Kagenveama Still Alive – In re Flores – Congratulations to Nancy Clark

Danielson v. Flores (In re Flores), — F. 3d — 2012 WL ————(9th Cir. August, 2012)

Issue:   May “a debtor with no ‘projected disposable income’ confirm a plan that is shorter in duration than the ‘applicable commitment period’ found in §1325(b)”?

Holding:   Yes, the 9th Circuit ruling in Kagenveama is still binding as to the applicable commitment period.

Appeal from Bankruptcy Court – direct appeal
Bankruptcy Judge Meredith Jury
Attorney for Defendants, Nancy Clark

Judge Chen for the majority and Judge Susan Graber dissenting.

These are above-median chapter 13 debtors whose “monthly ‘disposable income,’ as that term is defined in the Bankruptcy Code, is negative.”  The debtors proposed to pay $148 per month for 36 months.  The trustee objected that the applicable commitment period was 60 months.  The court agreed and confirmed the plan for 60 months.

The 9th Circuit reversed.  It said that it was required to follow Kagenveama unless that case “is irreconcilable with and thus implicitly overruled” by the Supreme Court in Lanning v. Hamilton.  “Lanning did not address the meaning of ‘applicable commitment period.’  Its holding only concerned the interpretation of ‘projected disposable income.’”  “We conclude [that Lanning did not overrule Kagenveama] for two reasons.  First, the overall analytical framework of Lanning, which (1) employed a textual analysis of statutory language at issue, (2) reviewed pre-BAPCPA practice, and (3) examined policy consequences of a contrary interpretation, is consistent with our overall analytical approach in Kagenveama.  Second, the application of Lanning’s three-factor analysis in construing ‘projected disposable income’ does not mandate any particular interpretation of the different term ‘applicable commitment period.’”  “[U]nder Kagenveama, once PDI has been calculated according to Lanning, ‘applicable commitment period’ remains a fixed term of either three years or five years under (b)(4); it simply does not go into effect for debtors who have no projected disposable income.”  As to the argument that debtors should be required to pay as much as they can afford for five years (i.e., payments they can “easily make”) the 9th Circuit said, “As Kagenveama found, the only circumstance in which a debtor can avoid the applicable commitment period is if she has no projected disposable income.  At that point, the court has already determined that there are no such ‘payments that the debtor could easily make’ as defined by the Bankruptcy Code.”

In her dissent, Judge Graber said, “In Lanning, the Court rejected the practical consequences resulting from a ‘mechanical’ calculation of projected disposable income.”  “[W]e should consider most strongly the intent of Congress (to require debtors to pay creditors what they can readily afford) and the need for national uniformity in the application of the federal bankruptcy laws.  Those two factors compel the conclusion that Kagenveama no longer is good law.”

Note:  The third judge on this panel was Harry Pregerson who was one of the three judges on the Kagenveama panel.

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