A recent decision by the Bankruptcy Appellate Panel for the 10th Circuit (which covers the state of Kansas) dealt with an interesting issue of statutory interpretation. The case was In Re Miller, (BAP No. WY-14-002), on appeal from a bankruptcy court in Wyoming, and decided in October 2014. The question in the case involved the calculation of the income figures for the “means test.” When a bankruptcy case is filed, there is normally a requirement to submit financial data (on Form B22A) showing the average monthly income and expenses in the six months preceding the month of the filing of the case.
The issue was whether a debtor’s wages need to be both earned and received during the applicable six-month “look-back” period in order to be included as part of his “current monthly income” (called “CMI”) under 11 U.S.C. § 101(10A). In Miller’s case, the Wyoming bankruptcy court concluded that his CMI figures were high enough to disqualify him from proceeding under Chapter 7. The Trustee felt he should convert his case to Chapter 13. When this did not happen, the case was dismissed. Miller then appealed.
The critical issue was the dispute on the interpretation of what should be considered “income.” The United States Trustee (UST) contested Miller’s CMI calculations, which Miller based on his understanding of the term “current monthly income,” as defined in § 101(10A). That definition includes, “income from all sources that the debtor receives . . . without regard to whether such income is taxable income, derived during the 6-month period.” Miller argued that the “derived during” language means “earned during,” such that his CMI only need include income he both received and earned during the look-back period. The UST read the definition to include all money received during the six month look-back period, regardless when it was earned.
The bankruptcy court agreed with the UST interpretation, holding that all income received by a debtor in the look-back period must be included in the calculation of CMI “without relation to when that income was earned.” The bankruptcy court dismissed Miller’s case pursuant to § 707(b)(2) when he declined to convert to a Chapter 13 proceeding.
The BAP first noted that the 10th Circuit had not previously ruled on this issue. The court, applying principles of statutory construction, then proceeded to look at the plain language meanings of the words “derived from.” While the interpretations of “received” and “derived” were a bit ambiguous, normal meanings should be applied. After reviewing the accepted definitions for the term “derived,” in the context of the phrase “derived during,” the Court concluded that the phrase “income derived during the look-back period” had the plain meaning “income received during the look-back period.” In other words, all income received during the look-back period should be included.
The Court found that this interpretation also was in accord with the original purpose of the statute (Sect. 101(10A)), which was to evaluate the debtor’s income level. The court said “Finally, the doctrine that we should be guided by the underlying public policy of the statute reinforces our interpretation of CMI as requiring inclusion of all income received by a debtor during the look-back period….Although both parties present persuasive arguments on this difficult issue of statutory interpretation, we conclude that the plain meaning of § 101(10A) is that the term ‘current monthly income’ includes all income a debtor receives in the look-back period, regardless when it was earned.”
Readers should note that this ruling is not as harsh as it might appear. There are times when a debtor receives an atypical amount of money during the means test period, that is not representative of his or her normal “income.” For example, sometimes people cash in retirement plans, receive personal gifts, or income from the sale of an asset. In these situations, all a debtor has to do is to file a rebuttal of the presumption of abuse, and explain why this atypical amount should not be factored into the CMI calculation. In the present case, the court might have been influenced by a perception that the debtor was artificially understating his normal salary figures.