Hamilton v. Lanning
Headline: Court allows bankruptcy judges to account for known or virtually certain future income or expense changes when calculating a Chapter 13 debtor’s projected disposable income, easing eligibility for many debtors with changed circumstances.
Holding:
- Allows judges to adjust repayment plans for known income or expense changes.
- Prevents some debtors from being barred from Chapter 13 after temporary income shifts.
- Changes how creditors and trustees calculate payments in many Chapter 13 cases.
Summary
Background
A Chapter 13 trustee challenged a debtor’s repayment plan. Stephanie Lanning had a one-time employer buyout that inflated her six-month average income used by bankruptcy rules. Using that mechanical average would have required much larger monthly payments than she could afford, so she proposed a lower payment based on her current job income and expenses. The trustee argued the law requires multiplying the six-month average, while the bankruptcy court and the Tenth Circuit allowed courts to adjust the figure in certain cases.
Reasoning
The Supreme Court explained that “projected” disposable income is forward-looking, so courts may account for income or expense changes that are known or virtually certain at plan confirmation. The Court said Congress’ detailed formula for disposable income still matters as a starting point, but the plain meaning of “projected” and long-standing bankruptcy practice support limited judicial discretion to adjust the mechanical calculation when changes are not speculative. The Court rejected the trustee’s mechanical-only rule and found proposed debtor workarounds unsatisfactory.
Real world impact
The decision lets bankruptcy judges consider reliable postfiling facts about a debtor’s finances at confirmation. That can prevent debtors with genuinely lower future income from being barred from Chapter 13 relief, and can also let courts require higher payments when increases are predictable. This ruling affects how many individuals’ repayment plans are calculated across the country.
Dissents or concurrances
Justice Scalia dissented, arguing the statute’s text fixes the calculation to the six-month average and that the Court improperly rewrote the law to allow judicial adjustments.
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