The Supreme Court's Holding in Hamilton v. Lanning, 2010 U.S. LEXIS 4568 (2010)

The Supreme Court's Holding in Hamilton v. Lanning, 2010 U.S. LEXIS 4568 (2010)

In this Emerging Issues Analysis, Professor Klee comments on the Court's ruling in Hamilton v. Lanning. Even when a statute contains a detailed and precise definition of a term or concept, the Court will construe the statute pragmatically to preserve judicial discretion to depart from the definition in circumstances when mechanical application of the definition would produce senseless results that Congress did not intend.

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Professor Klee writes: A chapter 13 debtor typically is required to commit "projected disposable income" to the repayment of creditors over 3 to 5 years under a repayment plan. See 11 U.S.C. § 1325(b)(1) (2010). In calculating the amount of projected disposable income required, some courts take a mechanical approach by averaging the debtor's monthly income during a 6-month look-back period, generally preceding the date of the filing of the bankruptcy petition. See 11 U.S.C. § 101(10A)(A)(i) (2010). Other courts use a forward-looking approach which adopts the mechanical approach result as a starting point and, in unusual cases, takes "into account other known or virtually certain information about the debtor's future income or expenses." The Court pragmatically opts to uphold the forward-looking approach.

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Writing for a majority of eight Justices, Justice Alito authored an opinion holding "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 of confirmation." The forward-looking approach is supported by the ordinary meaning of the term "projected." Moreover, in a legislative context, Congress rarely has used "projected" to refer to simple multiplication. In the Bankruptcy Code, when Congress wants to mandate simple multiplication, it uses the term "multiply." See, e.g., 11 U.S.C. §§ 704(b)(2), 707(b)(6), and 1325(b)(3) (2006). Furthermore, the forward-looking approach continues the pre-2005 amendment approach used by the courts to determine projected disposable income in which courts exercised judicial discretion to account for known or virtually certain changes in the debtor's income. Absent a clear indication that Congress intended to change pre-2005 amendment practice, the Court will not interpret the Bankruptcy Code to erode past practices.

By comparison, the mechanical approach's retrospective focus clashes with the express terms of Bankruptcy Code § 1325 which refers to disposable income "to be received in the applicable commitment period." See 11 U.S.C. § 1325(b)(1)(B) (2006). Moreover, Bankruptcy Code § 1325(b)(1) requires the bankruptcy court to determine projected disposable income "as of the effective date of the plan." If the retrospective mechanical approach were correct, the amount would be determinable on the date of the filing of the petition and would not have to be determined as of the effective date of the plan. [footnote omitted]

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