Marilyn O. Marshall, Trustee-Appellant,
Denise L. Blake, Debtor-Appellee.
February 15, 2018
from the United States Bankruptcy Court for the Northern
District of Illinois, Eastern Division. No. 16-22368 -
Deborah L. Thorne, Judge.
Bauer, Flaum, and Manion, Circuit Judges.
Denise L. Blake is a below- median income debtor who filed
for Chapter 13 bankruptcy. In her proposed bankruptcy plan,
Blake sought to retain her annual earned income tax credit
and a portion of her tax over-withholdings. Trustee Marilyn
O. Marshall objected to confirmation of Blake's plan,
arguing that Blake is required to turn over her entire tax
refund for use as additional plan payments. The bankruptcy
court confirmed the plan over Marshall's objection. In
doing so, it agreed with Marshall that tax credits are income
under the Bankruptcy Code that must be taken into account
when calculating the debtor's projected disposable income
for plan payments. However, the bankruptcy court held that
Blake could retain her tax refund if she prorated it as
monthly income and offset it with reasonably necessary
expenses to be incurred throughout the year. The bankruptcy
court certified the case for direct appeal to this court. For
the reasons below, we affirm.
Blake's Income, Expenses, and Bankruptcy Plan
is a single mother who lives in subsidized housing with her
three dependent children. She has worked as a security
officer for more than six years. As a low-income wage earner,
Blake consistently qualifies to receive the earned income tax
12, 2016, Blake filed for bankruptcy under Chapter 13.
According to her Form 122C-1, Blake's current monthly
income ("CMI") is $2, 512, or $30, 144
annually. This falls well below the median income in
Illinois for a household of four, which is $86, 921 annually.
When calculating her monthly income on her Schedule I,
Blake included a pro-rata share of her anticipated earned
income tax credit for the following year in the amount of
$168.50. Blake also filed a Schedule Jlisting her
ongoing monthly expenses. After subtracting payroll
deductions and expenses from her monthly income, Blake was
left with $119.91 of disposable income each month to make
plan payments to her creditors.
26, 2016, Blake filed her original Chapter 13 plan, which
proposed monthly plan payments of $119 for thirty-six months,
for a total of $4, 284. Her plan also included the following
For each year that the case is pending, Debtor will submit a
copy of her federal income tax return to the Trustee by April
30 of each year. Debtor shall tender to the trustee the
amount of any federal tax refund within 14 calendar days of
receipt, except that Debtor shall be permitted to keep the
amount of any earned income tax credit. For tax year 2016,
Debtor shall tender to the trustee (1/2) of any federal tax
refund within 14 days, excluding the earned income tax
September 8, 2016, the trustee filed a motion to dismiss
Blake's case for failing to correctly list her income and
expenses and failing to confirm her plan in a timely manner.
A week later, Blake filed an amended Schedule I to reflect a
decrease in her income due to fewer overtime hours. She also
filed an amended Schedule J. After these amendments,
Blake's monthly disposable income for plan payments was
$74.75. She proposed a new plan under which she would pay the
trustee $119 for two months and then $74 for forty-eight
months, for a total of $3, 790.
Trustee's Objection and Bankruptcy Court's Memorandum
January 20, 2017, the trustee objected to confirmation of
Blake's plan. Specifically, the trustee argued that Blake
was not committing all of her projected disposable income to
the plan because she was retaining her tax refund. The
trustee argued that the entire tax refund should be turned
over to the trustee to be used for additional plan payments.
In response, Blake asserted that she should be allowed to
keep the earned income tax credit because it does not count
as income under the Bankruptcy Code. The bankruptcy court
consolidated Blake's case with two other cases to
consider the issue of whether a debtor may retain some or all
of a tax refund that includes tax credits.
March 16, 2017, the bankruptcy court issued a memorandum
order overruling the trustee's objection. The court
explained that the portion of a tax refund attributable to
over-withholdings is automatically included in the
debtor's income because it is calculated using a
debtor's gross income prior to tax withholding. In
addition, the court held that tax credits are also considered
income under the Bankruptcy Code. Thus, the court required
Blake to include a prorated version of her annual tax credit
as monthly income on her Schedule I (i.e., the annual tax
credit divided by twelve months). At the same time, however,
the court allowed Blake to offset that additional income by
adding monthly prorated versions of reasonably necessary
expenses to be incurred throughout the year on her Schedule
J. In effect, this allowed Blake to retain some, or even all,
of her tax credit. The court stated that as long as the
offsetting expenses were reasonably necessary, it would
confirm Blake's plan without requiring payment of
expected tax credits.
Blake's Amended Schedules and Bankruptcy Plan
to the bankruptcy court's order, Blake filed amended
schedules on April 4, 2017. In her amended Schedule I, Blake
increased her prorated earned income tax credit from $168.50
per month to $311 per month. In addition, Blake added
prorated monthly tax over-withholdings of $100. In her amended
Schedule J, Blake added the following monthly prorated
expenses: $132 for medical and dental expenses; $40 for shoes
and clothing for her two sons (down from $85); $104 for new
beds and furniture for her sons; and $43 for graduation
expenses for her sons (including a school trip and prom).
Once these expenses were deducted from her income, Blake had
$102 in disposable income each month to make plan payments.
then filed an amended bankruptcy plan. Her new plan proposed
making payments to the trustee of $119 for two months, $74
for seven months, and $102 for fifty-one months, for a total
of $5, 958.
The Bankruptcy Court's Confirmation Order
3, 2017, the bankruptcy court held a hearing on the
confirmation of Blake's plan. During the hearing,
Blake's counsel explained that the monthly prorated
furniture expense was necessary because Blake's two
nineteen-year-old sons had previously been sleeping on air
mattresses, their bed frames and mattresses are in
"incredibly poor condition, " and they do not have
any dressers. The court noted that "[i]t's a pretty
skinny budget overall." The trustee again objected to
confirmation. The court overruled the trustee's
I think the kids are entitled to sleep on beds that
aren't falling apart. And I think that overall the budget
as proposed is pretty skimpy and thin. So I think prorating
these will be in the best interest of the estate, the best
interest of the debtor in terms of hopefully having a plan
that actually at the end of the day she can get a discharge.
And, meanwhile, creditors will be getting a little.
same day, the bankruptcy court entered an order confirming
Motion for Certification For Direct Appeal
16, 2017, the trustee filed a notice appealing the bankruptcy
court's confirmation order. At the same time, the trustee
filed a motion to certify the order for direct appeal to this
Court. On June 15, 2017, Blake filed her objection to the
5, 2017, the bankruptcy court denied the certification motion
without prejudice. The bankruptcy court held that that,
because more than thirty days had passed since the notice of
appeal was filed, the matter was no longer
"pending" in the bankruptcy court, but rather in
the district court. As a result, the bankruptcy court
concluded that, under Federal Rule of Bankruptcy Procedure
8006(b), it lacked power to certify the order for direct
appeal. However, the bankruptcy court noted that if the
district court remanded the case, it was prepared to enter an
order certifying the case for direct appeal. On July 27,
2017, the district court remanded the case to the bankruptcy
court for further proceedings.
August 28, 2017, the bankruptcy court entered an order
certifying the case for direct appeal to this Court. The
court determined that certification was appropriate because
there is no controlling decision from the Supreme Court or
the Seventh Circuit as to whether tax credits are disposable
income under the Bankruptcy Code. We subsequently authorized
a direct appeal.
review questions of our jurisdiction de novo. Muratoski
v. Holder, 622 F.3d 824, 829 (7th Cir. 2010). "We
review the bankruptcy court's conclusions of law de novo
and its factual findings for clear error." Stamat v.
Neary, 635 F.3d 974, 979 (7th Cir. 2011).
threshold issue, Blake argues we lack jurisdiction to hear
this direct appeal because: (1) this case does not actually
involve the legal question certified for direct appeal; (2)
the trustee failed to file a petition for permission to
appeal as required by Federal Rule of Appellate Procedure 5;
and (3) the bankruptcy court lacked authority to certify the
direct appeal because it did not do so within the time limit
in Federal Rule of Bankruptcy Procedure 8006(f). These
This Case Involves the Legal Question Certified for Direct
jurisdiction to hear direct appeals "if the bankruptcy
court … certif[ies] that … the judgment, order,
or decree involves a question of law as to which there is no
controlling decision of the court of appeals for the circuit
or of the Supreme Court of the United States … and if
the court of appeals authorizes the direct appeal." 28
U.S.C. § 158(d)(2)(A)(i); see also, e.g.,
In re Pajian, 785 F.3d 1161, 1162 (7th Cir. 2015).
Here, the bankruptcy court certified the confirmation order
for direct appeal under that provision and we subsequently
authorized the direct appeal.
Blake maintains that we lack jurisdiction to review the
confirmation order. Blake initially argued that her earned
income tax credit was not income under the Bankruptcy Code,
but the bankruptcy court rejected that argument in its March
2017 memorandum order. As a result, Blake included her earned
income tax credit as income in her amended Chapter 13 plan.
Therefore, Blake argues that, by the time her plan was
confirmed in May 2017, this case no longer
"involved" the legal question that the bankruptcy
court certified for direct appeal.
argument fails for two reasons. First, our jurisdiction under
§ 158(d)(2)(A) turns on whether the bankruptcy court
certified that the order involves a question of law that
warrants a direct appeal. In other words, under §
158(d)(2)(A), the bankruptcy court gets to determine which
legal questions are implicated by its own orders and whether
those legal questions warrant certification. Given the
bankruptcy court's familiarity with its own orders, it is
in the best position to make this determination. Here, by
granting certification, the bankruptcy court implicitly
determined that its confirmation order involved the legal
question of whether Blake's earned income tax credit was
income under the Bankruptcy Code.
to the extent we get to weigh in on whether certification was
appropriate by "authoriz[ing] the direct appeal, "
we agree that the bankruptcy court's order confirming
Blake's plan "involves" the legal question
certified. 28 U.S.C. § 158(d)(2)(A). Indeed, this legal
question was the basis for the trustee's objection to
confirmation. The court resolved that question in the
trustee's favor and required Blake to file an amended
plan that treated her tax credit as income. Once she did so,
the court confirmed her plan in accordance with its previous
memorandum order. Thus, the order confirming Blake's
Chapter 13 plan inherently involved the legal question of
whether her earned income tax credit is income under the
The Trustee's Failure to File a Petition for Permission