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Blog 2007 December Ninth Circuit BAP: Means Test is Starting Point for Chapter 13
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Ninth Circuit BAP: Means Test is Starting Point for Chapter 13

Posted By Fresno Bankruptcy Lawyers || 6-Dec-2007

One of the raging debates in Chapter 13 bankruptcy circles is whether projected disposable income for above-median debtors (the amount to be paid to unsecured creditors) is determined using figures from Form 22C (commonly known as the means test) or Schedules I and J (actual income and expenses).

The Ninth Circuit BAP has weighed in on this argument with a Solomon-esque (splitting the baby) opinion. The case is In re Pak. Some courts have held that projected disposable income is whatever Schedules I and J say, just like under the old law. In my opinion, that argument does not make any sense because Congress intended something to happen when they changed the law in 2005. The other extreme says that projected disposable income is taken from Form 22C, end of story. This argument is more logical, but probably goes too far.

In Pak, the court determined that Form 22C is a starting point. If there has been a substantial change since the figures in Form 22C were used, then the court can take those figures into account. The rationale is that the word “projected” must mean something. Form 22C only uses income figures in the past. So, if the income significantly changes, the “projected” income would also change. This case at least makes some sense and gives some guidance. Unfortunately, however, there is another case at the Ninth Circuit Court of Appeals that will be decided soon that could overrule Pak. So, we cannot fully rely on the Pak decision in formulating Chapter 13 plans.

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