Bankruptcy – Chapter 13 – Secured ATVs – Turnover to Creditors – Monthly Payments – Additional Income

Morris v. Quigley (Lawyers Weekly No. 12-01-0311, 9 pp.) (Traxler, J.) No. 09-2102, March 7, 2012; USDC at Wheeling, W.Va. (Stamp, J.) 4^th Cir. Full-text opinion.

Holding: A chapter 13 debtor who planned to turn over to secured creditors two ATVs, for which she paid $163 per month, should have accounted for that additional income in calculating her projected disposable income, and the 4^th Circuit reverses a district court order upholding the bankruptcy court decision that debtor could deduct the monthly payments that she would not be required to make.

In this case, it is undisputed that debtor’s revised plan will not provide for full payment to the unsecured creditors. Therefore, to be confirmable, the plan must allot all of debtor’s projected disposable income during the plan period to payments to unsecured creditors. The question here is whether the bankruptcy court erred in concluding debtor’s projected disposable income should not take into account her intention to surrender her two ATVs to her secured creditors.

We must decide whether a debtor’s “projected disposable income” must be equal to the debtor’s “disposable income” for purposes of satisfying 11 U.S.C. § 1325(b)(1)(B), or whether the projected disposable income should reflect changes that have occurred or that will occur and that are known as of the date of plan confirmation. We conclude the answer to this question lies in the reasoning of Hamilton v. Lanning, 130 S. Ct. 2464 (2010), decided after both the bankruptcy and district court decisions in this case.

Debtor maintains that even though it was known that she would not have to make the ATV payments during the plan period, her case did not present “exceptional” circumstances, such that the bankruptcy court would have discretion to take them into account. She argues the relatively small amount of the ATV payments were not sufficient to warrant the bankruptcy court’s consideration of them. She alternatively argues the bankruptcy court was not required to consider that she would not actually be making the ATV payments. We disagree on both counts.

The amount of money at issue here is hardly inconsequential. In fact, it is quite significant in the context of this bankruptcy: the total amount that the debtor sought to shield over the life of her chapter 13 plan by deducting the ATV payments was $9,799.80 and removing that deduction would increase the debtor’s projected disposable income by almost two-thirds.

We conclude the bankruptcy court erred in ruling the determination of debtor’s projected disposable income would not take into account debtor’s intention to surrender the ATVs.

The district court order affirming the bankruptcy court is reversed, and the case is remanded for further proceedings.