Date:
Tuesday, June 8, 2010
Issue:
The U.S. Supreme Court ruled (8-1) yesterday in the case of Hamilton vs. Lanning, affirming a lower court ruling that a bankruptcy court should apply a forward-looking test rather than a mechanical test in determining a debtor’s “projected disposable income.”
Audio:
Speakers:
Kevin R. Anderson is the Standing Chapter 13 Trustee for the U.S. Bankruptcy Court for the District of Utah in Salt Lake City and president of the National Association of Chapter Thirteen Trustees.
Alane A. Becket is a managing partner at Malvern, Pa.-based Becket & Lee LLP, where she specializes in representation of creditors in bankruptcy matters, primarily consumer lenders and debt purchasers.
Moderator:
Former ABI Resident Scholar Prof. Juliet Moringiello of Widener University Law will serve as the moderator for the teleconference.
Background:
The U.S. Supreme Court yesterday issued an 8-1 opinion in Hamilton v. Lanning, the second case this term in which the Court had the opportunity to construe the meaning of a few of the Code amendments brought about by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). At issue in Hamilton was the definition of “projected disposable income,” a key term in chapter 13 of the Bankruptcy Code because a chapter 13 debtor must, if a creditor objects to his repayment plan, commit all of his “projected disposable income” to be received during the duration of his plan to plan payments. The Supreme Court affirmed the Tenth Circuit’s holding that a court should apply a forward-looking test rather than a mechanical test in determining a debtor’s projected disposable income, ruling 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.”
Before BAPCPA, a court had some leeway in determining a debtor’s projected disposable income, because the Code simply defined “disposable income” for all chapter 13 debtors as the debtor’s income received minus expenses reasonably necessary for the support of the debtor. BAPCPA changed this by defining “disposable income” for a debtor whose income exceeds the median income for his state as disposable income according to the means test formula in § 707(b). Under this formula, a debtor’s disposable income is equal to his monthly income for the six months preceding his bankruptcy filing minus the specific expenses listed in § 707 (b). BAPCPA did not define the term “projected disposable income.”
After BAPCPA, courts using the mechanical approach held that the debtor’s “projected disposable income” was equal to the debtor’s means test “disposable income” projected over the plan period, regardless of what the debtor’s actual income would be during the plan period. Courts applying a forward-looking approach took changes in the debtor’s actual income into account. The Supreme Court yesterday agreed with the forward-looking approach, holding that the mechanical approach rendered superfluous the statutory mandate that the disposable income applied to the plan payments be the income “to be received” during the plan period.
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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 11,700 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals providing a forum for the exchange of ideas and information. For additional information on ABI, visit ABI World at http://www.abiworld.org. For additional conference information, visit http://www.abiworld.org/events/newevents.html.
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