High Court Adopts Forward-Looking Method Of Calculating Disposable Income

High Court Adopts Forward-Looking Method Of Calculating Disposable Income

WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court in an 8-1 decision June 7 affirmed an appellate court's ruling and held that when a bankruptcy court calculates a debtor's projected disposable income, the court may account for changes in the debtor's income or expenses that are known, or virtually certain, at the time the debt plan is confirmed (Jan Hamilton v. Stephanie Kay Lanning, No. 08-998, Chapter 13, U.S. Sup.).

Justice Antonin Scalia dissented.

Stephanie K. Lanning filed for Chapter 13 bankruptcy in the U.S. Bankruptcy Court for the District of Kansas, and when the Bankruptcy Court affirmed her plan, trustee Jan Hamilton appealed directly to the U.S. Bankruptcy Appellate Panel (BAP) for the 10th Circuit.

The BAP considered whether an above-median debtor's "projected disposable income," pursuant to 11 U.S. Code Section 1325(b)(1)(B), could deviate from "current disposable income" determined under Form B22C, where the debtor established such a significant change in circumstances that "current disposable income" did not accurately project her future ability to pay creditors.

The BAP affirmed the Bankruptcy Court's ruling, and Hamilton filed a petition with the Supreme Court.

The Supreme Court majority ruled that Lanning "had the better interpretation" of "projected disposable income."  Lanning's forward-looking approach is supported by the ordinary meaning of "projected," the majority said.  Furthermore, the majority said "projected" is used in many federal statutes, but Congress rarely uses the word to mean simple multiplication.

Moreover, the general rule followed by federal courts prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was to multiply a debtor's current monthly income by the number of months in the commitment period as the first step in calculating projected disposable income, the majority said.  However, the courts had discretion to account for known, or virtually certain, changes in the debtor's income.

In dissent, Justice Scalia said, "Underlying the court's interpretation is an understandable urge:  Sometimes the best reading of a text yields results that one thinks must be a mistake, and bending that reading just a little bit will allow all the pieces to fit together.  But taking liberties with text in light of outcome makes sense only if we assume that we know better than Congress which outcomes are mistaken."

Justice Scalia added that the Supreme Court should not assume that Congress did not know what it was doing when it limited the calculation of current monthly income to a six-month period ending before the bankruptcy was filed.

[Editor's Note:  Full coverage will be in the June 16 issue of the LexisNexis Bankruptcy Report.  In the meantime, the opinion is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #80-100616-018Z.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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