Above-Median Income Debtor Who Pays 100% of Unsecured Claims Without Interest Need Not Submit All Disposable Income to Chapter 13 Plan

Above-Median Income Debtor Who Pays 100% of Unsecured Claims Without Interest Need Not Submit All Disposable Income to Chapter 13 Plan

A Chapter 13 Debtor proposed a plan in which he would pay 100% of his unsecured creditors over 60 months with no interest. The Trustee objected to the plan since   the Debtor had failed to commit all of his monthly disposable income to the plan, which if he did so would result in a substantially shorter plan term and quicker payoff for creditors. The Debtor did not want to increase his monthly plan payments or to shorten his the length of his plan. The Trustee asserted that the Debtor should be required to provide for the present value of unsecured creditors’ claims by paying those claims with interest. The issue turns on the interpretation of section 1325(b)(1). The sole issue is whether the Debtor’s proposed Chapter 13 plan satisfies the requirements for confirmation by proposing to pay unsecured creditors in full, but without interest, even though he is not submitting all of his monthly disposable income to the Trustee.

The Debtor is a retiree and receives a substantial pension payment each month, plus Social Security, giving him monthly net income of $7,054.00. After deducting his expenses, his monthly net income as calculated on Schedule J is $4,085.12. The Debtor’s Form 122C-1 shows he is an over-median debtor with a monthly disposable income of $2,020.40 as calculated on Form 122C-2. The Debtor’s Chapter 13 plan proposes a monthly payment of $1,262.00 over sixty (60) months for a total paid in of $75,720.00. After deducting the amounts required for administrative fees, priority and secured claims, the amount remaining, $44,664.25, is sufficient to pay all timely filed unsecured claims in full. The Debtor did not dispute that he has excess disposable income great enough to pay interest on allowed unsecured claims if forced to do so.

The Trustee filed her Confirmation Report, stating that the Debtor’s monthly plan payment should be increased to $2,020.40 or the plan should compensate unsecured creditors with interest. No creditors have objected to the plan, but the Trustee raised her objection at the confirmation hearing.  The Trustee contends that interest is mandated by section 1325(b)(1)(A) since the Debtor is not committing all of his disposable income to the plan.

The Debtor admits that his plan cannot be confirmed under Section 1325(b)(1)(B), because it does not propose to submit all of his monthly disposable income to the Trustee. The Debtor argues that the plan may be confirmed because it proposes to pay all unsecured claims in full, albeit without interest. The Debtor argues that 1325(b)(1)(A) does not require that a debtor pay present value because the phrase “as of the effective date” in section 1325(b)(1) refers only to the timing of the determination.

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