Research Notes:

• Supreme Court case decided on Monday June 7,2010.
• Issue: “Whether in calculating the debtor’s ‘projected disposable income’ during the plan period, the bankruptcy court may consider evidence suggesting that the debtor’s income or expenses during that period are likely to be different from her income or expenses during the pre-filing period.”
• Facts of the case: A Kansas bankruptcy court denied objections to chapter 13 debtor Stephanie Kay Lanning’s repayment plan, stating that the starting point for calculating a chapter 13 debtor’s “projected disposable income” is presumed to be the debtor’s monthly income. The lower court’s decision was affirmed by the Bankruptcy Appellate Panel of the Tenth Circuit. The U.S. Court of Appeals for the Tenth Circuit also affirmed the decision but stated that the calculation was subject to substantial changes in a debtor’s circumstances.
• Disposable income: the total personal income minus personal current taxes.
• Decision: 8 votes for Lanning, 1 vote against
The Supreme Court affirmed the decision made by the U.S. Court of Appeals for the Tenth Circuit, stating that a bankruptcy court may account for changes in a debtor’s income or expenses at the time of the “projected disposable income” calculation.

Article:

The case of Hamilton vs. Lanning questions whether bankruptcy courts might consider evidence that suggests a difference between a debtor’s income or expenses during the pre-filing period and during the filing period. The case began when debtor Stephanie Kay Lanning filed for chapter thirteen in October 2006. Six months prior to filing for bankruptcy, Ms. Lanning received a one-time buy out from her employer, which raised her “current monthly income” (calculated by averaging her income six months prior to filing for bankruptcy). As a result, Ms. Lanning was obligated to pay $756 per month as opposed to $144 as projected by her actual income. The courts agreed to consider substantial changes in the debtor’s (Ms. Lanning) circumstances and agreed that the debtor should not have to make payments based upon a one-time occurrence.

Hamilton vs. Lanning introduced a new formula for determining a debtor’s projected disposable income. The new formula now takes into consideration changes in the debtor’s income that have occurred, meaning that a debtor’s current monthly income calculation is no longer based solely on a debtor’s income for the six months prior to a filing of the petition.

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