantages. The means test as described by the debtor may be
easier to administer than the alternative proposed by the trustee
because it requires no consideration of the debtor's intentions.
Whatever the loss in accuracy which results under this view of the
means test (usually favoring the debtor), that accuracy may be
recaptured or approximated under the alternative totality of the
circumstances test.
It is not clear that Congress focused on the problem of
how to treat secured debts under the means test where the debtor
intends to surrender the collateral. If Congress had focused on
this precise problem, it may well have adopted a different
solution. But until Congress gives us a clearer indication of its
intentions, it best fits the structure of the statute to use the
means test as a quick screening test to identify those who should
-35-
not proceed under chapter 7, reserving the totality of the
circumstances test for a more thorough consideration of the
debtor's financial situation. From the structure of the statute,
the general tendency of the language to support the debtor's
position, and the ease of administration of the means test as
described by the debtor, I conclude that Congress's intention was
that courts apply the means test without regard for the debtor's
intentions, even though many of the other interpretative guides are
inconclusive. Nothing in the legislative history leads to a
different conclusion.
I join the judgment of the court.
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