Appeals from the United States Bankruptcy Court for the Eastern District of Arkansas.
The opinion of the court was delivered by: Melloy, Circuit Judge.
Submitted: December 12, 2008
Before MELLOY and BENTON, Circuit Judges, and MAGNUSON, District Judge.*fn1
Creditor eCAST Settlement Corporation ("eCAST") and Trustee Joyce Bradley Babin (the "Trustee") appeal the bankruptcy court's*fn2 approval of Debtor Robert Earl Washburn's Chapter Thirteen reorganization plan. The appellants challenge the bankruptcy court's approval of a $471 monthly vehicle-ownership expense for a vehicle that the debtor owns outright and that is not encumbered by a lien. We granted eCAST's motion seeking a direct appeal to our court, and we now affirm the judgment of the bankruptcy court. In doing so, we join the Fifth and Seventh Circuits in construing the plain language of 11 U.S.C. § 707(b)(2)(A)(ii)(I) to permit a debtor with above-median income to claim a vehicle-ownership expense for a vehicle that the debtor owns outright and without encumbrance. In re Tate, 571 F.3d 423 (5th Cir. 2009); In re Ross-Tousey, 549 F.3d 1148 (7th Cir. 2008).
This case involves no disputed facts, and our review relates solely to a question of statutory interpretation. "Because we are reviewing only legal conclusions made by the bankruptcy court, our review is de novo." In re Frederickson, 545 F.3d 652, 656 (8th Cir. 2008), cert. denied, 129 S.Ct. 1630 (2009).
Washburn has above-median income. See 11 U.S.C. § 1325(b)(3). As such, Chapter Thirteen of the Bankruptcy Code requires that his reorganization plan include payment of his "projected disposable income," id. § 1325(b)(1)(B), to his unsecured creditors for an "applicable commitment period" of sixty months. Id.; see Frederickson, 545 F.3d at 660 (holding that a bankruptcy court cannot approve a Chapter Thirteen plan over a trustee's objection if the debtor has above-median income unless the plan "extends for the entire sixty-month applicable commitment period"). Washburn sought to exclude from his projected disposable income $471 per month that he classified as a vehicle-ownership expense related to a vehicle he owned outright. With this amount excluded from his projected disposable income, his monthly payments to creditors during the applicable sixty-month commitment period would be insufficient to pay the claims of his unsecured creditors in full. According to the Trustee's calculations, denial of the vehicle-ownership expense and inclusion of this amount in his monthly payments to creditors would completely satisfy the unsecured creditors' claims.
The term "projected disposable income" is not defined. In a Chapter Thirteen reorganization, courts are to apply the Chapter Seven "means test" to determine "disposable income." 11 U.S.C. § 1325(b)(2)--(3) (defining "disposable income" in part as "current monthly income . . . less amounts reasonably necessary to be expended" for several purposes, and cross referencing 11 U.S.C. § 707(b)(2)(A) and (B) for determination of some of those "amounts"). As relevant to the presently disputed expense, the Chapter Seven means test contains a further cross reference to Internal Revenue Service ("IRS") National and Local Standards to define "applicable monthly expense amounts":
The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the [IRS's] National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the [IRS] for the area in which the debtor resides, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent. . . . Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.
Id. § 707(b)(2)(A)(ii)(I) (emphasis added).
Section 707(b)(2)(A)(ii)(I) separately identifies "applicable monthly expense amounts" and "actual monthly expenses." The vehicle-ownership expense at issue in the present case is one of the "applicable monthly expense amounts" specified in the IRS's Local Standards as a transportation expense. It is undisputed that the separate term, "actual monthly expenses," refers to expenses that the debtor in fact incurs. The question we must resolve in the present case is whether "applicable monthly expense amounts" similarly means an expense that the debtor in fact incurs or whether this term means merely the IRS-designated expense amounts listed as Local Standards applicable in a given geographic region for a debtor's number of vehicles.
Lower courts are split on this issue. See In re Ransom, 380 B.R. 799, 803--06 (9th Cir. BAP 2007) (cataloging cases); see also Ross-Tousey, 549 F.3d at 1156--57 (same). Both interpretations of the statute are reasonable and enjoy textual and policy-based support. Those courts holding that a debtor need not have a vehicle loan or lease payment to claim a vehicle ownership expense amount apply what has commonly been called the plain language approach. The plain language approach relies in large part upon a perceived distinction between the terms "applicable" and "actual" but also enjoys several other textual and policy-based sources of support. Those courts holding that a debtor must have a vehicle loan or lease payment to claim the monthly expense amount apply what has commonly been called the Internal Revenue Manual, or IRM, approach. The IRM approach incorporates a mode of expense analysis borrowed from the Internal Revenue Manual, a manual that revenue agents use to assess delinquent taxpayers' abilities to pay taxes. As applied in the present context, and as described by the separate appellants, the IRM approach would either (1) condition the availability of the categorical expense amount on the existence of a vehicle payment, or (2) permit courts to use the vehicle expenses a debtor in fact incurs up to the categorical amounts specified in the Local Standards.*fn3 Like the plain language approach, the IRM approach enjoys some textual and policy-based support.
II. Fifth and Seventh Circuit Approach
The Fifth and Seventh Circuit Courts of Appeals have addressed this issue and determined that the plain language approach is the better-reasoned mode of analysis. In Ross-Tousey, the Seventh Circuit provided a comprehensive discussion of the statutory text, competing interpretations of the text, competing arguments regarding legislative intent, and policy-based arguments related to the practical consequences of the competing interpretations. See Ross-Tousey, 549 F.3d at 1156--62. The Fifth Circuit adopted the position of the Seventh Circuit, citing Ross-Tousey and incorporating its analysis. See Tate, 571 F.3d at 426--28. The Ninth Circuit, in In re Ransom, ___ F.3d ___, No. 08-15066, 2009 WL 2477609 (9th Cir. Aug. 14, 2009), reached the opposite conclusion.
Having carefully considered the thorough analyses from these circuits and the arguments discussed by bankruptcy appellate panels and district courts that have considered this issue in their appellate capacities, we hold that the plain language approach adopted by the Fifth and Seventh Circuits results in the proper interpretation of 11 U.S.C. § 707(b)(2)(A)(ii)(I). We summarize this approach below and address ...