New Maryland Means Test Decision: In re Watson

The Chief Judge of the Maryland Bankruptcy Court, Duncan Keir, has just issued an opinion on several important Means Test issues in In re Watson, BR No. 06-1-1948 DK. A copy may be found on the Court’s website at http://207.41.17.84/frmAnswer.aspx?qTarget=Opinion.

This Chapter 13 case involved two Means Test questions: (1) Could a debtor with no liens on his cars claim both the ownership and operation expenses on the Form 22 for those cars? (2) Should the Court restrict its confirmation analysis to the final number shown on Form 22, or may it also take into account other evidence regarding the Debtor’s income and expenses at the time of confirmation.

(Of side interest is the fact that eCast filed an objection to confirmation, and aggressively participated in the briefing and argument of this issue through its local counsel. It appears that now that the Courts have allowed their “proofless” Proofs of Claim, eCast is now aggressively challenging Plans.)

After summarizing the arguments on both sides of the car expense issue, Judge Keir first rejected In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006). He found that the reasoning in In re Fowler, 349 B.R. 414 (Bankr. D. Del. 2006), was correct, and adopting its holding that a debtor may claim ownership expenses for paid for vehicles on Form 22.

He then addressed the relationship and conflict between “Disposable Income” (under the Means Test) and “Projected Disposable Income” (under I and J). After noting the split between the “Form 22 Applies” camp of In re Farrar-Johnson, 353 B.R. 224 (Bankr. N.D. Ill. 2006) and In re Alexander, 344 B.R. 742 (Bankr. E.D.N.C. 2006), and the “Form 22 is Just a Starting Point” camp of In re McGuire, 342 B.R. 608, 615 (Bankr. W.D. Mo. 2006) and In re Kibbe, __ B.R. __, 2007 WL 512753 (1st Cir. BAP, Feb. 20, 2007), he attempts to strike somewhat of a middle ground, stating:

The Court further holds “disposable income” as calculated on Form B22C is the presumptive “projected disposable income” for application of Section 1325(b)(1)(B). However, by evidence a party may demonstrate “a substantial change in circumstance such that the numbers contained in Form B22C are not commensurate with a fair projection of the debtor’s budget in the future.” Id. [In re Jass, 340 B.R.] at 418. If the presumption is rebutted, a projected budget based upon the evidence, reflecting projected earnings and projected reasonable necessary expenses will govern the determination of “projected disposable income” for purposes of confirmation of the plan.

The practical application of this decision is unknown. The confirmation hearing was continued to allow all parties to present evidence.

Popularity: 3% [?]