Harold A. Edmonson and Bernadette M. Edmonson

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UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	HAROLD A. EDMONDSON and 	No. 13-06-11422 MA
BERNADETTE M. EDMONDSON,
Debtors.
ORDER ON CONFIRMATION OF DEBTORS’ CHAPTER 13 PLAN
This matter is before the Court on confirmation of Debtors’ Chapter 13 Plan. The
Debtors’ income is above the standard median income for a family of their size in this district.
The Court previously determined that “projected disposable income” under 11 U.S.C. §
1325(b)(1)(B) for above-median income debtors is calculated by using the Debtors’ current
monthly income reported on the Statement of Current Monthly Income and Calculation of
Commitment Period and Disposable Income (Form B22C), as may be adjusted by Debtors’
actual income reported on Schedule I, less the standardized expenses allowed under 11 U.S.C. §
1325(b)(3) and subparagraphs (A) and (B) of 11 U.S.C. § 707(b)(2). (See Docket # 41). 	Since
the Court’s ruling, the Debtors filed Amended Schedules I and J, and an Amended Form B22C.
Creditor eCAST Settlement Corporation, assignee of Bank of America/FIA Card Services,
formerly MBNA (“eCAST”) filed a Supplemental Objection to Confirmation of Plan and
supporting memorandum.
At the final hearing on May 31, 2007, the remaining objections to confirmation of
Debtors’ plan were narrowed to the following: 	1) whether Debtors may deduct as an expense
the mortgage payments associated with a rental property from which they no longer receive
income; 2) whether Debtors may deduct their actual mortgage expense on Form B22C or are
limited to $823.00 for mortgage expenses as established under the Internal Revenue Service
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1Cf. In re Love, 350 B.R. 611, 614 (Bankr.M.D.Ala. 2006) (concluding that debtor cannot
deduct payments on secured debts associated with property the debtor intends to surrender); In re
Crittendon, 2006 WL 2547102 *4-*5 (Bankr.M.D.N.C. 2006) (concluding in the context of
confirmation of a chapter 13 plan that payments on property the debtors will surrender do not
constitute payments to secured creditors under § 707(b)(2)(A)(iii) and cannot be deducted for
purposes of computing projected disposable income); In re McGillis, ___ B.R. ___, 2007 WL
1549071 *8 (Bankr.W.D.Mich. 2007) (finding that, for purposes of calculating projected
disposable income, debtors could not deduct expenses for time share which they intended to
surrender and for second mortgage the plan stated debtors would avoid).
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standards; and 3) whether Debtors’ expense of $250.00 per month representing payments for
cancer insurance is a reasonable and necessary expense. Debtors represented to the Court that
they now intend to surrender the rental property. 	Further, based on changes in appropriate tax
withholding amounts, reduced actual charitable contribution amounts, and reduced expenses for
cellular telephone service, internet service, and satellite television, Debtors agree that the starting
figure for monthly plan payments is $1,545.00, not $1071.00 as proposed in their plan. 	Debtors
also agreed to contribute to their plan any tax refunds they receive over the life of the plan. At
the conclusion of the hearing, the Court directed the Debtors to file an amended plan which
provides for surrender of the rental property and adjusts the proposed monthly payment figure.
Because the Debtors are surrendering the rental property, the Court determined that the
expenses associated with that property may not be deducted as expenses in computing the
Debtors’ projected disposable income. 1 The Court also ruled, based on the testimony of
Bernadette Edmondson, that the Debtors’ monthly expense for cancer insurance is reasonable
and necessary. 	The sole remaining issue is the proper expense deduction attributable to the
Debtors’ residential mortgage. After reviewing the parties’ memoranda, and being otherwise
sufficiently informed, the Court finds that Debtors may deduct their actual monthly mortgage
expense in computing their projected disposable income under 11 U.S.C. § 1325(b)(1)(B).
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2There is a $36.00 discrepancy in the monthly mortgage payment reported on Debtors’
Amended Schedule J and the amount reported on Line 47 of Form B22C. 	Debtors’ Amended
Schedule J reflects a monthly mortgage expense of $1,729.06, while Debtors’ Amended Form
B22C reflects a monthly mortgage payment attributable to their residence in the amount of
$1,765.06.
3See 11 U.S.C. § 1325(b)(3)(A), (B), and (C).
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FACTS AND DISCUSSION
Debtors current monthly income is above the median income of a family of their size in
this district. Debtors’ monthly mortgage payment, which includes monthly property tax
proration, monthly homeowners’ insurance proration and monthly homeowners’ association fee
is $1,765.06. 2 On lines 25Ba. and b. of Debtors’ Amended Form B22C, Debtors list the IRS
standard housing expense in the amount of $823.00, and report that the average monthly
payment for any debts secured by their home is $1,765.00. 	Because the Debtors’ average
monthly mortgage payment is more than the IRS standard housing expense, Debtors have
entered $0.00 as the total on Line 25B of Debtors’ Amended Form B22C. 	On Line 47 of
Debtors’ Amended Form B22C, Debtors include their average monthly mortgage payment on
their home in the amount of $1,765.06. 	That figure has then been deducted by the Debtors in
computing their projected disposable income on Amended Form B22C.
Because the Debtors’ income is greater than the median income for a family of the same
size living in New Mexico 3, 11 U.S.C. § 1325(b)(3) limits “reasonable and necessary expenses”
under 11 U.S.C. § 1325(b)(2) to the expenses determined in accordance with 11 U.S.C. §
707(b)(2)(A) and (B). See 11 U.S.C. § 1325(b)(3). Pursuant to 11 U.S.C. § 707(b)(2)(A)(ii)(I),
a debtor’s monthly expenses
shall be the debtor’s applicable monthly expense amounts specified under the
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National Standards and Local Standards, and the debtor’s actual monthly
expenses for the categories specified as Other Necessary Expenses issued by the
Internal Revenue Service for the area in which the debtor resides . . .
11 U.S.C. § 707(b)(2)(A)(ii)(I).
Creditor eCast contends that because 11 U.S.C. 707(b)(2)(A)(ii)(I) requires that expenses
be determined by the IRS National and Local Standards, the Debtors are strictly limited to the
$823.00 IRS Standard housing expense and may not deduct their actual mortgage payment
which exceeds the IRS Standard housing expense. 	It reasons further that because the language
in 11 U.S.C. § 707(b)(2)(A)(ii) is mandatory (by use of the word “shall”), the IRS Standard
allowances are determinative of reasonable necessity. 	Thus a debtor may not make unlimited
payments on secured debt at the expense of their general unsecured creditors. Further, eCast
points out that mortgage payments do not fall within the provision in 11 U.S.C. §
707(b)(2)(A)(ii)(I) for “actual monthly expenses” in categories specified by the IRS as Other
Necessary Expenses, since those categories are limited to expenses that are necessary for the
health and welfare of the debtor or his or her family, or for the production of income. See
Internal Revenue Manual 5.15.1.10 (establishing standards for Other Necessary Expenses).
Creditor eCast also notes that deviation from the standards may only be allowed upon a showing
of “special circumstances” as contemplated by 11 U.S.C. § 707(b)(2)(B) and no special
circumstances within the meaning of that section have been shown. See 11 U.S.C. § 707(b)(2)(B)
(“special circumstances” are “a serious medical condition or a call or order to active duty in the
Armed Forces”). 	Finally, eCast asserts that 11 U.S.C. § 707(b)(2)(A)(iii), which provides for
deduction of payments on secured debts only applies once the payment passes the reasonable
necessity test by fitting into the restricted, applicable, IRS Standard allowances under 11 U.S.C.
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§ 707(b)(2)(A)(ii). This Court disagrees.
Section 707(b)(2)(A)(ii)(I), which restricts expenses to the National and Local Standards,
provides further that "[n]otwithstanding any other provision of this clause, the monthly expenses
of the debtor shall not include any payments for debts." 	Id. 	Thus 11 U.S.C. §
707(b)(2)(A)(ii)(I) does not take into account a debtor's monthly mortgage payment. 	Those
payments are accounted for in 11 U.S.C. § 707(b)(2)(A)(iii), which provides for the deduction of
the debtor’s average payments on secured debts, calculated as follows:
(I) the total of all amounts scheduled as contractually due to secured creditors in
each month of the 60 months following the date of the petition; and
(II) any additional payments to secured creditors necessary for the debtor, in
filing 	a plan under chapter 13 of this title to maintain possession of the debtor’s primary
residence, motor vehicle or other property necessary for the support of the debtor
and the debtor’s dependents, that serves as collateral for secured debts;
divided by 60.
11 U.S.C. § 707(b)(2)(A)(iii)(I) and (II).
Debtors’ actual monthly mortgage payment is a payment on a secured debt within the meaning
of
11 U.S.C. § 707(b)(2)(A)(iii) which may be deducted as an expense when computing the
Debtors’ projected disposable income.
As explained by the bankruptcy court in In re Carlton, 362 B.R. 402 (Bankr.C.D.Ill.
2007), reconsideration denied, __ B.R. __, 2007 WL 1746819 (Bankr.C.D.Ill. 2007), a case
which considered a debtors’ deductions for secured debt payments on three vehicles, “[t]he
ability to deduct the average monthly payments on secured debt is separate and distinct from the
ownership expenses” under the IRS Standards. Carlton, 362 B.R. at 410. The Carlton court
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concluded that debtors could deduct their secured payments for three vehicles in accordance with
11 U.S.C. § 707(b)(2)(A)(iii) despite the fact that the IRS standard vehicle ownership expenses
are limited to two vehicles. Id.
The “reasonable and necessary” requirement contained in 11 U.S.C. § 1325(b)(2)
remains generally applicable, but 11 U.S.C. § 1325(b)(3) further directs that “reasonable and
necessary expenses” are to be determined in accordance with 11 U.S.C. § 707(b)(2)(A) and (B).
Creditor eCast merely argues that the mortgage payment is, by definition, “unreasonable”
because it exceeds the IRS Standard deduction for housing expenses. Yet, as explained above,
the expense clearly falls within 11 U.S.C. § 707(b)(2)(A)(iii). In addition, there is no evidence
before the Court that the amount of Debtors’ mortgage payment is otherwise extraordinary. In
sum, 11 U.S.C. § 707(b)(2)(A)(iii) allows for the deduction of debtor’s average monthly
payments on secured debts, and because the mortgage payment is for the Debtors’ primary
residence, such expense also appears to fit within 11 U.S.C. § 707(b)(2)(A)(iii)(II) as an
additional payment to a secured creditor “necessary for the debtor, in filing a plan under chapter
13 of this title to maintain possession of the debtor’s primary residence.”
Finally, In re McPherson, 350 B.R. 38, 47 (Bankr.W.D.Va. 2006), a case cited by eCast
in support of its objection, is not inconsistent with the Court’s conclusion here. In McPherson,
above-median income debtors proposed to deduct as an expense the total amount contractually
due on a secured debt, divided by sixty, even though their plan proposed only to pay the secured
portion of the claim. McPherson, 350 B.R. at 41. 	The McPherson court held that the debtors
could not deduct the entire amount, reasoning in part that the plan created a new contract under
which only the secured portion of the debt would be paid. Id. at 47. In this respect, McPherson
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4$1545.00 stipulated by the Debtors, plus $747.00, representing the expense attributable
to the rental property the Debtors will surrender.
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is analogous to the cases which find that a debtor may not deduct an expense for a property he or
she intends to surrender. See, e.g., Love,350 B.R. at 614. 	The Debtors’ mortgage payment on
their primary residence is a payment on a secured debt which the Debtors will continue to make
upon confirmation of their plan. 	Such expense is appropriately deducted in accordance with 11
U.S.C. § 707(b)(2)(A)(iii) in calculating projected disposable income under 11 U.S.C. § 1325(b).
CONCLUSION
Based on the foregoing, the Court finds that the Debtors’ mortgage payment on their
primary residence is not restricted to the IRS Standard. The full amount may be deducted from
Debtors’ income under 11 U.S.C. § 707(b)(2)(A)(iii). 	However, the mortgage payment
associated with the rental property which the Debtors will surrender, and from which the Debtors
no longer receive income, cannot be included in the expenses deducted in computing the
Debtors’ projected disposable income. 	Line 47 on Debtors’ Form B22C reflects a monthly
expense of $747.00 attributable to the rental property. 	Debtors’ plan payment must, therefore,
be increased by $747.00 per month.
WHEREFORE, IT IS HEREBY ORDERED that Debtor’s sixty-month Chapter 13 plan
must provide for a minimum monthly payment in the amount of $2,292.00.4
________________________________________
MARK B. McFEELEY
United States Bankruptcy Court
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COPY TO:
P Diane Webb
Attorney for Debtors
PO Box 30456
Albuquerque, NM 87190-0456
Kelley L. Skehen
Chapter 13 Trustee
625 Silver Avenue SW
Suite 350
Albuquerque, NM 87102-3111
James A Askew
Attorney for eCast Settlement Corporation assignee of MBNA America Bank NA
PO Box 1888
Albuquerque, NM 87103-1888
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