Opinion
Case No. 8:19-bk-08490-RCT
11-20-2020
In re: John M. Rivera, Debtor.
Chapter 13 MEMORANDUM DECISION AND ORDER SUSTAINING CHAPTER 13 TRUSTEE'S OBJECTION TO CONFIRMATION , DENYING CONFIRMATION OF DEBTOR'S AMENDED PLAN, AND PROVIDING LEAVE TO FURTHER AMEND THE PLAN
Before the Court are the Debtor's Amended Chapter 13 Plan (Doc. 32) (the "Plan") and the Chapter 13 Trustee's Unfavorable Recommendation and Objection Concerning Confirmation of the Plan (Doc. 13) (the "Objection"). Following a duly noticed confirmation hearing, the Court set the Objection for trial.
The Plan is Debtor's third proposed in this chapter 13 case. Since the original plan, which was filed along with the petition, Debtor has amended the plan to surrender a 2018 Yamaha Jetski and trailer and as discussed herein, to increase his monthly plan payment to account for certain additional income received post-petition.
Issue Presented
The narrow issue the Court must decide is whether Debtor John M. Rivera ("Debtor") must account for, on a going forward basis, certain bonus income as "projected disposable income" under 11 U.S.C. § 1325(b)(1)(B) and dedicate future bonuses to his chapter 13 plan. The parties agree that the law governing the analysis comes from the holding in Hamilton v. Lanning, 560 U.S. 505 (2010).
The chapter 13 trustee (the "Trustee") argues that Debtor's receipt of certain bonus income both prepetition and since the filing at the same time of the year indicates a "sufficient pattern of earning bonuses" and given that "[t]here has been no evidence presented and no indication by Debtor that he will not receive bonuses in the future," Debtor must commit the bonuses received in future years to the plan.
Doc. 31 (Trustee's Memorandum of Law Regarding Trustees' Objection to Confirmation) ¶ 11.
Debtor does not dispute that he received the prior bonuses as alleged by the Trustee. But he argues that because "there has been no evidence presented that he will receive income bonuses in the future," any such bonus income is not properly characterized as "projected disposable income" under § 1325(b)(1)(B) and, thus, he should not be required to account for such income nor dedicate it, if received, to his chapter 13 plan.
Doc. 33 (Debtor's Memorandum of Law Regarding Trustee's Objection to Confirmation) ¶ 3.
Stipulated Record
Following a trial at which no witnesses were called and all exhibits were admitted without objection, the parties agreed that the net bonus received by Debtor post-petition in February 2020 must be paid into the plan. Debtor recently amended his Plan to account for that bonus.
Doc. 26 (Trustee's Exs. 1-4 ("Tr.'s Ex(s). ___")).
At a post-trial hearing, the parties agreed to reopen the evidentiary record to admit additional evidence of prepetition bonuses received by Debtor. Counsel for the Trustee read into the record relevant details of additional pay advices, which Debtor's counsel confirmed.
It is stipulated the Debtor received the following bonuses:
Tr.'s Exs. 2 & 3; R. of Hr'g on Nov. 18, 2020.
| Date Received | Gross Amount | Earnings Description | Earnings Date |
|---|---|---|---|
| 2/19/2016 | $5,000 | Corp Bonus | 01/01/2015-12/31/2015 |
| 2/17/2017 | $5,300 | Corp Bonus | 01/01/2016-12/31/2016 |
| 2/16/2018 | $2,600 | Corp Bonus | 01/01/2017-12/31/2017 |
| $5,000 | Corp Bonus | 01/01/2018-12/31/2018 | |
| 2/14/2020 | $7,500 | Corp Bonus | 01/01/2019-12/31/2019 |
| 4/24/2020 | $1,000 | Special Cash Bonus |
The precise date of this "Corp Bonus" is unclear, but the parties stipulated that it was received at approximately the same time of the year as the other similarly described bonuses.
The "Special Cash Bonus" was received as part of Debtor's April 24, 2020 pay advice. Though that pay advice indicated earning "Dates" as "04/05/2020-04/18/2020," the pay period for which the advice covered, no later pay advice reported any dates but rather referenced the bonus for year-to-date reporting purposes only. Tr.'s Ex. 3.
Discussion
In Hamilton v. Lanning, the Supreme Court adopted the "forward looking approach" for determining "projected disposable income" under § 1325(b)(1)(B) of the Bankruptcy Code. The Court determined that "the plain statutory language as written in § 1325 should be the starting point for each case, but allowed for a narrow exception to be considered in unusual cases." "It is only in unusual cases that a [bankruptcy] court may go further and take into account other known or virtually certain information about the debtor's future income or expenses." The analysis, by its nature, requires a case-by-case assessment of a debtor's circumstances at the time of confirmation.
560 U.S. 505, 524 (2010).
In re Murchek, 479 B.R. 521, 526 (Bankr. N.D. Iowa 2012) (quoting In re Richter, No. 10-01260, 2010 WL 4272915, at *5 (Bankr. N.D. Iowa Oct. 22, 2010)).
Hamilton, 560 U.S. at 519.
See, e.g., In re Styerwalt, 610 B.R. 356, 370 (Bankr. D. Colo. 2019); In re Murchek, 479 B.R. at 529.
In this case, it all comes down to the burden of proof. Without doubt, debtors bear the ultimate burden of proving their chapter 13 plans are confirmable under the Bankruptcy Code. Here, Debtor has satisfied his burden under the usual test, i.e. by filing a sworn Official Form 122C ("Form 122C"), for determining the amount of monthly disposable income that he must devote to his chapter 13 plan.
See, e.g., Itule v Heath (In re Heath), 182 B.R. 557, 560-61 (B.A.P. 9th Cir. 1995).
But the question becomes then, once an objection to confirmation has been lodged that triggers the analysis under § 1325(b)(1), who bears the burden to demonstrate that the case is "unusual" such that the court should deviate from the calculation provided by a debtor's Form 122C? In Hamilton, it was the debtor who argued for the unusual case that a prepetition buy out was not virtually certain to reoccur. While in In re Styerwalt, it was the chapter 13 trustee who urged the debtor's bonus income was "virtually certain." Upon close review of Hamilton and its prodigy, the Court concludes that the initial burden of proving the unusual circumstances logically falls on the party asserting that unusual circumstances require the court to deviate from the calculation on the official form.
Here, it is the Trustee asserting that Debtor's Form 122C does not accurately reflect the Debtor's projected disposable income, thus the Trustee bears the initial burden to demonstrate that the case is "unusual" and that alleged changes in the Debtor's income, or expenses as the case may be, are "known or virtual certain" as of the time of confirmation and are not reflected in the proposed plan. If the Trustee meets that initial burden, the burden shifts to the Debtor, who as the plan proponent, must prove his plan meets the requirement of § 1325 of the Code.
See In re Ramos, 494 B.R. 181, 186 (Bankr. D.P.R. 2013); In re Welsh, 440 B.R. 836, 847 (Bankr. D. Mont. 2010), aff'd, 465 B.R. 843 (B.A.P. 9th Cir. 2012), aff'd, 711 F.3d 1120 (9th Cir. 2013); see generally In re Heath, 182 B.R. at 560-61 ("[C]ourts examining the burden of proof issue as it relates specifically to Section 1325(b) have concluded that the creditor has, at a minimum the initial burden of producing satisfactory evidence to support the contention that the debtor is not applying all of his disposable income to the plan payments." (internal quotation omitted)).
See In re Ramos, 494 B.R. at 186-87; In re Murchek, 479 B.R. at 530-32.
Though a close call, upon review of the limited record, the Court finds that the Trustee has meet her initial burden. It is undisputed that Debtor received a not-so-insignificant bonus in February of each year from 2016 to 2020 and that neither Debtor's draft Form 122C nor his Plan account for Debtor's receipt of these bonuses. The Trustee argues that Debtor's history of annual "Corp Bonus[es]" establishes a pattern, a pattern she notes that began prepetition and that has continued after the bankruptcy was filed. The Court agrees. Though little may be gleaned from the pay advices regarding the nature of the bonuses, each of which is described simply as "Corp Bonus," and though the bonuses fluctuate in amount, the pattern suggests that Debtor receives a bonus annually in February and that Debtor will continue to receive a similar annual bonus throughout the chapter 13 plan.
Tr.'s Ex. 1.
Cf. In re Ramos, 494 B.R. 181; In re Grabarczyk, No. 10-37007, 2012 WL 5409373, at *1 (Bankr. N.D. Ohio Nov. 6, 2012).
The Trustee also cites to the "Special Cash Bonus" received by Debtor in April 2020 in support of her argument that Debtor's receipt of the bonuses establishes a pattern. Given its different description and its singular occurrence at a different time of the year, it cannot realistically be considered part of the pattern. And its receipt as part of Debtor's regular pay advice rather than by separate advice further distinguishes it from a "Corp Bonus." Moreover, the description suggests that the bonus was unexpected. In short, Debtor's receipt of the "Special Cash Bonus" is not part of a pattern of regularly received payments "virtually certain" to continue throughout the chapter 13 plan and, therefore, should not be considered part of Debtor's projected disposable income.
But even excluding the "Special Cash Bonus," the Court finds that the Trustee has met her initial burden. The burden having shifted, the Court also finds that the Debtor has failed to show that it was "known or virtually certain" that the pattern of Debtor receiving an annual bonus would not continue throughout the chapter 13 plan. The limited record distinguishes this case from In re Styerwalt where the Court, and the parties, had the benefit of a more robust evidentiary record including, perhaps importantly, the testimony of the debtor.
See In re Styerwalt, 610 B.R. at 364-65, 370-72.
What is absent from this record is any evidence about the nature of these bonuses that suggests they are not regularly received. Might they be, as in In re Styerwalt, more in the nature of profit sharing? Perhaps. Is Debtor's employer doing well enough amid a national pandemic to continue any type of bonus? Maybe. Does Debtor have any control over whether a bonus is awarded or over the amount? Unknown. Hamilton instructs that the virtual certainty of a particular change in the debtor's income or expenses, such as the bonuses, is determined at the time of confirmation. Unfortunately for Debtor, the limited record before the Court establishes a pattern of regularly received annual bonuses that began prepetition and has continued after the bankruptcy was filed indicating this is an "unusual" chapter 13 case that warrants deviation from the calculation on the Form 122C.
Because the Court finds that the Trustee meet her initial burden to demonstrate this case is "unusual" and that the bonuses are "virtually certain" to continue and further that the Debtor failed to demonstrate he has dedicated all his projected disposable income to the Plan, the Trustee's Objection must be sustained and confirmation of the Plan denied.
At trial, the Trustee and Debtor's counsel attempted to resolve the Trustee's Objection with some practical and admittedly efficient solutions. The Court appreciates those efforts. But while the tools that were discussed, namely devoting some fixed percentage of future bonuses to the plan, may be appropriate for a settlement, they are not available to the Court to impose upon a debtor under the Bankruptcy Code.
The Code requires that debtors provide for "all" of their projected disposable income to be paid into their plans. But the calculation of a debtor's disposable income may, and arguably must, account for the withholding of taxes and may also take into consideration retirement contributions.
§ 1325(b)(1)(B). --------
For these reasons, it is
ORDERED:
1. The Objection (Doc. 13), to the extent based upon the failure to dedicate all disposable income to the plan as required by 11 U.S.C. § 1325(b)(1)(B), is SUSTAINED.
2. Confirmation of the Plan (Doc. 32) is DENIED, without prejudice.
3. Debtor shall have thirty (30) days from entry of this Order to file an appropriate amended chapter 13 plan.
ORDERED.
Dated: November 20, 2020
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Trustee Kelly Remick is directed to serve a copy of this Order on interested parties who do not receive service by CM/ECF and to file a proof of service within three days of its entry.