Consumer Bankruptcy Committee

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With Regard to the Income of a Bankrupt’s Nonfiling Spouse: Will BAPCPA's "CMI" Become an Acronym for “Clearly Misinterpreted”?

Once the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) goes into effect, a critical computation for any consumer bankruptcy case will be the debtor's "current monthly income" (CMI).  BAPCPA defines this new term, to paraphrase, as a six-month average of the debtor’s income, and specifically includes amounts paid by entities other than the debtor for regular household expenses. See 11 U.S.C. §101 (10A) (quoted below).  Though undoubtedly intended to provide clear guidance in means testing in chapter 7 and the calculation of disposable income and maximum plan length in chapter 13 cases under BAPCPA, the use of the term may result in volumes of litigation as each court weighs in on what it means in cases involving a non-filing spouse with income.  This article will examine the ambiguity created by the newly defined term “current monthly income” with respect to a non-filing spouse's income in the context of both chapter 7 abuse analysis and chapter 13 disposable income analysis under BAPCPA.

Do the statutory definition of CMI and the sections of the law using that new term read such that in a married bankrupt’s solo filing, the income of the debtor’s non-filing spouse should be considered to assess that debtor’s ability to pay in a chapter 7 case or in a chapter 13 plan? The answer to this question carries significant consequences. The term is used in the new means test of revised §707 to determine a debtor’s ability to repay in chapter 7 and in chapter 13 with respect to the required plan term and, most importantly, by cross reference to §707, to determine a chapter 13 debtor’s available disposable income. Although the definition of the term should provide an answer as to just what is included in CMI, Congress’ choice of words and use of parenthesis create confusion. Following is the relevant part of the definition:

(10A) ‘current monthly income’—

    (A) means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor's spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on—

       (i) the last day of the calendar month immediately preceding the date of the commencement of the case…and

     (B) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor's spouse) on a regular basis for the household expenses of the debtor or the debtor's dependents (and in a joint case the debtor's spouse if not otherwise a dependent), but excludes benefits received under the Social Security Act,…

11 U.S.C. §101(10A).

The language in the parenthesis in the first lines of subparagraphs (A) and (B) seems to suggest that Congress intended to include just the debtor’s income regardless of whether there is a spouse in the household with income because the joint filing is being treated distinctly as evidenced by the parenthetical. This interpretation, which would be preferred by debtors, results in a married debtor filing bankruptcy alone utilizing all income except the income of that debtor’s non-filing spouse. Put another way, Congress must have intended to take into account a spouse’s income only if that spouse is also in bankruptcy, since a joint filing was treated separately by use of the parenthesis.

On the other hand, Congress’ use of the phrase “from all sources” in subparagraph (A) supports an interpretation that would be preferred by creditors. A creditor would argue that a nonfiling spouse’s income should always be counted in CMI because it falls within income “from all sources.” This may seem inconsistent with the language in the parenthesis referenced above; however, further support for this view can be found when looking further into the definition at subparagraph (B), which is connected to subparagraph (A) in the conjunctive. Subparagraph (B) of the CMI definition expands on (A) by including, in relevant part, “any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor’s spouse) on a regular basis for the household expenses of the debtor or the debtor’s dependents….” A creditor would argue that Congress intended to include the income of a nonfiling spouse in CMI, at the very least where it is being used to regularly pay household expenses of the debtor and the debtor’s dependents.

While the position favorable to debtors seems to make more sense upon initial review, the argument that CMI includes the income of a nonfiling spouse is also supported by the language as discussed above and additionally, pre-BAPCPA case law on the treatment of a nonfiling spouse’s income. Prior to the effective date of BAPCPA, the majority of bankruptcy courts across the country, when considering whether a non debtor spouse’s income should be counted to determine a debtor’s ability to repay in a chapter 7 and whether that income should be included in disposable income in a chapter 13, have ruled that a non debtor spouse’s income is part of the analysis.1 Turning from the ambiguity in the CMI definition, the contexts in which this term is found in new BAPCPA provisions also appear to leave room for interpretation in at least three pivotal consumer bankruptcy sections of the Code, §§707, 1322 and 1325.

In §707, which has been substantially revised by BAPCPA to provide for means-based testing of a chapter 7 debtor’s ability to repay, CMI is used in three critical places. First, it is used in the means-test calculation itself to provide an income number from which to subtract expenses and arrive at a monthly amount that the debtor has available to pay. Clearly, the higher the CMI in this equation, the better for creditors, as there will be more money available for repayment. Conversely, the lower the CMI (which would obviously result from excluding a nonfiling spouse’s income), the better for debtors, as there would be less money available for repayment.

CMI is also used in two “standing” provisions within revised §707. Under new subsections (b)(6) and (b)(7) of revised section 707, the term CMI is used to determine standing to bring any abuse motion under §707(b) and abuse motions based on the means test presumption, respectively.

Under subsection (b)(6), only the judge or U.S Trustee may file any motion to dismiss for abuse of chapter 7 if the CMI of the debtor, “or in a joint case, the debtor and the debtor’s spouse,” falls below the state median income. Subsection (b)(7) generally provides that no party, not even the judge or the U.S. Trustee, can file a motion to dismiss for means-test failure when the CMI of both the debtor “and the debtor’s spouse combined” exceeds the state median income level. Interestingly, Congress has explicitly stated in subparagraph (B) of subsection (b)(7) the limited circumstance (a physically separated spouse) under which a nonfiling spouse’s income is to be excluded for that standing calculation.2 The position could be taken that if Congress intended to exclude a nonfiling spouse’s income in other places where CMI is used, then it would be stated as explicitly as it is in subsection (b)(7). Of course, the counter argument could attempt to explain this away as poor draftsmanship.

For chapter 13 debtors, the interpretation of CMI is also critical. Revised §§1322 and 1325 use the term to limit the permissible length of a repayment plan and to define “disposable income,” respectively.

In §1322(d), the term is used in the following context: “If the [CMI] of the debtor and the debtor’s spouse combined…is not less than” the state median income, the plan may not provide for payments for more than five years.3 Thus, it may be clear to the reader that CMI in this context is to include a debtor’s spouse’s income regardless of whether the bankruptcy is joint. However, the definition of CMI, as explained above, could be read to exclude the debtor’s spouse’s income, and arguably that reading could trump what seems to be the clear reading of § 1322(d).

Subsection (b)(2) of §1325 defines “disposable income” as CMI less certain allowed exclusions. Once those exclusions are deducted, the remaining expenses are reviewed under the allowances as provided in §707(b), and thus, the same issue that occurs in chapter 7 abuse analysis will arise in chapter 13 once an objection to confirmation is filed. Chapter 13 debtors, in countering an objection, will have to prove that all of their disposable income is being applied to make payments under the plan. These debtors will, of course, want to exclude their nonfiling spouse’s income to reduce the amount of disposable income and, consequently, their repayment obligation.

The real question is one of statutory construction. Of course, to answer that question, an examination of the language in light of Congress’ intentions should be undertaken. At this point, it is only certain that the use of the term CMI will create confusion and a fair amount of litigation, at least in those cases where there are income earning nondebtor spouses.


1. See, e.g., the substantial abuse cases of In re Schmonsees, No. 01-10844C-7G, 2001 Bankr. LEXIS 1896, 2001 WL 1699664 (Bankr. M.D.N.C. Sept. 21, 2001);In re Engskow, 247 B.R. 314 (Bankr. M.D. Fla. 2000); In re Dempton, 182 B.R. 38 (Bankr. W.D. Mo. 1995); In re Messenger, 178 B.R. 145 (Bankr. N.D. Ohio 1995);In re Strong, 84 B.R. 541 (Bankr. N.D. Ind. 1988); and the chapter 13 cases of In re Bottelberghe, 253 B.R. 256 (Bankr. D. Minn. 2000); In reMcNichols, 249 B.R. 160 (Bankr. N.D. Ill. 2000); In re Ehret, 238 B.R. 85 (Bankr. D. N.J. 1999); In re Bottorff, 232 B.R. 171 (Bankr. W.D. Mo. 1999); In re Carter, 205 B.R. 733 (Bankr. E.D. Pa. 1996); In re Pickering, 195 B.R. 759 (Bankr. D. Mont. 1996); In re Wilkinson, 168 B.R. 626 (Bankr. N.D. Ohio 1994); In re Cardillo, 170 B.R. 490 (Bankr. D. N.H. 1994); In re Schnabel, 153 B.R. 809 (Bankr. N.D. Ill. 1993); In re Belt, 106 B.R. 553 (Bankr. N.D. Ind. 1989); In re Carbajal, 73 B.R. 446 (Bankr. S.D. Fla. 1987); In re Saunders, 60 B.R. 187 (Bankr. N.D. Ohio 1986).

2. In relevant part, §707(b)(7)(B) states:

(B) In a case that is not a joint case, current monthly income of the debtor's spouse shall not be considered for purposes of subparagraph (A) if—
(i)(I) the debtor and the debtor's spouse are separated under applicable nonbankruptcy law; or
(II) the debtor and the debtor's spouse are living separate and apart, other than for the purpose of evading subparagraph (A); and
(ii) the debtor files a statement under penalty of perjury—
(I) specifying that the debtor meets the requirement of subclause (I) or (II) of clause (i); and
(II) disclosing the aggregate, or best estimate of the aggregate, amount of any cash or money payments received from the debtor's spouse attributed to the debtor's current monthly income.

11 U.S.C. §1322(d)(1). Subsection (d)(2) of this section uses the term CMI similarly.