“Projected Disposable Income” Means What It Says (In re Packet Construction)

By: Donald L Swanson

The opinion is In re Packet Construction, LLC, Case No. 23-10860 in the Western Texas Bankruptcy Court (issued April 30, 2024, Doc. 103).

Subchapter V Issue & Ruling

Here’s the issue raised by the Subchapter V Trustee’s plan objection and the Bankruptcy Court’s ruling thereon.

–Issue

• Debtor’s plan provides for paying projected disposable income to creditors for five years but does not provide for a “true up”—i.e., does not require debtor to pay more if actual disposable income exceeds projections; and
• so, can Debtor’s plan be confirmed as a non-consensual plan?

–Ruling

The Court overrules the Trustee’s objection and confirms Debtor’s plan because:

• Subchapter V does not include a requirement that debtors true up their plan payments if actual income exceeds projected income; and
• a true up requirement cannot be imposed on subchapter V debtors.

Rationale

Here is a summary of the Court’s main points of rationale.[Fn. 1]

–Bankruptcy Code Text

The Bankruptcy Code requires, for a non-consensual plan confirmation in Subchapter V, that “projected” disposable income be paid to creditors. 

Here is the statutory language:

• “the plan provides that all of the projected disposable income of the debtor . . . will be applied to make payments under the plan”; and
• “the term ‘disposable income’ means the income that is received by the debtor and that is not reasonably necessary to be expended—for . . . “ (§ 1191(c)&(d)).

The Bankruptcy Code does not define “projected.” But its normal meaning is: “Estimated or forecast on the basis of current trends or data.”

To require a “true up” is to eliminate the future-looking element indicated by the word “projected” and to read the word “projected” out of the statute.

–Unpersuasive Precedent

The opinion rejects as unpersuasive a contrary Subchapter V opinion out of Florida.  That opinion:  

• finds authority for its true up requirement in two sources:
  • § 105, which authorizes “any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title”; and
  • the All Writs Act (28 U.S.C. § 1651(a))—“all [federal] courts . . . may issue all writs necessary or appropriate in aid of the respective jurisdictions and agreeable to the usages and principles of law”;
• bases its true up on “the facts of this case” without specifying such facts; and
• does not purport to announce a general rule requiring true ups.

–“Projected Disposable Income” in Chapters 12 & 13

Chapters 12 and 13 of the Bankruptcy Code have the same “projected disposable income” requirement for plan confirmation as Subchapter V.

Chapter 13.  Courts overwhelmingly follow a prospective interpretation of “projected disposable income” in Chapter 13 and reject any subsequent “true it up” requirement.  Here are two illustrations:

• in Hamilton v Lanning, 560 U.S. 505 (2010), the Supreme Court says “projected disposable income” must be assessed prospectively—not retroactively; and
• a bankruptcy court explains that a true up in each of the thousands of Chapter 13 cases pending at any given time would result in “an administrative nightmare” for trustees and an expensive monitoring for creditors.

Chapter 12.  In Chapter 12, by contrast, some courts require debtors to true up their payments before receiving a discharge at plan’s end. The leading case is Rowley v. Yarnall, 22 F.3d 190 (8th Cir. 1994), in which the Court:

• holds that Chapter 12 debtors must pay all actual disposable income;
• distinguishes contrary Chapter 11 and Chapter 13 opinions based on legislative history;
• admits that its ruling is contrary to the plain meaning of the text; and
• rejects the plain meaning of “projected” because the result would be “absurd”—i.e., farmers could “simply ‘predict’ that disposable income will be zero.”

Such rationale is unpersuasive because:

• plan projections must be well supported by objective factors; and
• finding an “absurdity” founded on legislative history and policy arguments, over plain textual meaning, is a questionable and unconvincing approach.

–Any Exceptions?

The foregoing does not rule out the possibility of exceptional circumstances in which a court could impose a true up:

• after all, § 1191 says the “fair and equitable” test for confirmation “includes” the “projected disposable income” requirement; but
• the Court is skeptical that such circumstances could actually exist.

And since Congress has spoken directly and clearly, Courts should be very wary of altering Congress’s policy choice.

Conclusion

Here’s a huge “Thank you” to the Western Texas Bankruptcy Court for its In re Packet Construction LLC opinion. 

The Court’s ruling and rationale are a helpful addition to the body of case law on Subchapter V.

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Footnote 1.  The Bankruptcy Court’s opinion contains lengthy discussions of other issues that are important but are too involved for the focus of this article.

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