Hamilton v. Lanning
2010 U.S. LEXIS 4568, 177 L. Ed. 2d 23, 560 U.S. 505 (2010)
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Rule of Law:
When calculating a Chapter 13 debtor's 'projected disposable income' under 11 U.S.C. §1325(b), a bankruptcy court may account for known or virtually certain changes to the debtor's future income or expenses and is not strictly bound by the mechanical formula of multiplying the debtor's historical 'current monthly income' by the number of months in the plan.
Facts:
- Stephanie Kay Lanning received a one-time buyout from her former employer in the months leading up to her bankruptcy filing.
- This buyout payment greatly inflated her income for two of the six months in the statutory look-back period used to calculate her 'current monthly income'.
- As a result, Lanning's calculated average monthly income was significantly higher than the median income for a family of one in Kansas.
- At the time of her bankruptcy filing, Lanning had a new job with a much lower, regular income, which was below the state median.
- Lanning's actual monthly income from her new job was insufficient to make the high monthly payments that would be required under a plan based on the inflated look-back period income.
Procedural Posture:
- Stephanie Kay Lanning filed for Chapter 13 bankruptcy protection in the U.S. Bankruptcy Court for the District of Kansas, proposing a plan to pay $144 per month.
- Jan Hamilton, the Chapter 13 trustee, objected to the plan's confirmation, arguing that a mechanical application of the Bankruptcy Code required Lanning to pay $756 per month.
- The Bankruptcy Court overruled the trustee's objection and confirmed a plan based on Lanning's actual income, requiring payments of $144 per month over a 60-month period.
- The trustee appealed, and the U.S. Bankruptcy Appellate Panel for the Tenth Circuit affirmed the Bankruptcy Court's decision.
- The trustee then appealed to the U.S. Court of Appeals for the Tenth Circuit, which also affirmed, holding that courts could consider changes in a debtor's circumstances when calculating 'projected disposable income'.
- The U.S. Supreme Court granted Hamilton's petition for a writ of certiorari.
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Issue:
Does the term 'projected disposable income' under 11 U.S.C. §1325(b)(1) permit a bankruptcy court to consider known or virtually certain changes to a debtor's future income or expenses, rather than being bound by a rigid, mechanical calculation based only on the debtor's past income?
Opinions:
Majority - Justice Alito
Yes. The term 'projected disposable income' allows a court to adopt a forward-looking approach that accounts for known or virtually certain changes in a debtor's financial circumstances. The ordinary meaning of 'projected' implies a forecast that considers future events, not just a simple multiplication of past data. This interpretation is consistent with pre-BAPCPA bankruptcy practice, which Congress did not clearly abrogate, and with other statutory language that refers to income 'to be received' during the plan period. A rigid, mechanical approach would lead to senseless results, either by shortchanging creditors when a debtor's income is set to rise or, as in this case, by making Chapter 13 relief impossible for debtors whose income has foreseeably dropped.
Dissenting - Justice Scalia
No. The term 'projected disposable income' requires a court to use the mechanical formula Congress provided in the statute. By enacting BAPCPA, Congress specifically defined 'disposable income' based on a historical, 6-month look-back period ('current monthly income'). Giving courts discretion to depart from this formula whenever it seems like a poor predictor renders Congress's detailed definition pointless. The word 'projected' simply means to carry forward the statutorily defined 'disposable income' over the life of the plan; it does not grant courts a license to rewrite the calculation based on their own assessment of the debtor's future, thereby substituting judicial discretion for a clear legislative command.
Analysis:
This decision resolved a significant circuit split over the interpretation of 'projected disposable income' following the 2005 BAPCPA amendments. By rejecting a rigid, mechanical approach, the Court affirmed that bankruptcy courts retain critical discretion to ensure that Chapter 13 repayment plans are realistic and feasible. The ruling prevents the absurd outcome where a debtor with a temporary, pre-filing spike in income would be automatically disqualified from Chapter 13 because their plan would be based on an unsustainable payment amount. The decision ensures that the bankruptcy system remains flexible enough to handle individual circumstances while still using the BAPCPA formula as a starting point for analysis.
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