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Hamilton v. Lanning - 545 F. 3d 1269 Affirmed

Posted: June 08, 2010

By Jeffrey Freedman:

A fundamental requirement to confirm a plan in a Chapter 13 bankruptcy is that unless creditors are paid in full the Debtor must pay unsecured creditors his or her “projected disposable income” to be received in an “applicable commitment period” (36 or 60 months). Since the enactment of 2005 Bankruptcy reform act, what “projected disposable income” means has been a matter of some dispute. The Supreme Court has now put at least some of that dispute to rest.

In Hamilton v. Lanning, decided (June 7, 2010), the Supreme Court held in an 8-1 decision that rather than mechanically applying the calculation of “current monthly income,” which looks at the Debtor’s income for the 6 calendar months before the filing of the petition, the court can take into consideration changes in income that have occurred or are known or virtually certain to occur at the time of confirmation.

In Lanning, the Debtor had received a buyout from her employer which, when included in “current monthly income,” increased her income over what she was really making, and the mechanical approach would have resulted in her having to pay more into the plan than she possibly could afford. Because after the buyout she was making wages well below the state median income, the Supreme Court held that this change in income could be considered in calculating her “projected disposable income.”

This “forward looking” approach should not give the Court or the Trustee, or the Debtor, a blank check: as the Supreme Court stated, “a court taking the forward-looking approach should begin by calculating disposable income, and in most cases, nothing more is required. It is only in unusual cases that a court may go further and take into account other known or virtually certain information about the debtor’s future income or expenses.”

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