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Judge Utschig: Current monthly income must be based on actual income

By David Ziemer
[email protected]

What the court held

Case: In re Mancl, No. 06-10764-13.

Issue: Is “current monthly income” to be based on circumstances at the time of filing, or current conditions?

Holding: Current conditions, if the Form B22C does not reasonably project future income.

Attorneys: For Debtors, George B. Goyke, Wausau; Trustee, Leslie Brodhead Griffith, Madison.

A debtor’s “current monthly income” (CMI) should be based on actual current income, rather than income at the time of filing, U.S. Bankruptcy Judge Thomas S. Utschig held on Aug. 24.

However, the issue is one that has divided bankruptcy courts around the country, and the opinion won’t be the final word on the question. For now, however, it creates a split of authority, not just with other bankruptcy courts around the nation, but within Wisconsin.

When debtors file for bankruptcy in the Western District and the case is assigned to Judge Utschig, CMI will be based on actual current income and expenses. If they file in the Eastern District, CMI will be based on income and expenses at the time of filing — at least if the case is assigned to Judge Susan V. Kelley.

In the case at bar, Daniel and Carol Mancl filed for bankruptcy under chapter 13 in the Western District of Wisconsin. For six months prior to filing, Daniel had been injured and unable to work. He was receiving disability payments substantially less than his normal wages.

Daniel has since returned to work, and his real income is now higher than the current monthly income used on the Form B22C.

As a result, the trustee objected to confirmation of their plan, and Judge Utschig sustained the objection.

The court began by noting the split of authority on the issue.

Several courts have concluded that the Form B22C is not conclusive of a debtor’s projected disposable income, and that a court may consider actual income and expenses. In re Slusher, 359 B.R. 290 (Bankr.D.Nev. 2007); In re Jass, 340 B.R. 411 (Bankr.D.Utah 2006); and In re Hardacre, 338 B.R. 718 (Bankr. N.D.Tex. 2006).

Others, including a court in Wisconsin, have concluded that income and expenses are determined at the time of filing. In re Guzman, 345 B.R. 640 (Bankr.E.D.Wis. 2006); In re Hanks, 362 B.R. 494 (Bankr.D.Utah 2007); In re Barr, 341 B.R. 181 (Bankr.M.D.N.C. 2006); and In re Alexander, 344 B.R. 742 (Bankr.E.D.N.C. 2006).

Judge Utschig joined those courts to have held that the B22C is not conclusive of projected income, reasoning, “Blind adherence to the Form B22C for the determination of a debtor’s income could lead to arbitrary results based solely on the timing of a petition, potentially penalizing both debtors and creditors unfairly.”

As an example, the court cited a case in which a debtor’s disposable income decreased after filing because of medical problems not reflected at the time of filing. In another, the debtor suffered a heart attack and loss of income after filing.

As in those cases, Utschig found that “current monthly income” at the time of filing was “an economic aberration rather than either a historical norm or a realistic future forecast.”

The court noted that, were the situation reversed, the Mancls “would undoubtedly ask the Court to consider their actual income rather than the historical ‘snapshot’ contemplated by the means test.”

Accordingly, the court adopted the following standard, recently set forth in the case of In re Arsenault, 2007 WL 1956277 (Bankr.M.D.Fla 2007): the Form B22C should be the basis for projected disposable income unless there is evidence that simply using the historic six-month snapshot does not form a reasonable basis for projecting income forward.

Because there is such evidence in this case, the court sustained the trustee’s objection to confirmation of the plan.

David Ziemer can be reached by email.

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