Hamilton v. Lanning
Headline: Bankruptcy income rule changed: Court allows judges to adjust projected disposable income for known or virtually certain income changes, easing plan confirmation for some debtors with pre-filing pay spikes.
Holding: We hold that bankruptcy courts may account for known or virtually certain changes in a debtor’s income or expenses when calculating projected disposable income under Chapter 13.
- Allows judges to adjust repayment calculations for predictable income changes.
- Eases plan confirmation for debtors with pre-filing one-time income spikes.
- Requires trustees and creditors to monitor changes at confirmation hearings.
Summary
Background
A Chapter 13 bankruptcy trustee challenged a woman who filed a repayment plan after receiving a one-time buyout from her former employer. That buyout inflated her six-month average income to $5,343.70, but her new job produced $1,922 per month. Using the statutory forms, she reported disposable income of $149.03 per month and proposed paying $144 monthly for 36 months. The trustee used a mechanical method to multiply the higher look-back figure and said she should pay $756 monthly for 60 months, a sum she could not actually pay.
Reasoning
The Court addressed how to calculate a debtor’s “projected disposable income.” It held that the ordinary meaning of “projected” allows judges to look forward: courts should start with the formula Congress set for current monthly income but may adjust that figure when changes in income or expenses are known or virtually certain at the time the plan is confirmed. The majority relied on pre-2005 bankruptcy practice, the text that speaks of income “to be received” during the plan, and the requirement that the calculation be made “as of the effective date of the plan.” The Tenth Circuit’s approach—presume the mechanical result correct but allow rebuttal for foreseeable changes—was affirmed.
Real world impact
Bankruptcy judges and trustees will now account for predictable, postfiling financial changes when confirming Chapter 13 plans. This makes it easier for debtors whose six-month look-back includes a one-time windfall to obtain confirmation and avoids forcing plans the debtor cannot actually perform. Creditors may seek adjustments at confirmation or later if a debtor’s income increases.
Dissents or concurrances
Justice Scalia dissented, arguing the statute fixates on historical income and that the Court improperly rewrote the law; he preferred a rigid mechanical multiplication based on the defined 6-month average.
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