FILED OCT 16 2020
ORDERED PUBLISHED SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. NC-20-1085-TaBG PHILLIP JOHNNY RODRIGUEZ and JENNIFER LYNN RODRIGUEZ, Bk. No. 19-42408 Debtors.
PHILLIP JOHNNY RODRIGUEZ; JENNIFER LYNN RODRIGUEZ, Appellants, v. OPINION MARTHA G. BRONITSKY, Chapter 13 Trustee, Appellee.
Appeal from the United States Bankruptcy Court for the Northern District of California Charles Novack, Chief Bankruptcy Judge, Presiding
APPEARANCES: Carl R. Gustafson of Lincoln Law, LLP argued for appellants; Nima Ghazvini argued for appellee
Before: TAYLOR, BRAND, and GAN, Bankruptcy Judges.
TAYLOR, Bankruptcy Judge:
Chapter 131 trustee Martha G. Bronitsky objected to confirmation of a
chapter 13 plan proposed by above-median income debtors Phillip and
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. § 101–1532, and all “Rule” references are to the Federal Rules of Bankruptcy Procedure. Jennifer Rodriguez because, in calculating their disposable income under
§ 1325(b), they claimed monthly vehicle operation expenses over the
amount specified in the applicable Local Standards published by the
Internal Revenue Service (“IRS”).
Facing a tentative ruling sustaining the objection and before the
hearing on the objection, Debtors reduced this expense request and
amended their plan to increase their dedicated income accordingly. Thus,
the bankruptcy court entered two orders, one sustaining the plan objection
and one confirming the amended plan.
Debtors appealed, contending that the bankruptcy court erred when
it prohibited them from claiming vehicle operation expenses over the
amount specified in the Local Standards. We disagree, and we AFFIRM.
FACTS2
Debtors commenced their chapter 13 bankruptcy case and
concurrently filed their bankruptcy schedules and a chapter 13 plan
(“Original Plan”). At the time, Debtors owned three vehicles and a motor
home, had a combined monthly income of $13,135.00, and alleged monthly
transportation expenses (exclusive of car payments) of $1,000.00.
As part of their petition, Debtors completed Official Bankruptcy
2 We exercise our discretion to take judicial notice of documents electronically filed in the bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
2 Forms 122C-1 and 122C-23 to calculate their current monthly income and
disposable income, respectively. These forms are collectively referred to as
the “means test” and are used to determine the amount of disposable
income that a chapter 13 debtor is able to pay to unsecured creditors.
Form 122C-2 directed Debtors to take the IRS’s standardized
deductions for certain expenses. Debtors thus claimed $424.00 as set forth
in the IRS’s Local Standards for vehicle operation expenses in line 12. In
addition, in line 43—which allows debtors to list additional expenses if
“special circumstances” justified the expense and the debtor had “no
reasonable alternative” to incurring the expense—Debtors listed $500 in
“extraordinary commute expense (husband).”
Based on their disposable income as calculated in their initial means
test, the Original Plan proposed to pay $300 per month to their unsecured
creditors. The Trustee objected; she asserted that they improperly reduced
disposable income by including the special circumstances vehicle operating
expense deduction. She argued that Debtors could not circumvent the
Local Standards by simply categorizing ordinary work travel as a special
circumstance. She concluded that Debtors failed to commit all of their
projected disposable income to fund their Original Plan, as required by
3 Because Debtors reported $188,986.08 of annualized income on their Form 122C-1, which is well above the $114,813.00 median income for their household size in California, they were required under § 1325(b)(3) to calculate their disposable income in Form 122C-2.
3 § 1325(b)(1)(B).
Debtors initially responded by amending their means test to delete
the special circumstance deduction and to increase their vehicle operation
expense from $424 to $924. But thereafter the bankruptcy court issued a
tentative order denying confirmation of the Original Plan. It concluded that
a plain reading of §§ 707(b)(2)(A)(ii)(I) and 1325(b)(3) did not authorize
deviation from the Local Standards when calculating disposable income.
Rather, it reasoned, the means test required a mechanical application of the
National and Local Standards. The tentative ruling permitted Debtors to
file a supplemental memorandum to contest the tentative ruling and
warned that, if they failed to do so, the tentative ruling would become the
final ruling.
Debtors filed a supplemental memorandum arguing that deviation
from a mechanical application of the means test “as justice requires” was
appropriate and that the IRS’s Financial Analysis Handbook Part 5,
Chapter 15, Section 1 (“Handbook”) of the Internal Revenue Manual
(“Manual”) makes clear than the Standards are guidelines, rather than
strict figures requiring adherence.4 But they also filed an amended means
4 The Manual and its Standards table exhibits are web-based and can respectively be found at https://www.irs.gov/irm/part5/irm_05-015-001 and https://www.irs.gov/businesses/small-businesses-self-employed/collection-financial-sta ndards. All Internet materials referenced herein were last visited on October 13, 2020. The National Standards establish expenses for food, housekeeping supplies, apparel and services, personal care products and services, out-of-pocket health care costs, and miscellaneous expenses. The Local Standards establish expenses for housing, utilities, and transportation.
4 test to decrease their requested vehicle operation expense to $424 and
amended the Original Plan (as so modified, the “Amended Plan”) to
increase their plan payments.
At the final confirmation hearing, Debtors’ counsel continued to
argue that the Standards were nothing more than discretionary guidelines.
But the bankruptcy court disagreed and entered an order sustaining the
Trustee’s objection to the Original Plan (“Objection Order”), followed by an
order confirming the Amended Plan (“Confirmation Order”). Debtors
appealed.
JURISDICTION
Subject to our jurisdictional discussion below, the bankruptcy court
had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(A), (L), and (O) and
we had jurisdiction over the appeal under 28 U.S.C. § 158.
ISSUES
1. Does the Panel have jurisdiction over the appeal?
2. Did the bankruptcy court err as a matter of law in sustaining the
Trustee’s objection to confirmation of Debtors’ Original Plan?
STANDARD OF REVIEW
We review jurisdictional issues, including questions of mootness and
standing, de novo. Hunt v. Imperial Merch. Servs., Inc., 560 F.3d 1137, 1141
(9th Cir. 2009); Aheong v. Mellon Mortg. Co. (In re Aheong), 276 B.R. 233, 238
(9th Cir. BAP 2002). We also review plan confirmation issues requiring
5 only statutory interpretation de novo. Villanueva v. Dowell (In re Villanueva),
274 B.R. 836, 840 (9th Cir. BAP 2002).
DISCUSSION
Before reaching the merits of Debtors’ appeal, we must determine
whether it is properly before us. The Trustee argues that we lack
jurisdiction to hear the appeal because Debtors only specifically stated in
their notice of appeal that they were appealing from the interlocutory
Objection Order. The Trustee alternatively argues that we lack jurisdiction
on standing and mootness grounds because Debtors resolved their
controversy with the Trustee by amending their means test and filing the
Amended Plan. We reject both arguments.
We have jurisdiction under 28 U.S.C. § 158(a) and (b) to hear appeals
from final orders and, with our leave, interlocutory orders of the
bankruptcy court. Whereas an order granting confirmation of a chapter 13
plan is considered a final order, an order denying confirmation is not.
Bullard v. Blue Hills Bank, 135 S. Ct. 1686, 1692 (2015). However, the finality
defect of an interlocutory order can be “cured” when another order is
entered that fully and finally disposes of the matter. Parks v. Drummond (In
re Parks), 475 B.R. 703, 706 (9th Cir. BAP 2012). Such is the case here. The
interlocutory Objection Order became final given the subsequently entered
Confirmation Order.
6 But the Trustee points to further potential problems; Debtors’ notice
of appeal only explicitly referenced the Objection Order as the subject of
appeal. Nevertheless, it “is well settled that a mistake in designating the
judgment appealed from should not result in loss of the appeal as long as
the intent to appeal from a specific judgment can be fairly inferred from the
notice and the appellee is not misled by the mistake.” Munoz v. Small Bus.
Admin., 644 F.2d 1361, 1364 (9th Cir. 1981).
Here, all of Debtors’ submissions in this appeal made it clear that
they are also challenging the Confirmation Order. Specifically, their notice
of appeal attached both orders, their statement of issues asserted error in
the bankruptcy court’s confirmation of the Amended Plan, and their
opening brief stated that entry of the Confirmation Order rendered the
Objection Order final and appealable. Further, Debtors’ asserted scrivener’s
error in failing to explicitly appeal from the Confirmation Order did not
prevent the Trustee from fully briefing the propriety of both the
bankruptcy court’s denial of confirmation of the Original Plan and its
confirmation of the Amended Plan. Because we interpret notices of appeal
liberally and because the Trustee has not been prejudiced or misled by the
contents of Debtors’ notice of appeal, we will construe the notice of appeal
as covering both orders. See Drummond v. Luedtke (In re Luedtke), 508 B.R.
408, 412 n.3 (9th Cir. BAP 2014).
The Trustee argues, however, that even if we consider the appeal as
7 pertaining to both orders, Debtors mooted the issue on appeal by
amending their means test and filing the Amended Plan. We disagree.
Constitutional mootness is derived from Article III of the
Constitution, which provides that the exercise of judicial power depends
on the existence of a live case or controversy. DeFunis v. Odegaard, 416 U.S.
312, 316 (1974). The mootness doctrine applies when events occur that
make it impossible for the appellate court to affect the rights of the
litigants. Id. Thus, if effective relief is impossible, we must dismiss for lack
of jurisdiction. United States v. Arkison (In re Cascade Rds., Inc.), 34 F.3d 756,
759 (9th Cir. 1994). This doctrine “subsists through all stages of federal
judicial proceedings, trial and appellate.” Lewis v. Cont’l Bank Corp.,
494 U.S. 472, 477 (1990). And, to have standing to appeal a bankruptcy
court order, an appellant must be a “person aggrieved” who was “directly
and adversely affected pecuniarily by an order of the bankruptcy court.”
Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 442-43 (9th Cir. 1983).
Here, the controversy surrounding Debtors’ asserted entitlement to
the augmented vehicle operation expense in their disposable income
calculation continues, and Debtors are aggrieved by it. They did not waive
this claim by amending their means test or the Original Plan. Rather, they
were forced, over their expressed objection in their supplemental
memorandum, to propose the Amended Plan with provisions that they
disputed in order to obtain appellate review of the bankruptcy court’s
8 impending adverse ruling. Their chosen path to expeditious appellate
review, proposing an undesirable plan, has been endorsed by the Ninth
Circuit and this Panel. See, e.g., In re Sisk, 962 F.3d 1133, 1141 (9th Cir. 2020);
Giesbrecht v. Fitzgerald (In re Giesbrecht), 429 B.R. 682, 687-88 (9th Cir. BAP
2010).
Because Debtors filed the Amended Plan under protest, the required
increase in plan payments in the Amended Plan is material and prejudicial
to them, making them aggrieved parties with standing to pursue this
appeal. See In re Sisk, 962 F.3d at 1143 n.5. And we can provide them with
effective relief “because if we were to reverse on the merits, debtors could
file a motion to modify their plan under § 1329 or seek to obtain relief
under Rule 9024. With these possible avenues of relief still available, the
appeal is not moot.” In re Parks, 475 B.R. at 706.
Merits
Under § 1325(b)(1), if a trustee objects to confirmation of a plan, then
the bankruptcy court may not approve the plan unless it pays unsecured
creditors in full or pays all of the debtor’s “projected disposable income” to
unsecured creditors during the life of the plan. Here, the Trustee objected
to the Original Plan which did not pay creditors in full; she argued that
Debtors erroneously calculated and, thus, understated their “disposable
income”—a term defined in § 1325(b)(2) as a debtor’s current monthly
income (with exceptions not relevant here) less reasonably necessary
9 expenses.
Above-median-income debtors must use the IRS’s Standards to
calculate expenses.
Before the enactment of the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, Pub.L. 109–8, April 20, 2005, 119 Stat. 23
(“BAPCPA”), the Bankruptcy Code gave bankruptcy courts substantial
discretion to consider a debtor’s particular circumstances in determining
their reasonably necessary expenses. See Drummond v. Welsh (In re Welsh),
711 F.3d 1120, 1130 (9th Cir. 2013). But BAPCPA replaced this discretion
with a statutory formula, the “means test,” for assessing an above-median-
income debtor’s ability to pay. Id.
The means test is set forth in § 707(b)(2)(A)(ii) and is made applicable
by § 1325(b)(3). It provides in relevant part that:
[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the 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, as in effect on the date of the order for relief . . . .
§ 707(b)(2)(A)(ii)(I) (emphasis added). Thus, the means test mandates that
an above-median-income debtor’s expenses in certain categories be
calculated by the “expense amounts specified under the National
Standards and Local Standards” in lieu of actual living expenses.
10 The capitalized terms “National Standards” and “Local Standards” in
§ 707(b)(2)(A)(ii)(I) refer to the “tables that the IRS prepares listing
standardized expense amounts for basic necessities.”5 In re Luedtke, 508 B.R.
at 413 (emphasis added) (quoting Ransom v. FIA Card Servs., N.A., 562 U.S.
61, 66 (2011)). Contextually, the tables are exhibits to the Manual and are
published to assist IRS agents in calculating a taxpayer’s ability to pay
delinquent taxes. Ransom, 562 U.S. at 66. And we acknowledge that the
Manual itself merely provides guidelines to IRS agents and lacks the force
of law. See 26 U.S.C. § 7122(d)(1) (the enabling statute); Fargo v. Comm’r, 447
F.3d 706, 713 (9th Cir. 2006) (citing Marks v. Comm’r, 947 F.2d 983, 986, n.1
(D.C. Cir. 1991)), which held “the provisions of the manual are directory
rather than mandatory, are not codified regulations, and clearly do not
have the force and effect of law.”). But once Congress expressly
incorporated the Standards into § 707(b)(2)(A)(ii)(I), this portion of the
Manual was elevated and made authoritative in the chapter 13 context; the
Standards largely dictate which expenses are reasonably necessary for
above-median-income debtors and, hence, may be subtracted from their
current monthly income to calculate their disposable income. See In re
Luedtke, 508 B.R. at 413.
5 Debtors argue that the Standards are much more than just the tables, but they fail to cite any supporting authority.
11 The Court cannot rely on the Manual if it is at odds with the Code.
Notwithstanding the mandatory language of § 707(b)(2)(A)(ii)(I),
which requires use of the expense amounts specified under the Standards,
Debtors base their entitlement to an enhanced vehicle operation expense
deduction on two manual provisions designed to guide IRS agents in their
highly discretionary collection process. The first provides that “[i]f it is
determined a standard amount [in the tables] is inadequate to provide for a
specific taxpayer’s basic living expenses, allow a deviation.” Manual
§ 5.15.1.8(6).6 The second provides that “[i]f a taxpayer claims higher
amounts of operating costs because he commutes long distances to reach
his place of employment, he may be allowed greater than the standard. . .
[as it] would generally meet the production of income test.” Id.
§ 5.15.1.10(1)b.7
While we agree with Debtors that the Supreme Court in Ransom
determined that it was appropriate to consult the Manual guidelines in
interpreting the Standards, we note that it also cautioned that the
guidelines could not control the means test outcome to the extent they were
at odds with the language of the Bankruptcy Code:
Although the statute does not incorporate the IRS’s guidelines, courts may consult this material in interpreting the National
6 https://www.irs.gov/irm/part5/irm_05-015-001#idm140164197759840. 7 https://www.irs.gov/irm/part5/irm_05-015-001#idm140164197698064.
12 and Local Standards; after all, the IRS uses those tables for a similar purpose–to determine how much money a delinquent taxpayer can afford to pay the Government. The guidelines of course cannot control if they are at odds with the statutory language. But here, the Collection Financial Standards’ treatment of the car-ownership deduction reinforces our conclusion that, under the statute, a debtor seeking to claim this deduction must make some loan or lease payments.
562 U.S. at 72-73; see also Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469,
476 (1992) (“[A] reviewing court should not defer to an agency position
which is contrary to an intent of Congress expressed in unambiguous
terms.”); In re Luedtke, 508 B.R. at 411, 415. And, when the language of a
statute is plain, courts must enforce the statute according to its terms unless
doing so would produce absurd results. Lamie v. U.S. Tr., 540 U.S. 526, 534
(2004). In this case, as discussed below, we find that § 707(b)(2)(A)(ii)(I) is
plain and that enforcement of the statute by its terms would not produce
absurd results. Thus, there is no need to refer to the Manual to determine
how much Debtors may claim as a vehicle operation expense.
Under a plain reading of § 707(b)(2)(A)(ii), Debtors may only claim
the vehicle operation expense amount listed in the Local Standards
tables.
Section 707(b)(2)(A)(ii) utilizes both the term “applicable monthly
expense amounts specified under the National Standards and Local
Standards” and the term “actual expenses.” A predominant maxim of
13 statutory construction is “that ‘[w]here Congress includes particular
language in one section of a statute but omits it in another section of the
same Act, it is generally presumed that Congress acts intentionally and
purposely in the disparate inclusion or exclusion.’” Duncan v. Walker,
533 U.S. 167, 173 (2001) (quoting Bates v. United States, 522 U.S. 23, 29-30
(1997)); see also In re Sisk, 962 F.3d at 1148. Under this maxim, a term that is
intended to mean one thing should, upon reoccurrence elsewhere, mean
the same thing in the same act or statute.
Debtors’ view—in which a bankruptcy court must disregard the
Standards if they fail to adequately equate to actual expenses—may be
consistent with the Manual’s instructions for the collection process, but it
ignores the language of the statute and this rule of statutory interpretation.
In Debtors’ view, “applicable monthly expense amounts specified under
the National Standards and Local Standards”sometimes means actual
expenses. But if Congress meant “actual expenses” in this context, it could
have and should have simply used those words instead of importing the
amounts specified in the Standards. It demonstrated an ability to do so in
the latter part of the same statute. See § 707(b)(2)(A)(ii)(I), (II), (III), (IV),
and (V). We cannot assume that the statute’s clear language is an example
of mere Congressional caprice.
When unpacking the words at issue in the term “applicable monthly
expense amounts specified under the [Standards]”, the Supreme Court in
14 Ransom held that “applicable” does not mean “actual.” Further, no one
disputes that the type of expense Debtors seek to deduct qualifies as
vehicle operation expenses. And the word “specify” in the statute means
“to name or state explicitly or in detail,” Webster’s New Collegiate
Dictionary 2187 (2002), and it modifies the term “amounts.” As the
bankruptcy court noted, the only relevant explicit amounts found in the
Manual are in the tables comprising the Standards themselves.
Section 707(b)(2)(A)(ii)(I) thus requires debtors to use the exact numerical
values contained in the Local Standards for their vehicle operation
expense—no more and no less.
Our plain meaning interpretation of the statute is supported by Form
122C-2.8 When the Advisory Committee on Bankruptcy Rules promulgated
the form, it recognized that § 707(b)(2)(A)(ii)(I) requires debtors to calculate
their reasonably necessary expenses according to the numerical values in
the Standards even if the values conflict with the amounts of their actual
expenses. As relevant to this appeal, the form instructs debtors to “[d]educt
the expense amounts set out in lines 6-15 regardless of your actual expense.
8 Form 122C-2 was approved by the Judicial Conference of the United States (a national policy-making body of judges chaired by the Chief Justice of the United States, as enacted and subsequently amended after the passage of BAPCPA. See 28 U.S.C. § 331 and Rule 9009(a). The form was drafted to assist practitioners in calculating disposable income. The Official Bankruptcy Forms, together with the Rules, govern procedures in cases under the Bankruptcy Code and are presumptively valid. See Rules 1001 and 9009. In this regard, Form 122C-2 is akin to an advisory opinion as to how § 707(b)(2)(A)(ii)(I) should be interpreted.
15 In later parts of the form, you will use some of your actual expenses if they
are higher than the standards.” Then line 12 for vehicles operation
expenses instructs debtors to, “[u]sing the IRS Local Standards and the
number of vehicles for which [they] claim the operating expenses, fill in the
Operating Costs that apply for [their] Census region or metropolitan
statistical area.” Section 707(b)(2)(A)(ii)(I) should be interpreted in a way
that harmonizes and gives meaning to all of its sub-parts. We believe our
interpretation of the statute accomplishes this and that Form 122C-2
supports this view.
Our statutory interpretation does not lead to absurd results.
Yet Debtors urge against interpreting the statute as we do; they argue
that strict adherence to the numerical values in the Standards tables would
lead to absurd results. We disagree.
True, the Supreme Court in Ransom recognized that using a
standardized approach to calculate disposable income “[is] by [its] nature
over- and under-inclusive.” Ransom, 562 U.S. at 78. It also noted, however,
that: “[i]n eliminating the pre-BAPCPA case-by-case adjudication of
above-median-income debtors’ expenses, on the ground that it leant itself
to abuse, Congress chose to tolerate the occasional peculiarity that a
brighter-line test produces.” Id. While we acknowledge that the means test
may lead to over- or under-inclusive results with respect to particular
expenses, it does not necessarily yield absurdly over- or under-inclusive
16 assessments of a debtor’s overall expenses. In the Debtors’ case, the means
test arguably leads to an under-inclusive assessment of their vehicle
operation expenses. But to the extent Debtors take advantage of expense
amounts in the Standards that exceed their other actual expenses, the
means test calculation may, on balance, either reflect or exceed their actual
expenses overall. By incorporating the IRS’s detailed series of average
national and local living expenses, the means test is designed to produce
relatively reliable estimates of a debtor’s overall reasonably necessary
expenses.
Further, if a debtor is, for example, a long-haul trucker or Uber
driver, § 707(b)(2)(B) may allow additional expenses based on “special
circumstances.” Those costs of vehicle operation are business expenses –
not commuting costs.
In any event, it is no longer within the bankruptcy courts’ discretion
to delve into every debtor’s finances to ensure that they paint a complete
and accurate picture of all their expenses in calculating their disposable
income. The bankruptcy courts are not tasked with policing compliance
with the means test unless and until a chapter 13 trustee or unsecured
creditor objects to a plan. § 1325(b); see also In re Sisk, 962 F.3d at 1146
(holding a § 1325(b) plan requirement only applied if a trustee or
unsecured creditor objected to plan confirmation). As unsecured creditors
often lack the resources and incentive to do so, trustees are frequently de
17 facto gatekeepers to the bankruptcy court’s adjudication of means test
issues. And in this way, § 1325(b) does not so much eliminate discretion as
it redirects discretion from bankruptcy courts to chapter 13 trustees.
We believe this shift in discretion does not generate absurd results.
Chapter 13 trustees are uniquely suited for this undertaking. On the one
hand, their primary duty is to serve the interests of creditors. Andrews v.
Loheit (In re Andrews), 49 F.3d 1404, 1407 (9th Cir. 1995). On the other hand,
they have a statutory duty to advise and assist debtors in plan
performance, short of giving legal advice. § 1302(b)(4). These roles
converge when trustees endeavor both to ensure that debtors dedicate all
available funds to plan payments while also providing debtors with
financial advice on budgeting issues to end cycles of poor financial
judgment. See In re Brown, 170 B.R. 362, 366 (Bankr. S.D. Ohio 1994); Keith
M. Lundin, Lundin on Chapter 13, § 53.5, at 3, LundinOnChapter13.com
(last visited October 15, 2020). In doing so, trustees can view a debtor’s
financial picture in a holistic fashion. They can recommend budgetary
adjustments enhancing repayment of creditors. When their
recommendations are rebuffed, § 1325(b) provides them with a tool to
attain bankruptcy court intervention on a means test line-item basis. But
trustees can also be pragmatic, overlooking excess in one area where it is
balanced by belt-tightening in another or where other real world concerns
establish that creditors benefit from a lack of objection. Put bluntly, a
18 chapter 13 trustee need not be a sumpsimus.9
Our statutory interpretation is consistent with binding precedent.
Not only does our plain language interpretation of
§ 707(b)(2)(A)(ii)(I) not lead to absurd results, it is consistent with binding
authority. While the Supreme Court in Ransom consulted the Manual when
interpreting the Standards, it did so to “reinforce” its conclusion, based on
sound principles of statutory construction, that taking the deduction at
issue would be improper in the first instance. Ransom, 562 U.S. at 72-73. It
did not use the Manual to interpret a straightforward numerical value in
the tables. As explained above, Ransom forbids following the Manual
guidelines where, as here, they depart from the clear language of the
Bankruptcy Code. Id. at 72.
We also believe our reading of § 707(b)(2)(A)(ii)(I) is in accord with
the following dicta in Ransom:
Although the expense amounts in the Standards apply only if the debtor incurs the relevant expense, the debtor’s out-of-pocket cost may well not control the amount of the deduction. If a debtor’s actual expenses exceed the amounts listed in the tables, for example, the debtor may claim an
9 To truly assess whether deviation from the means test is appropriate in one area, the bankruptcy court cannot limit its inquiry to the specific category in dispute. It often would need an evidentiary hearing and evaluative process that would allow it to fully understand all the economics of the debtor’s household. Arguably, the questioning of the household’s choices should be extensive enough to duplicate the insight gained by the trustee through the 341(a) process and related document review.
19 allowance only for the specified sum, rather than for his real expenditures. For the Other Necessary Expense categories, by contrast, the debtor may deduct his actual expenses, no matter how high they are.
Id. at 75-76 (emphasis added). We treat such dicta with great deference.
United States v. Baird, 85 F.3d 450, 453 (9th Cir. 1996). It strengthens our
convictions that Debtors misread Ransom and that the bankruptcy court
properly applied the means test.
We also disagree with Debtors’ reading of our decision in Luedtke,
508 B.R. 408. In Luedtke, we reversed a bankruptcy court that allowed
above-median-income debtors to augment their vehicle operation expense
with the IRS’s $200 “older vehicle operating expense.” Id. at 416. We
determined that the expense was inapplicable because it is not found in the
Local Standards table or the Handbook, which “identif[ies] and interpret[s]
those standards.” Id. at 414. Rather, it is only mentioned in the Manual at
Part 5, Chapter 8, which is not incorporated in either the Standards or the
Handbook. Id. But nothing in our decision departs from Ransom’s clear
instruction that bankruptcy courts may use the Handbook as relevant and
persuasive authority only to the extent it does not conflict with the
language of the Bankruptcy Code. See id. at 415. Here, conflict arises.
Likewise, we disagree with Debtors that the Supreme Court’s
decision in Hamilton v. Lanning, 560 U.S. 505 (2010), required the
bankruptcy court to deviate from its mechanical application of the means
20 test. The issue before the Supreme Court in Lanning was whether projected
disposable income should always be a strict calculation based on the
debtor’s current monthly income and expenses during the six-month
period before bankruptcy (i.e., the “mechanical” approach) or whether a
bankruptcy court may take into account the particular circumstances of the
debtor’s finances for which the mechanical approach would not account
(i.e., the “forward-looking” approach). In adopting the forward-looking
approach, the Supreme Court stated that bankruptcy courts “may account
for changes in the debtor’s income or expenses that are known or virtually
certain at the time of confirmation.” Id. at 524. In so holding, the Supreme
Court noted that bankruptcy courts must nevertheless “begin by
calculating disposable income and that in most cases nothing more is
required. It is only in the unusual cases that a court may go further and
take into account other known or virtually certain information about the
debtor’s future income or expenses.” Id. at 519.
Thus, under Lanning, a bankruptcy court has the discretion to adjust
the projected disposable income calculation in Form 122C only when there
has been changes in a debtor’s financial situation. Absent a change, Lanning
has no bearing. If it did, Lanning would in effect require that courts add to
the end of § 707(b)(2)(A)(ii)(I) the words “or the actual expenses, if higher.”
The Supreme Court, in actual effect, recognized that Congress chose not to
include such language in the statute. We therefore read Lanning as only
21 applying when it is known or virtually certain that changes in the debtor’s
income or expenses will occur after the otherwise required period for
calculating disposable income. Here, Debtors presented no evidence of
such changes in their financial situations. Accordingly, Lanning is not
germane to the analysis.10
CONCLUSION
Based on the foregoing, we see no error in the bankruptcy court’s
conclusion that Debtors’ vehicle operation expense was limited to the
numerical value specified in the Local Standards table. We AFFIRM.
10 Nor do we agree with Debtors that there is any significance in the fact that the bankruptcy court’s ruling departed from its prior memorandum decision in another case, In re De Lara, No. 19-41231, slip op. (Bankr. N.D. Cal. Oct. 7, 2019). While as a general matter “it is wise judicial policy to adhere to rules announced in earlier cases,” “[w]hen the prior court is the same as the subsequent court, the general rule is that precedent is not binding, even though a court may give great weight to its own prior decisions.” 18 Moore’s Federal Practice § 134.02[1][a] (Matthew Bender 3d ed. 2020).