“Projected Disposable Income” is Forward Looking

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

Hamilton v. Lanning, 130 S.Ct. 2464 (2010).

Case Summary:

“Projected Disposable Income” is Forward Looking

In an 8-1 decision (Justice Scalia dissenting) delivered by Justice Alito, the Court held that a bankruptcy courts should apply a forward-looking test, not a mechanical test, to determine a debtor’s “projected disposable income.”

The debtor received a one-time buyout from her employer in the six months before filing, which artificially inflated her gross income for the six-month pre-petition period. The trustee objected to her proposed chapter 13 plan on the basis that she was not committing all of her projected disposable income as required under § 1325(b)(1)(B). Under the mechanical application urged by the trustee, her disposable income was much higher than her proposed plan payment, but she did not actually have enough income to make those higher payments.

The Court ruled, “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.”

BAPCPA added the means test formula under § 707(b), which provides that a debtor’s disposable income equals his monthly income for the six month preceding the filing of the bankruptcy petition minus the expenses listed in § 707(b). However, BAPCPA did not define “projected disposable income.” The Court reasoned that the ordinary meaning of “projected” supports a forward-looking approach, that a mechanical approach could lead to absurd results where the debtor’s post-petition income would be less or more that her pre-petition income, and that the mechanical approach would render superfluous the statutory mandate that disposable income applied to plan payments be the income “to be received” during the plan period.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.

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