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Sub V Plan Can Require Automatic Increases Based on Actual Disposable Income

A district judge in Florida upheld a Subchapter V plan that required automatic increases in payments to unsecured creditors based on actual disposable income.


A cramdown plan in Subchapter V can require an individual debtor to calculate disposable income every quarter and to increase payments automatically to unsecured creditors if actual disposable income turns out to be more than projected disposable income, according to District Judge John E. Steele, who affirmed Bankruptcy Judge Caryl E. Delano of Tampa, Fla.

Pro se, the debtor confirmed a plan under Subchapter V of chapter 11 requiring $150 monthly payments to unsecured creditors for five years. The plan provided that the payments to unsecured creditors “shall fluctuate based upon the Debtor’s actual disposable income remaining” after payments to senior creditors.

The plan went on to require the debtor to file quarterly operating reports showing actual disposable income. If actual disposable income were more than projected disposable income, the plan required automatically increased payments to unsecured creditors. If actual disposable income were less than $150 per month, the plan still required the debtor to distribute $150 pro rata to unsecured creditors.

To no avail, the debtor appealed the confirmation order entered by Bankruptcy Judge Delano, contending that the bankruptcy court had no statutory authority to base plan payments on actual disposable income rather than projected disposable income.

Evidently, the debtor confirmed a so-called cramdown plan because the debtor was required to comply with the “fair and equitable” standard in Section 1191(b). The term “fair and equitable” is defined in Section 1191(c).

“As of the effective date of the plan,” Section 1191(c)(2)(A) requires “that all of the projected disposable income of the debtor to be received [within five years of the first plan payment] will be applied to make payments under the plan.”

Although “projected disposable income” is not defined, “disposable income” is defined in Section 1191(d) to mean “income that is received by the debtor and that is not reasonably necessary to be expended” for domestic support obligations, for maintenance or support of the debtors and dependents, and “for the payment of expenditures necessary for the continuation, preservation, or operation of the business of the debtor.”

“Requiring all the actual disposable income to be reported and distributed does not [violate] these statutory rules of construction,” District Judge Steele said in his January 6 opinion. He saw no conflict between the plan and Section 1191(d), because it is “simply” a definition of disposable income.

Judge Steele found authority for the floating payments in the Bankruptcy Code’s iteration of the All Writs Act found in Section 105(a). He affirmed the confirmation order because the floating payments “were clearly necessary and appropriate under the facts of this case.”

Opinion Link

Case Details

Case Citation

Staples v. Wood-Staples (In re Staples), 22-157 (M.D. Fla. Jan. 6, 2023)

Case Name

Staples v. Wood-Staples (In re Staples)

Case Type