Kentucky Bankruptcy Law

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Chapter 13’s “projected disposable income”

One of the controversies that resulted from the major changes in bankruptcy law from Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was answered by the Supreme Court of the United States on June 7th, 2010. The issue decided was whether a Chapter 13 Debtor had to use the mechanical calculation of their income in the means test to determine “projected disposable income” or could they use a more fluid forward looking number. SCOTUS held that the forward looking approach was the correct one with one dissenting opinion by Justice Scalia. The case is Hamilton v. Lanning, No. 08-998 (2010) and will be published soon.

This decision will help some Chapter 13 filers and harm others. If your income over the six month period prior to filing is higher than what it currently is or known to be in the future, then this decision will be helpful because using means test numbers would inflate your projected disposable income. That would lead to a higher plan payment than you could actually afford to make. Instead, your plan payment will be based on what your actual or reasonably certain income will be. This is consistent with the approach that the bankruptcy courts in Kentucky already take; they look at Schedule I income and Schedule J expenses to determine disposable income.

The opinion itself is more complicated and nuanced that what I have summarized above. In fact, there is a lost of controversy among lawyers as to what several statements in the opinion means and how they will play out in reality. However, I am confident that time will show this to be a narrow holding consistent with the simple summary above. In practice, lawyers should start with the average income from the six whole months preceding the date you file as a starting point for what your projected disposable income will be. Then, they should account for events that are certain to occurr or foreseable with a high level of certainty to adjust that income. All of this should be transparent in the petition.

There is another case expected to be decided by SCOTUS in the coming months that will begin to answer a similar controversy over expenses. That is the Ransom case. That is, can a debtor use actual expenses or are they to use averaged expenses promulgated by the government. The Ransom case may be too narrow to fully answer the controversy, but it will be a step in that direction. Again, some debtors would be better off with government expenses because they actually spend less, while others would be better off using actual expenses. The Lanning decision indicates to me that the court will go with actual expenses and expeneses that are foreseeable with a high level of certainty.

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June 12, 2010 - Posted by | Bankruptcy, Chapter 13, Plan payments | , , , ,

3 Comments »

  1. […] of the United States (SCOTUS) recently released their decision in Lanning which I commented on here. One of the quotes from that decision written by Justice Alito really stuck with me. Alito quoted […]

    Pingback by Don’t wait for “financial Armageddon” « Kentucky Bankruptcy Law | June 13, 2010 | Reply

  2. […] keep paying”). Your budget is so tight that even in a Chapter 13 your would not be able to pay off the arrearage on the loan for the house and you can take Chapter 7 according to the means test. It is now […]

    Pingback by Issues with surrendering real estate « Kentucky Bankruptcy Law | October 26, 2010 | Reply

  3. […] of the United States (SCOTUS) recently released their decision in Lanning which I commented on here. One of the quotes from that decision written by Justice Alito really stuck with me. Alito quoted […]

    Pingback by Troutman & Napier, PLLC | Don’t wait for “financial Armageddon” | December 8, 2014 | Reply


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