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On June 7, 2010, the Supreme Court decided the case
of Hamilton v. Lanning, 560 U.S. ___ (2010), for
which the lower court decisions have been reported in
detail in Becket & Lee's newsletter, Bankruptcy Report.
In the six months prior to filing her petition, the debtor
accepted a buyout from her employer, coincident with
her termination. This financial "bump" placed her
"current monthly income" above the median income
for Kansas. Recognizing the transience of this income
figure, the debtor proposed a chapter 13 plan payment
based on her far lower income and expenses at the time
of her petition and as anticipated thereafter.
The chapter 13 trustee objected to the confirmation
of the debtor's proposed plan, arguing that the
Bankruptcy Code determined the plan payment to be
the amount found on the "bottom line" of Official Form
22C. This bottom line is the result of subtracting the
Form's expenses from the debtor's "current monthly
income," which is also calculated in strict compliance
with the statute.
The Supreme Court of the United States affirmed the
United States Court of Appeals for the Tenth Circuit,
rejecting the so-called mechanical approach as
inconsonant with the Code. It held 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." Echoing
the appeals court's analysis, the Court opined that the
meaning of statutory language such as "projected" (as
in "projected disposable income"), "to be received in
the applicable commitment period," and "as of the
effective date of the plan" (being defined by the Court
as the confirmation date), lead to a holding that "the
'forward-looking approach' is correct." Such an
approach is further supported by pre-BAPCPA
practice, still valid "'absent a clear indication that
Congress intended such a departure.'" The Court
rejected as flawed each of the trustee's suggested "work
arounds" to avoid or mitigate the effects of the
mechanical approach he urged.
The dissent agreed that while "expenses at least arguably
depend on estimations of the debtor's future
circumstances," a debtor's current monthly income is
a statutorily defined fixed amount based strictly on
historical data. Such result was the only proper outcome
considering the strict language of the statute. If this
result runs counter to that which Congress intended,
it may correct it.
As a practical matter, Lanning should drive courts to
require debtors to propose chapter 13 plans that more
realistically reflect their ability to pay creditors. Also,
this decision should have some effect on the case of
Ransom v. MBNA, Am. Bank, N.A. (In re Ransom),
currently before the Supreme Court. Litigated
successfully by Becket & Lee through the Ninth Circuit
Court of Appeals, Ransom denied an "above-median"
chapter 13 debtor an expense for vehicle ownership
for a vehicle unencumbered by a loan or lease
obligation, holding that the plain language of the
Bankruptcy Code prohibited the debtor from
deducting the expense for a car he owns "free and
clear." It would not permit the debtor to reduce his
payments to his unsecured creditors on the basis of a
"fictitious expense."
On June 8, 2010, Becket & Lee partner Alane Becket participated in a
teleconference sponsored by the American Bankruptcy Institute in which she,
a chapter 13 trustee and several law professors discussed Lanning
and its practical impact for both creditors and debtors. A recording of
the teleconference is available on the ABI's website (www.abiworld.org).
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