ABOVE MEDIAN INCOME CHAPTER 13 DEBTOR MUST COMPLETE 5 YEAR PLAN

Coop v. Frederickson (In re: Frederickson), No. 07-03391, 545 F.3d 652 (8th Cir. Oct. 27, 2008) (Wollman, J.)

In Coop v. Frederickson, the Eighth Circuit reversed the holding of the Bankruptcy Appellate Panel and the Bankruptcy Court.

The issues involved were:
1) whether an above median income Chapter 13 debtor must have a Chapter 13 plan for 5 years for the “applicable commitment period”; and
2) whether the Bankruptcy Court could confirm a Chapter 13 plan period shorter than the required “applicable commitment period” when the debtor has a negative “disposable income” as defined in 11. U.S.C. Section 1325(b)(2) and calculated on Form 22C.

11. U.S.C. Section 1325(b)(1) provides that if there is an objection to the confirmation of a Chapter 13 plan, the plan may still be approved but only if:
(i) the plan provides for 100% payment of claims, or
(ii) the plan provides that all of the debtor’s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.

The Eighth Circuit determined that the debtor’s “disposable income” calculation on Form 22C is a starting point for determining the debtor’s “projected disposable income” but the Bankruptcy Court can use its discretion in taking into consideration changes to the debtor’s financial circumstances and the debtor’s actual income and expenses are reported on Schedules I and J.

The Eighth Circuit further determined that the “applicable commitment period” is a temporal requirement that must be met in each Chapter 13 case.

Accordingly, all above median income Chapter 13 debtors will be required to complete a 5 year Chapter 13 plan. In addition, bankruptcy courts will determine the amount of Chapter 13 debtor's plan payments on a case-by-case basis after considering several aspects of the debtor's financial situation.