Joe Pliler v. Richard Stearns

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.

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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.

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 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.

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 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).

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 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

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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.

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 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

11
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.

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 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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