PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-1445
JOE HENRY PLILER; KATHERINE MARIE PLILER,
Debtors - Appellants,
v.
RICHARD M. STEARNS, Trustee,
Trustee – Appellee.
---------------------------------
NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS,
Amicus Supporting Appellants,
ECAST SETTLEMENT CORPORATION,
Amicus Supporting Appellee.
Appeal from the United States Bankruptcy Court for the Eastern
District of North Carolina, at Wilson. Randy D. Doub, Chief
Bankruptcy Judge. (12-05844-8-RDD)
Argued: December 10, 2013 Decided: March 28, 2014
Before DUNCAN, WYNN, and THACKER, Circuit Judges.
Affirmed and remanded by published opinion. Judge Wynn wrote
the opinion, in which Judge Duncan and Judge Thacker joined.
ARGUED: Robert Lee Roland, IV, LAW OFFICES OF JOHN T. ORCUTT,
P.C., Raleigh, North Carolina, for Appellants. Christopher
Scott Kirk, OFFICE OF THE BANKRUPTCY ADMINISTRATOR, Wilson,
North Carolina; Isaac Andrew Johnston, OFFICE OF THE CHAPTER 13
TRUSTEE, Greenville, North Carolina, for Appellee. ON BRIEF:
Norma L. Hammes, NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY
ATTORNEYS, San Jose, California; Tara Twomey, NATIONAL CONSUMER
BANKRUPTCY RIGHTS CENTER, San Jose, California, for Amicus
National Association of Consumer Bankruptcy Attorneys. William
Andrew McNeal, Gilbert B. Weisman, BECKET & LEE LLP, Malvern,
Pennsylvania, for Amicus eCAST Settlement Corporation.
2
WYNN, Circuit Judge:
In this bankruptcy appeal, we must decide whether
above-median-income debtors with negative disposable income are
obligated to maintain Chapter 13 bankruptcy plans that last for
five years when their unsecured creditors have not been paid in
full. Our examination of the pertinent bankruptcy code
provisions, case law, and legislative intent leads us to
conclude that the answer is yes and, accordingly, to affirm the
bankruptcy court’s order.
I.
Joe Henry Pliler and Katherine Marie Pliler (the “Plilers”)
filed a voluntary petition for relief under Chapter 13 of the
Bankruptcy Code on August 10, 2012. Although the Plilers
calculated their household income to be above North Carolina’s
median family income for comparably-sized households, they
calculated their disposable income to be negative $291.20.
Along with the Chapter 13 petition, the Plilers filed a
proposed Chapter 13 plan pursuant to 11 U.S.C. § 1321 (“Plan”).
Under the Plan, the Plilers proposed to pay $1,784 for fifteen
months, and then $1,547 for forty months. The total of these
payments, $88,640, would pay $3,335 in attorneys’ fees,
$3,988.80 for the Trustee’s commission, $78,595 to secured
creditors, and nothing to unsecured creditors.
3
The Plilers’ proposed Plan contained early termination
language that would have allowed them to complete their Plan
within fifty-five months:
This Chapter 13 Plan will be deemed complete and
shall cease and a discharge shall be entered, upon
payment to the Trustee of a sum sufficient to pay in
full: (A) Allowed administrative priority claims,
including specifically Trustee’s commissions and
attorneys’ fees and expenses ordered by the Court to
be paid to the Debtor’s Attorney, (B) allowed secured
claims (including but not limited to arrearage
claims), excepting those which are scheduled to be
paid directly by the Debtor “outside” the plan, (C)
Allowed unsecured priority claims, (D) Cosign protect
consumer debt claims (only where the Debtor proposes
such treatment), (E) Postpetition claims allowed under
11 U.S.C. § 1305, (F) The dividend, if any, required
to be paid to non-priority general unsecured
creditors (not including priority unsecured
creditors) pursuant to 11 U.S.C. § 1325(b)(1)(B), and
(G) Any extra amount necessary to satisfy the
“liquidation test” as set forth in 11 U.S.C.
§1325(a)(4).
J.A. 65.
In October 2012, the Trustee filed an objection to
confirmation of the Plan and a motion to dismiss for failure to
file a plan in good faith and failure to pay an amount necessary
during the applicable commitment period to comply with Section
1325. Similar motions were filed in other cases pending in the
Eastern District of North Carolina, and three different
bankruptcy judges in the district chose to conduct a joint
hearing to consider the matters.
4
Regarding the Plilers’ case, on January 15, 2013, Chief
Bankruptcy Judge Randy Doub entered an order denying the
objection and motion to dismiss and directing the Trustee to
file a motion for confirmation of a plan requiring the Plilers
to pay $1,784 per month for sixty months with no early
termination language. In re Pliler, 487 B.R. 682 (Bankr.
E.D.N.C. 2013). Under the Plan as revised by Judge Doub, the
unsecured creditors would receive an eighty-four-percent
dividend, as opposed to the zero-percent dividend in the Plan
as proposed by the Plilers. In ordering the revision of the
Plan, Judge Doub held, among other things, that 11 U.S.C. §
1325(b)’s “applicable commitment period” is a temporal
requirement mandating that an above-median-income debtor commit
to a sixty-month plan period irrespective of projected
disposable income.
This direct appeal to the Fourth Circuit ensued. We review
de novo challenged legal issues, including statutory
interpretation questions such as those before us here. Johnson
v. Zimmer, 686 F.3d 224, 227 (4th Cir. 2012), cert. denied, 133
S. Ct. 846 (2013).
5
II.
A.
In Chapter 13 reorganization proceedings, debtors commit to
a court-approved plan to repay creditors with future income.
Hamilton v. Lanning, 560 U.S. 505, 508 (2010). Bankruptcy Code
Section 1325 specifies circumstances under which a bankruptcy
court “shall” and “may not” confirm a Chapter 13 plan. Id. See
also 11 U.S.C. § 1325(b).
In cases where the trustee or an unsecured creditor objects
to the confirmation of a proposed Chapter 13 plan, the court may
not confirm the plan unless one of two conditions is met. The
second condition, at the heart of this case, is that “the plan
provides that all of the debtor’s projected disposable income to
be received in the applicable commitment period beginning on the
date that the first payment is due under the plan will be
applied to make payments to unsecured creditors under the plan.”
11 U.S.C. § 1325(b)(1) (emphasis added). 1
The statute defines “applicable commitment period” as:
(i) 3 years; or
(ii) not less than 5 years, if the current monthly
income of the debtor and the debtor’s spouse combined,
when multiplied by 12, is not less than—
1
The first condition, which is not in play here, is that
“the value of the property to be distributed under the plan on
account of such claim is not less than the amount of such claim.
. . .” Id.
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* * *
(II) in the case of a debtor in a household of 2, 3,
or 4 individuals, the highest median family income of
the applicable State for a family of the same number
or fewer individuals; or
* * *
B) may be less than 3 or 5 years, whichever is
applicable under subparagraph (A), but only if the
plan provides for payment in full of all allowed
unsecured claims over a shorter period.
11 U.S.C. § 1325(b)(4).
In this case, the Trustee objected to the Plilers’ proposed
Plan with its early termination provision. Further, it is
undisputed that the Plilers’ proposed Plan did not “provide[]
for payment in full of all allowed unsecured claims[,]” 11
U.S.C. § 1325(b)(4); in fact, the Plan provided for no payment
to unsecured creditors. Thus, Section 1325(b)(4)’s exception
does not apply. At issue, then, is whether the Plilers’ Plan
may terminate after less than five years.
1.
The Plilers argue that the bankruptcy court “erred in
holding that . . . the definition of applicable commitment
period in 11 U.S.C. § 1325(b)(4) is a freestanding plan length
requirement.” Appellants’ Br. at 3. We disagree. We, like all
the other circuits to have addressed this issue, hold that an
“applicable commitment period” is a temporal requirement. See
7
In re Flores, 735 F.3d 855, 856 (9th Cir. 2013) (en banc); Baud
v. Carroll, 634 F.3d 327, 338 (6th Cir. 2011); Whaley v.
Tennyson, 611 F.3d 873, 880 (11th Cir. 2010); Coop v.
Frederickson, 545 F.3d 652, 660 (8th Cir. 2008). 2
As in all statutory interpretation cases, we “necessarily
begin[] with an analysis of the language of the statute. And,
in analyzing the meaning of a statute, we must first determine
whether the language at issue has a plain and unambiguous
meaning.” Holland v. Big River Minerals Corp., 181 F.3d 597,
603 (4th Cir. 1999) (quotation marks and citation omitted). If
it does, we look no further but simply “enforce [the statute]
according to its terms.” Id. (quotation marks omitted).
Applying these principles to “applicable commitment
period,” we agree with the Eleventh Circuit that “‘applicable’
and ‘commitment’ are modifiers of the noun, the core substance
of the term, ‘period.’ The plain meaning of ‘period’ denotes a
period of time or duration.” In re Tennyson, 611 F.3d at 877
(citation omitted). As for the modifier “commitment,” that
2
In their briefs, the Plilers relied on In re Flores, 692
F.3d 1021 (9th Cir. 2012), and In re Kagenveama, 541 F.3d 868
(9th Cir. 2008). In those cases, the Ninth Circuit had held
that the applicable commitment period did not constitute a
freestanding plan length requirement. But the Ninth Circuit
overruled In re Kagenveama and vacated the In re Flores panel
decision in favor of the en banc In re Flores opinion going
precisely the opposite way on this issue. In re Flores, 735
F.3d 855. Those earlier cases are thus no longer good law, and
the circuit split they created no longer exists.
8
signifies that “‘applicable commitment period’ is a duration to
which the debtor is obligated to serve. Finally, the meaning of
‘applicable’ reflects the fact that there are alternate
‘commitment periods’ depending on the debtor’s classification as
an above median income debtor or a below median income debtor.”
Id. (citation omitted).
Further, the statute defines applicable commitment period
in terms of duration: “3 years,” “not less than 5 years,” or
“less than 3 or 5 years,” depending on current monthly income
and whether unsecured creditors will be paid under the plan. 11
U.S.C. § 1325(b)(4). Putting it all together, then, an
“applicable commitment period” is an obligatory period of time
that may vary based on the debtor’s income and plan provisions.
Stated differently, it is a “freestanding plan length
requirement.” Appellants’ Br. at 3.
While we find a plain reading alone sufficient to conclude
that an “applicable commitment period” is a length-of-time
requirement for Chapter 13 plans, we nevertheless note that our
conclusion harmonizes with the “core purpose” underpinning the
2005 bankruptcy code revisions from which the “applicable
commitment period” provisions hail: “ensuring that debtors
devote their full disposable income to repaying creditors.”
Ransom v. FIA Card Servs., N.A., 131 S. Ct. 716, 729 (2011).
See also In re Tennyson, 611 F.3d at 879 (“‘The heart of [the
9
pertinent] consumer bankruptcy reforms . . . is intended to
ensure that debtors repay creditors the maximum they can
afford.’ H.R. Rep. 109–31(I), p. 2, 2005 U.S.C.C.A.N. 88, 89.”).
This core purpose is best effectuated when Chapter 13 plans must
last for three or five years, depending on the debtors’ income,
unless all unsecured claims are fully repaid sooner.
2.
The Plilers nevertheless press that no “applicable
commitment period” governs their case because they have negative
disposable income. Here, too, we disagree.
Again, we “necessarily begin[] with an analysis of the
language of the statute.” Holland, 181 F.3d at 603. As already
discussed, a plain reading leads us to conclude that an
“applicable commitment period” is a length-of-time requirement
for Chapter 13 plans. The time requirement is either three
years or five years, depending on the debtor’s (and the debtor’s
spouse’s) “current monthly income[.]” 11 U.S.C. § 1325(b)(4).
The plan may be shortened, “but only if the plan provides for
payment in full of all allowed unsecured claims over a shorter
period.” Id. Nothing in Section 1325(b)(4) suggests that the
applicable commitment period is somehow related to, much less
dictated by, the debtor’s projected disposable income. See id.
And we see no indication of some special exception for above-
median-income debtors with no projected disposable income.
10
The Plilers attempt to overcome that problem by blending
Section 1325(b)(4)’s applicable commitment period with Section
1325(b)(1), which mandates 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
. . . .” 11 U.S.C. § 1325(b)(1). The Plilers argue that
because their monthly disposable income as calculated on a
bankruptcy form filed with their bankruptcy petition, Form 22C,
showed negative $291.20, no “projected disposable income” will
be received “in the applicable commitment period,” rendering the
plan length requirement senseless.
Yet the lack of projected disposable income at the time a
plan is confirmed does not necessarily mean that additional
funds with which to satisfy claims will not later surface.
Indeed, as we recently saw in Carroll v. Logan, Chapter 13
debtors can and do benefit from windfalls such as inheritances
or other unforeseeable income after plan confirmation but before
their Chapter 13 proceedings are closed. 735 F.3d 147, 152 (4th
Cir. 2013) (holding that bankruptcy code “blocks the [debtors]
from depriving their creditors a part of their windfall [an
inheritance] acquired before their Chapter 13 case was closed”).
A five-year plan duration thus still makes sense, and may still
result in gains for creditors, even if the debtors have zero or
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negative disposable income at the time of plan confirmation.
See also, e.g., Baud, 634 F.3d at 356 (“[T]here are numerous
circumstances in which disposable income might become available
to the Appellees and to other debtors after confirmation, even
those who have zero or negative projected disposable income as
of confirmation.”).
The Plilers also contend that the “‘applicable commitment
period’ exists solely for its function within the confines of
§ 1325(b)(1)(B)[,]” Appellants’ Br. at 34, which, again,
mandates that “all of the debtor’s projected disposable income
to be received in the applicable commitment period . . . will be
applied to make payments to unsecured creditors . . . .” 11
U.S.C. § 1325(b)(1). The Plilers claim that Section 1325(b)(1)
“is the only relevant section of the [Bankruptcy] Code that puts
the term into action and applies it to debtors.” Appellants’
Br. at 35. But this contention is belied by the statute that
allows for post-confirmation plan modification: Section 1329.
Specifically, Section 1329 expressly incorporates the
applicable commitment period as a temporal limit for purposes of
plan modification. Under Section 1329(a), a bankruptcy court
may modify a plan at any time after plan confirmation and before
the completion of plan payments. 11 U.S.C. § 1329(a). As we
saw in Carroll, for example, Section 1329 modification may be
used to increase plan payments to creditors in the event that
12
the debtors come into additional, unforeseen income. 735 F.3d
147. But a modified plan “may not provide for payments over a
period that expires after the applicable commitment period under
section 1325(b)(1)(B) after the time that the first payment
under the original confirmed plan was due . . . .” 11 U.S.C. §
1329(c). The modification statute thus “defines the temporal
window within which modified payments . . . may be made by
reference to the applicable commitment period.” In re Flores,
735 F.3d at 859-60. In other words, for purposes of plan
modification, the applicable commitment period appears to serve
as a measure of plan duration wholly unrelated to debtors’
disposable income.
In sum, we hold that a plain reading of the Bankruptcy
Code, and Section 1325 in particular, mandates that an above-
median-income debtor maintain a bankruptcy plan for five years
unless all unsecured creditor claims are paid in full and
irrespective of projected disposable income. The Plilers,
above-median-income debtors, are thus obligated to maintain a
five-year plan. The bankruptcy court therefore did not err in
deeming the early termination language in the Plilers’ proposed
plan void as a matter of law and in extending the duration of
the Plilers’ proposed Plan from fifty-five to sixty months,
i.e., to five years.
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B.
With their next argument, the Plilers contend that the
bankruptcy court erred by looking beyond their Form 22C’s
negative disposable income calculation to examine their
Schedules I and J in evaluating their projected disposable
income.
On the one hand, we find problematic the bankruptcy court’s
broad statement suggesting that it is at liberty to abandon
completely the Bankruptcy Code’s disposable income formula in
favor of Schedules I and J, at least when debtors have no
disposable income. See In re Pliler, 487 B.R. at 692 (“If
disposable income is zero or less, the court must look to
projected disposable income based on income minus expenses from
Schedules I and J to determine what actual income or expenses
are known or virtually certain at the time of confirmation.”).
Schedules I and J, which list current income and current
expenditures, may contain items—such as social security income—
that Congress excluded from disposable income. Baud, 634 F.3d
at 345. It is troubling to suggest that a court may “disregard”
such an exclusion “simply because there is a disparity between
the amount calculated using th[e] [disposable income] definition
and the debtor’s actual available income as set forth on
Schedule I.” Id.
14
On the other hand, however, we recognize that projected
disposable income and disposable income are, even simply on
their face, not identical, with disposable income based on a
debtor’s past and projected disposable income being a “forward-
looking” concept that may account for “known or virtually
certain” changes to a debtor’s income or expenses. Lanning, 560
U.S. at 515. See also Morris v. Quigley, 673 F.3d 269 (4th Cir.
2012) (relying on Lanning to hold that debtor’s projected
disposable income must reflect debtor’s intention to surrender
vehicles on which she had been making secured debt payments and
which had impacted her disposable income calculation). And we
do not doubt a bankruptcy court’s ability to consider Schedule
I, Schedule J, or other pertinent evidence to capture “known or
virtually certain” changes to disposable income: After all, the
Supreme Court itself did so in Lanning. Lanning, 560 U.S. at
511.
In this case, however, the bankruptcy court relied on the
Plan payment figure the Plilers themselves had proposed. In the
face of negative disposable income per Form 22C, the Plilers
professed in their proposed Plan that they could make payments
of $1,784 per month, at least for fifteen months. The
bankruptcy court’s order effectively stretched that figure out
to the full five-year applicable commitment period it correctly
15
deemed a requirement. Nothing before us convinces us that the
bankruptcy court erred in so doing.
In sum, we affirm the bankruptcy court’s order. However,
because the order was rendered at a joint session dealing with
other cases and addressing only the common legal issues, it
appears as if the Plilers did not receive an individualized
hearing with an opportunity to present evidence. Thus, to the
extent the Plilers have not yet been given an opportunity to
present evidence regarding, e.g., the feasibility of a $1,784-
per-month, five-year Plan (and both parties indicated at oral
argument that they had not), that opportunity must be made
available on remand.
III.
For the foregoing reasons, we affirm the bankruptcy court’s
order and remand the case for further proceedings.
AFFIRMED AND REMANDED
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