Bloomberg Law’s® Bankruptcy Law News publishes case summaries of the most recent important bankruptcy law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy...
By Daniel Gill
June 6 — A Chapter 13 debtor who receives use of a car as part of her compensation does not have to include the value of the car in the calculation of her current monthly expenses, a bankruptcy court decided ( In re Perez, 2016 BL 178453, Bankr. E.D. Wis., No. 15-31645-svk, 6/3/16 ).
Susan V. Kelley, Chief Judge for the U.S. Bankruptcy Court for the Eastern District of Wisconsin, ordered that even though a debtor has to include the value of the use of a car as part of her income for income tax purposes, that value does not have to be included in an analysis of current monthly income for Chapter 13 plan confirmation purposes.
The court looked at dictionary definitions of the term “income,” as well as definitions established by the Internal Revenue Code and the Census Bureau. The court found the Census Bureau's definition to be persuasive, and that definition excludes non-monetary benefits, such as the use of a car.
On Oct. 20, 2015, Melissa Marie Perez filed a Chapter 13 petition and sought to have her plan confirmed by the court. Chapter 13 bankruptcy allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three to five year period.
The debtor was a sales person for a car dealership. As part of her compensation, the debtor receives use of a “demo vehicle,” which, according to her pay stubs, has a monthly value of $625.83. The debtor did not include this income in her analysis when she filed her proposed plan, and the Chapter 13 trustee assigned to her case objected to the plan because of the omission.
Apparently including the value of the car pushed the debtor's income above the median income in the state. The effect of being over the median is significant. Under Section 1325(b)(4) of the Bankruptcy Code (11 U.S.C. §1325(b)(4)), a debtor with an income below the state median can confirm a plan with only three years of payments; a debtor earning at or above the median, however, must propound a plan for payments over five years.
In addition, the total income affects the amount required to be paid to the debtor's creditors over time. The court was concerned that if she had to include the value of the use of the car, the debtor would have to include that value as part of her plan payments, even though it gave her no money which she could use to make those payments.
The bankruptcy court considered dictionary definitions of the term “income,” as well as definitions established by the Internal Revenue Code and the Census Bureau. The latter analysis was persuasive, the judge explained, because it is the Census Bureau which establishes the median incomes against which debtors' incomes are to be measured.
The court concluded that the Census Bureau's definition was the most appropriate, and that excludes non-monetary benefits, such as the use of a car in this case. The court said that it was the logical choice “because the function of CMI is to determine to what degree a debtor is able to make payments to creditors.”
The court said that using the analysis proposed by the objecting trustee would put the debtor over the median (thereby requiring a five, rather than three year plan) and would force her to fund the plan with income that she does not “physically receive.”
The debtor was represented by Michael J. Watton, Milwaukee. The trustee, Mary B Grossman, also from Milwaukee, appeared on her own behalf.
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