The U.S. Supreme Court “Looks Forward” in Chapter 13 Bankruptcy

Posted on June 8, 2010. Filed under: Uncategorized |

In an opinion issued today, Hamilton v. Lanning,  the United States Supreme Court has said to those practicing and filing Chapter 13 bankruptcy:  “projected disposable income” is not to be figured using a “mechanical approach” , but rather a “forward-looking” approach.

In other words, “projected” means just that, what you will actually have in income “looking forward” during the Chapter 13 bankruptcy, not what the “mechanical” means test says you had during the last 6 months, and, therefore should have the next 60 months.  For once, the Supreme Court is very practical in it’s reasoning and makes sense in an opinion.  The unfortunate debtor in the Lanning case had received some moneys from a buy-out from her previous employer during the last 6 months prior to filing bankruptcy, and would very likely never have that large amount of income again.  The Supreme Court said that this unusual circumstances warranted deviating from the mechanical approach the bankruptcy law seemed to require.

Dan Press, Virginia and D.C. Bankruptcy Attorney has a good analysis of this case as well on the Bankruptcy Law Network.

And yet another summary from bkinformation.com:

“The proper way to calculate a Chapter 13 debtor’s “projected disposable income” is through the “forward-looking approach,” rather than the “mechanical approach.” The forward-looking approach starts with the debtor’s past average monthly disposable income (as shown on Form 22C) multiplied by the number of months in a debtor’s plan. In the ordinary case, this figure will be the debtor’s projected disposable income. However, in unusual cases, under the forward-looking approach, the Court has authority to review the debtor’s actual (as opposed to averaged) monthly income and to calculate projected disposable income using actual income.

Here, the debtor’s averaged 6-month pre-petition income was artificially inflated by a buyout received from here employer. The monthly payment that would have been required using the averaged income was hundreds of dollars a month more than the debtor’s actual net income, thus making performance of the plan impossible. The bankruptcy court did not err in calculating the debtor’s projected disposable income using the debtor’s actual income, rather than the debtor averaged 6-month income.”

8.27.10 – Henry Sommer, noted consumer bankruptcy law attorney, weighs in with a podcast commentary and Hamilton v. Lanning and it’s effect on the practice of bankruptcy law.

John Rogers, Kentucky Bankruptcy Attorney

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