James P Galley and Kimberly C Galley

OCR transcription for search; preserved printed pages are authoritative

The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below.

Russ Kendig
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

CHAPTER 13

IN RE:

JAMES P. GALLEY AND CASE NO. 10-63443

KIMBERLY C. GALLEY,
JUDGE RUSS KENDIG

Debtors.
MEMORANDUM OF OPINION
(NOT INTENDED FOR
PUBLICATION)

Toby L. Rosen, chapter 13 trustee (“Trustee”), objected to confirmation of Debtors’
plan. She argues that Debtors incorrectly included net business income from Debtor
Kimberly Galley’s sole proprietorship on line three of the B22C, ultimately resulting in a
three year commitment period determination. Trustee contends that if gross receipts are
utilized, the commitment period is five years. Debtors assert they correctly completed the
means test and three years is the applicable commitment period.

The court has jurisdiction of this matter pursuant to 28 U.S.C. §§ 1334 and the
general order of reference entered in this district on July 16, 1984. Venue in this district and
division is proper pursuant to 28 U.S.C. § 1409.

This opinion is not intended for publication or citation. The availability of this
opinion, in electronic or printed form, is not the result of a direct submission by the court.

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FACTS

The facts are not complex or unique. Debtor James Galley is employed by Ohio
Materials Handling. His income is included on line two of the B22C. The joint debtor,
his wife Kimberly Galley, operates Kinfolk Candles, a sole proprietorship. On line 3a of
the means test, she listed gross receipts of $5,614.17. From this amount, she deducted
business expenses of $4,630.50 on line 3b, resulting in net business income of $983.67.
This amount, coupled with her husband’s gross income, was used to calculate debtors’
current monthly income. The total figure was lower than the median family income for
an Ohio household of the same size, so Debtors proposed a three year plan. If Debtors
had utilized gross receipts on line three of the means test, their total income would have
exceeded the median family income and required a five year commitment period.

LAW AND ANALYSIS

Debtors completed the B22C as written: using net business income as the basis for
determining current monthly income. Since Trustee is arguing for an alternative
approach, use of gross receipts, she is also arguing that the forms conflict with the
bankruptcy code. If true, the bankruptcy code will triumph. See In re Arnold, 376 B.R.
652 (Bankr. M.D. Tenn. 2007); In re Cole, Case. No. 08-34090 (Bankr. N.D. Ohio 2009)
(unpublished). Consequently, the starting point is the code.

When a chapter 13 debtor does not propose to pay allowed unsecured claims in
full, a confirmable plan must propose payments for either three or five years. 11 U.S.C.
§§ 1322(d); 1325(b)(4)(A). A debtor is required to submit to a five year plan when
debtor’s current monthly income exceeds the applicable median family income for a
family of the same or smaller size in the same state. 11 U.S.C. §§ 1322(d)(1);
1325(b)(4)(A)(i1). “Current monthly income,” or CMI, is defined as “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.”
11 U.S.C. § 101(10A)(A). The definition does not distinctly state whether to use gross or

net income.

When faced with this question, courts have looked at the definition of “disposable
income” in section 1325(b)(2) for elucidation. See Drummond v. Wiegand (In re
Wiegand), 386 B.R. 238 (B.A.P. 9" Cir. 2008); Arnold, 376 B.R. 652; In re Bembenek,
2008 WL 2704289 (Bankr. E.D. Wis. 2008) (unpublished). Under this provision,
“disposable income” is current monthly income less reasonably necessary expenses,
including business expenses. 11 U.S.C. § 1325(b)(2)(B). Based on this formula, the
courts determined that “current monthly income” must encompass gross income because
if it referred to net income, the need to deduct business expenses is redundant. Collier’s
is in accord with this conclusion. “The definition appears to include a sole proprietor’s
gross income, especially since amended section 1325(b) provides for business expenses
to be deducted from the debtor’s current monthly income.” 2 Alan N. Resnick and Henry
J. Sommer, Collier on Bankruptcy { 101.10A, 101-76 (16" ed. 2011) (footnote omitted).

Both Arnold and Bembenek also note there is nothing in the definition of “current

2

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monthly income” to suggest that it is anything but gross income. The definition of CMI
simply does not suggest that any deductions are taken from gross income to arrive at
“current monthly income.” Without exploring the issue, the Sixth Circuit has stated that
CMI “means the average gross monthly income that the debtor receives” in a case
involving the meaning of “projected disposable income.” Baud v. Carroll, 634 F.3d 327,

332 (6" Cir. 2011).

Both of these reasons are sufficient to convince the court that CMI captures gross
income, not net income. The statutory language is not ambiguous and this interpretation
does not render section 1325(b)(2)(B) meaningless.

In spite of this conclusion, which the court is compelled to reach under general
rules of statutory interpretation, the court is convinced that Debtors’ position is not
thoroughly unfounded. The determination of the applicable commitment period is tied to
the median family income as determined by the Unites States Census Bureau. 11 U.S.C.
§ 101(39A)(A). In reviewing the figures and statistics from the Census Bureau, it appears
that the median family income figures do not include gross business expenses.
Consequently, comparing CMI, as defined above, to the median income figures is

incongruent.

The United States Trustee Program’s (“USTP”) website contains the following
information on median family income:

Section I. Census Bureau Data

In Part II of Bankruptcy Form 22A and Part II of Bankruptcy Form 22C,
debtors are instructed to enter the “Applicable median family income”.
This information is published by the Census Bureau according to State and
family size, and the data is updated each year. In addition, pursuant to 11
U.S.C. § 101(39A)(B), the data on this Web site will be further adjusted
early each calendar year based upon the Consumer Price Index for All

Urban Consumers (CPI).

The following link provides the median family income data published in
October 2010, reproduced in a format that is designed for ease of use in
completing these bankruptcy forms.

Median Family Income Based on State/Territory and Family Size
Available for download in MS Excel format. [XLS - 27 kb]

U.S. Trustee Program, http://www.justice.gov/ust/eo/bapcpa/20101101/meanstesting.htm
(last visited April 19, 2011).

The figures presented by the USTP appear to be compiled from two separate
documents created by the Census Bureau: the State Median Family Income by Family
Size (1-year) and the State Median Family Income by Numbers of Earners in Family (1-

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year).! U.S. Census Bureau, B19119, Median Family Income in the Past 12 Months (in
2009 Inflation-adjusted Dollars by Family Size (2009); U.S. Census Bureau, B19121,
Median Family Income in the Past 12 Months (in 2009 Inflation-adjusted Dollars) by
Number of Earners in Family (2009). Both documents indicate the figures compiled by
the Census Bureau are generated from the 2009 American Community Survey. Id.
Looking at the income questions contained in the survey, question 47(b) instructs
respondents to “Report NET income after business expenses.” (emphasis original). See

Exhibit A?

Similarities between the income questions from the American Community Survey
and the B22C exist. Since the applicable commitment period determination is based on
whether a debtor falls above or below the median income, it is rational that the B22C
questions would be consistent with the same questions asked to gather the data used to
determine median income. It appears that data is based on net business income, not gross

receipts.

Unfortunately, BAPCPA has not always proved to be a model of consistency or
logic. Although the court finds a foundation for the process used to develop Official
Form B22C, including use of net income, interpretation of the bankruptcy code results in
adoption of a definition which counters the form. The unambiguous statutory

interpretation must prevail.

Debtors have incorrectly calculated their current monthly income by utilizing net
business income in line three of the B22C. Trustee’s objection will be sustained.

An order in accordance with this opinion will be issued immediately.

#t #t #t

! The documents are available at:
http://www.census.gov/hhes/www/income/data/statemedian/index.html

as of April 19, 2011.

? Exhibit A was printed from:
http://www.census. gov/acs/www/about_the_survey/questions_and_why_we_ask/

on April 19, 2011 from the “Income” hyperlink under the section titled “Economic
(Population and Housing).”

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Service List:

Toby L. Rosen

Charter One Bank Building, 4" Floor
400 W. Tuscarawas St.

Canton, OH 44702

Edward S Lake

Edward Lake & Associates, LLC
4450 Belden Village Street

Suite 804

Canton, OH 44718

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American Community Survey |

Population: Questions on Income

Questions as they appear in the questionnaire.
d. Social Security or Railroad Retirement.

a7 INCOME IN THE PAST 12 MONTHS

"Ves" Box for each type of income: this.:
eived, and give your. best. pouty of the.
i OUNT during’ the PAST 1 12 MO,

MEETING FEDERAL NEEDS

income is a vital measure of general economic circumstances. Income data are used to

determine poverty status, to measure economic well-being, and to assess the need for
assistance. These data are included in federal allocation formulas for many government

Ext

USCENSUSBUREAU A

Helping You Make Informed Decisions

programs.

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American Community Survey
_ Population: Questions on Income

COMMUNITY BENEFITS

Social Services

Under the Older Americans Act, funds for
food, health care, and legal services are
distributed to local agencies based on data
about elderly people with low incomes.

Data about income at the state and county
levels are used to allocate funds for food,
health care, and classes in meal planning
to low-income women with children.

Employment

Income data are used to identify local areas
eligible for grants to stimulate economic
recovery, run job-training programs, and
define areas such as empowerment or
enterprise zones.

Housing

Under the Low-income Home Energy
Assistance Program, income data are used
to allocate funds to areas for home energy
aid.

Under the Community Development

Block Grant Program, funding for

housing assistance and other community
development is based on income and other
decennial census data.

Education

Data about poor children are used to
allocate funds to counties and school
districts. These funds provide resources
and services to improve the education of
economically disadvantaged children.

www.census.gov

= United States

~ENSUS

USCENSUSBUREAU :
2010

Helping You Make Informed Decisions

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