## Facts

- David H. Kitson and Jane Louise Kitson filed a joint Chapter 13 petition in April 1986 in the U.S. Bankruptcy Court for the Eastern District of North Carolina.
- The debtors reported monthly take-home pay of about $6,062 and monthly expenses of about $5,422.
- Expenses included a $1,925 monthly mortgage on a 3,200-square-foot residence, $600 for child care, and miscellaneous expenses.
- The debtors had approximately $42,000 in unsecured debt; their plan would repay unsecured claims at about 38%.
- The proposed plan used stepped payments over 60 months: $150/month for 12 months, $250/month for 12 months, and $350/month for 36 months.
- Plan payments would cure mortgage arrears and pay priority claims, while the debtors would continue paying the ongoing $1,925 mortgage outside the plan and also pay certain other obligations outside the plan.
- The Chapter 13 trustee objected to confirmation, asserting the debtors had about $640 in monthly surplus and were not committing all projected disposable income to plan payments.
- The trustee challenged the reasonableness of the mortgage and argued the debtors could reduce expenses by moving to less costly housing.
- The debtors argued that moving would reduce home-ownership tax benefits and that adequate rental housing for their family would cost at least $1,000 per month.

## Issues

1. Whether, upon the trustee’s objection, the proposed Chapter 13 plan satisfied 11 U.S.C. § 1325(b) by committing all projected disposable income to payments under the plan.
2. Whether the debtors’ housing and other claimed expenses were “reasonably necessary” for maintenance and support when calculating disposable income under § 1325(b)(2).

## Decision

- The court sustained the trustee’s objection and denied confirmation of the plan.
- The court held the plan did not commit all of the debtors’ projected disposable income as required by 11 U.S.C. § 1325(b) after an objection.
- The court found the debtors’ standard of living—particularly the high mortgage expense—improperly limited payments to unsecured creditors.
- The denial of confirmation left the debtors free to propose a modified plan that devoted more income to plan payments.

## Legal Principles

- When the trustee or an allowed unsecured claimant objects, a Chapter 13 plan may be confirmed under § 1325(b) only if unsecured claims are paid in full or all projected disposable income for the statutory period is applied to plan payments.
- “Disposable income” excludes amounts reasonably necessary for the maintenance or support of the debtor and dependents; the court may scrutinize claimed expenses to determine objective reasonableness.
- A debtor may be required to reduce discretionary or excessive expenses, including high housing costs, to satisfy the disposable-income requirement.
- Continuing substantial payments outside the plan while offering partial repayment to unsecured creditors can support a finding that the plan fails to commit projected disposable income as required by § 1325(b).

## Conclusion

The bankruptcy court denied confirmation because, after an objection, the debtors’ plan failed to apply all projected disposable income to plan payments, largely due to excessive housing and related expenditures that were not shown to be reasonably necessary for the family’s support under § 1325(b).


In re Kitson, 65 B.R. 615 (Bankr. E.D.N.C. 1986)