Hamilton v. Lanning

Jan Hamilton, Chapter 13 Trustee, Petitioner,

v

Stephanie Kay Lanning, Defendant.

Supreme Court of the United States

130 S.Ct. 2466

 

Factual Background

A one-time buyout from defendant’s former employer caused defendant’s current monthly income for the six months preceding her Chapter 13 petition to exceed her State’s median income.  However, based on the income from her new job, which was below the state median, and her expenses, she reported a monthly disposable income of $149.03.  She thus filed a plan that would have required her to pay $144 per month for 36 months.  Petitioner, the Chapter 13 trustee, objected to confirmation of the plan because the proposed payment amount was less than the full amount of the claims against defendant, and because she had not committed all of her projected disposable income to repaying creditors.  Petitioner claimed that the mechanical approach was the proper way to calculate projected disposable income, and that using that approach, respondent should pay $756 per month for 60 months. Her actual income was insufficient to make such payments.  The Bankruptcy Court endorsed a $144 payment over a 60-month period, concluding that “projected” requires courts to consider the debtor’s actual income.  The Tenth Circuit Bankruptcy Appellate Panel affirmed, as did the Tenth Circuit, which held that a court calculating projected disposable income should begin with the presumption that the figure yielded by the mechanical approach is correct, but that this figure may be rebutted by evidence of a substantial change in the debtor’s circumstances.

Issue

The court decided how a bankruptcy court should calculate a debtor’s projected disposable income, whether by mechanical approach or by forward-looking approach.

Discussion

Petitioner argued that -a debtor could delay filing a petition so as to place any extraordinary income outside the 6-month period; a debtor with unusually high income during that period could seek leave to delay filing a schedule of current income and ask the bankruptcy court to select a 6-month period more representative of the debtor’s future disposable income; a debtor could dismiss the petition and refile at a later, more favorable date; and respondent might have been able to obtain relief by filing under Chapter 7 or converting her Chapter 13 petition to one under Chapter 7.  The court observed that the petitioner’s proposed strategies for avoiding or mitigating the harsh results that the mechanical approach may produce for debtors are all flawed.  Also, the petitioner’s arguments supporting the mechanical approach are unpersuasive.  The Court rejected petitioner’s argument that only the mechanical approach is consistent with § 1129(a)(15)(B), which refers to projected disposable income of the debtor.  And the Court declined to infer from the fact that § 1325(b)(3) incorporates § 707-which allows courts to consider special circumstances, but only with respect to calculating expenses-that Congress intended to eliminate, sub silentio, the discretion that courts previously exercised to account for known or virtually certain changes.

The court confirmed that debtors filing for protection under Chapter 13 of the Bankruptcy Code must agree to a court-approved plan under which they pay creditors out of their future income.  If the bankruptcy trustee or an unsecured creditor objects, a bankruptcy court may not approve the plan unless it provides for the full repayment of unsecured claims or provides that all of the debtor’s projected disposable income to be received over the plan’s duration will be applied to make payments in accordance with plan terms.

The court observed that most bankruptcy courts calculated projected disposable income using a mechanical approach, multiplying monthly income by the number of months in the plan and then determining the disposable portion of the result.  In exceptional cases, those courts also took into account foreseeable changes in a debtor’s income or expenses.  BAPCPA defines disposable income as current monthly income received by the debtor less amounts reasonably necessary to be expended for, e.g., the debtor’s maintenance and support. Current monthly income, in turn, is calculated by averaging the debtor’s monthly income during a 6-month look-back period preceding the petition’s filing.  If a debtor’s income is below the median for his or her State, amounts reasonably necessary include the full amount needed for maintenance or support but if the debtor’s income exceeds the state median, only certain specified expenses are included.

Conclusion

The court held that when a bankruptcy court calculates a debtor’s projected disposable income, forward-looking approach should be followed and the court may account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.


Inside Hamilton v. Lanning