Debtor’s Pension Counts as Income When Calculating “Current Monthly Income” and Disposable Income

Debtor’s Pension Counts as Income When Calculating “Current Monthly Income” and Disposable Income

Before this Court is an objection to confirmation of the Chapter 13 plan of reorganization proposed by the Debtor in this Chapter 13 filed by the standing Chapter 13 Trustee.  The issue to be resolved is whether the requirements for confirmation of a Chapter 13 plan can be satisfied if, as here, a debtor fails to include monthly police pension payments in the current monthly income calculation.

The Debtor filed a voluntary petition for relief under Chapter 13 of the bankruptcy Code on July 11, 2016. On Schedule B, the Debtor disclosed his interest in a pension plan with the City (“Pension”), but listed the value as “unknown.” The Debtor also exempted the Pension under state law, but he listed the amount exempt as “100% of fair market value, up to an applicable statutory limit.” On Schedule I, the Debtor listed the Pension over about $3,200.00 per month. On Schedule J, however, he deducted the $3,200 Pension as an expense, claiming that it was “exempt from estate.” The Debtor’s Schedule J shows his monthly disposable income as $335.91. The Debtor did not list his Pension income on Form  as Currently Monthly Income Statement (Form 122-C1) and claimed that he was under the applicable median income.

The  proposed Plan payments were $336/month for 36 months. The only payments to be made under the Plan are $4,750 to be paid to Debtor’s counsel and $6,288.to to general unsecured creditors, representing an approximate  dividend of 6.86% (total unsecured claims are estimated at $74,980.93).

The Trustee objects to the plan on two grounds. First, the Trustee says the Plan cannot be confirmed, because in omitting the Pension Payments from the CMI calculation, the Debtor failed to include all of his projected disposable income, as required by §1325(b)(1)(B). Furthermore, accounting for the Pension Payments in the CMI calculation, results in total income above the applicable median, which requires the Debtor to propose a plan with a 5-year commitment period pursuant to § 1325(b)(4). Second, the Trustee says that the Plan is not proposed in good faith, as required by § 1325(a)(3) and (7), because it allows the Debtor to acquire $118,224.00 from his Pension over 36 months while requiring the Debtor to pay only $6,288.50 to unsecured creditors.

In response, the Debtor maintains that his interest in the Pension and the Pension Payments
are not required to be contributed to his chapter 13 plan. First, the Debtor argues that the Pension Payments are not “income” as commonly defined and are not “current monthly income’ as defined in the Bankruptcy Code. Further, the Debtor says, the Pension is not part of his bankruptcy estate because it is either excluded or exempt, and, therefore, the payments from it cannot be reached by the Trustee or creditors.

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