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When a bankruptcy court calculates a Chapter 13 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 of confirmation.
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. 11 U.S.C. § 1325(b)(1). Before enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the Code loosely defined “disposable income.” Though it did not define “projected disposable income,” most bankruptcy courts calculated it 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. A one-time buyout from respondent's former employer caused her 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 respondent, 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 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.
In calculating debtor's projected disposable income under 11 U.S.C.S. § 1325(b)(1)(B), is the Bankruptcy Court allowed to account for changes in debtor's income or expenses that are known or virtually certain at time of confirmation of Chapter 13 plan?
The court held that in ordinary usage, future occurrences were not "projected" with an assumption that the past would necessarily be repeated. A one-time buyout from her former employer in the six months before filing greatly inflated the debtor's gross income for 11 U.S.C.S. § 101(10A)(A)(i)'s look-back period. Before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, multiplying current monthly income by the number of plan months was the first step in determining PDI, but courts also had discretion to account for known or virtually certain changes in income. Congress did not amend PDI in 2005. If Congress intended for "projected" to carry a specialized--and indeed, unusual--meaning in Chapter 13, it could have said so expressly. The mechanical approach clashed repeatedly with § 1325's terms. 11 U.S.C.S. § 1129(a)(15)(B) referred to "disposable income," but offered no insight into the meaning of "projected." Section 1325's incorporation of 11 U.S.C.S. § 707 did not infer that Congress intended to eliminate, sub silentio, the discretion that courts previously exercised when projecting PDI to account for known or virtually certain changes. The Tenth Circuit was correct.