Will In re Flores Finally Settle the Applicable Commitment Period Question When Filing Chapter 13 in the 9th Circuit?

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On August 29, 2013, the Ninth Circuit Court of Appeals (En Banc) issued their opinion in the matter of Cesar Ivan Flores and Ana Maria Flores, No. 11-55452. Hopefully this opinion will finally put to rest how long the applicable commitment period is when seeking reorganization under Chapter 13 of the Bankruptcy Code. That is, how long does a Chapter 13 Plan have to be? The Ninth Circuit issued this opinion “En Banc” which is significant given that prior inconsistent opinions were issued by a divided panel of Ninth Circuit Judges. All Judges of the Ninth Circuit participated in this opinion, so the Flores opinion is binding.

So what is the applicable commitment period for a Chapter 13 Plan? It is how long the Chapter 13 Plan of reorganization will last or how many monthly Chapter 13 Plan payments a debtor has to make before receiving a discharge of their remaining debts. The Bankruptcy Code says the applicable commitment period is either 3 years or not less than 5 years if the debtors current monthly income when multiplied by 12 is not less than the median annual family income in the applicable state. Each state has different median incomes to compare to a debtors income. Your bankruptcy attorney should know the median incomes for your particular state. In California the median incomes by number of people in a household right now are follows:

Household of 1 $48,415 per year or $4,035 per month
Household of 2 $63,030 per year or $5,253 per month
Household of 3 $48,415 per year or $5,617 per month
Household of 4 $63,030 per year or $6,305 per month
Household of 5 $48,415 per year or $6,980 per month
Household of 6 $63,030 per year or $7,655 per month
Household of 7 $48,415 per year or $8,330 per month
Household of 8 $63,030 per year or $9,005 per month

In the Flores case the debtors’ income was not in dispute and it was over the median income based upon the number of people in their household. So the applicable commitment period should arguably be five years. The Flores’ and their bankruptcy lawyer proposed a plan of three years though given that their Chapter 13 Statement of Monthly Disposable Income resulted in either $0.00 or negative monthly disposable income. Here is where the different decisions from different jurisdictions comes into play. The Kagenveama case led to confusion or an argument that if a debtors projected monthly disposable income was negative there is no applicable commitment period and a three month plan in theory could be confirmed/approved. So the Ninth Circuit in Flores tells us that “in light of the statute’s text, purpose, and legislative history, we now hold that the temporal requirement of §1325(b) applies regardless of the debtor’s projected disposable income. What does that mean? It means if your average income for the six months prior to filing for Chapter 13 protection is above the median income in California as listed above you will have to file a 5 year Chapter 13 Plan of reorganization. If you live in another state the median incomes will be different. It appears we are now back to how things were prior to the Kagenveama and Lanning cases to determine the term or length of Chapter 13 Plans.

As the former staff attorney for a Chapter 13 Trustee I can tell you that in most cases the commitment period is not an issue. The majority of cases filed include a Chapter 13 Plan of reorganization that is 60 months or five years because it makes the monthly Chapter 13 Plan payment less than if the Chapter 13 Plan was proposed for only 36 months. A debtor may choose to propose a 60 month Chapter 13 Plan even though their income is less than the median income in their state. For example, if a debtor has $15,000 in priority taxes they are paying back in a Chapter 13 Plan the 36 month payment would be about $416.67 per month and a 60 month payment would be $250.00 per month. The debtor may not be able to afford to pay $416.67 a month and have to file the 60 month plan anyway. Many bankruptcy attorneys pushed the envelope though and tried to propose plans that were only 6 months long or 12 months long. Their clients had negative projected monthly disposable income so arguably there was not a required applicable commitment period.