Hamilton v. Lanning

Decision Date07 June 2010
Docket NumberNo. 08–998.,08–998.
Citation560 U.S. 505,177 L.Ed.2d 23,130 S.Ct. 2464
PartiesJan HAMILTON, Chapter 13 Trustee, Petitioner, v. Stephanie Kay LANNING.
CourtU.S. Supreme Court
, Chapter 13 Trustee, Petitioner,v.Stephanie Kay LANNING.

Jan Hamilton

, Topeka, KS, for petitioner.

Thomas C. Goldstein

, Washington, DC, for respondent.

Sarah Harrington for United States as amicus curiae, by special leave of the Court, supporting the respondent.

Jan Hamilton

, Trustee, Counsel of Record, Teresa L. Rhodd, Staff Attorney, Chapter 13 Trustee's Office, Topeka, KS, for petitioner.

Amy Howe

, Kevin K. Russell, Howe & Russell, P.C., Bethesda, MD, G. Eric Brunstad, Jr., Collin O'Connor Udell, Matthew J. Delude, Dechert LLP, Hartford, CT, Thomas C. Goldstein, Counsel of Record, Patricia A. Millett, Peter J. Gurfein, Robert K. Ozols, Brian M. Rothschild, Daniel J. Harris, Russell L. Wininger, Akin, Gump, Strauss, Hauer & Feld LLP, Washington, DC, for respondent.Opinion

Justice ALITO

delivered the opinion of the Court.

Chapter 13 of the Bankruptcy Code provides bankruptcy protection to “individual[s] with regular income” whose debts fall within statutory limits. 11 U.S.C. §§ 101(30)

, 109(e). Unlike debtors who file under Chapter 7 and must liquidate their nonexempt assets in order to pay creditors, see §§ 704(a)(1), 726, Chapter 13 debtors are permitted to keep their property, but they must agree to a court-approved plan under which they pay creditors out of their future income, see §§ 1306(b), 1321, 1322(a)(1), 1328(a). A bankruptcy trustee oversees the filing and execution of a Chapter 13 debtor's plan. § 1322(a)(1); see also 28 U.S.C. § 586(a)(3)

.

Section 1325 of Title 11

specifies circumstances under which a bankruptcy court “shall” and “may not” confirm a plan. § 1325(a), (b). If an unsecured creditor or the bankruptcy trustee objects to confirmation, § 1325(b)(1) requires the debtor either to pay unsecured creditors in full or to pay all “projected disposable income” to be received by the debtor over the duration of the plan.

We granted certiorari to decide how a bankruptcy court should calculate a debtor's “projected disposable income.” Some lower courts have taken what the parties term the “mechanical approach,” while most have adopted what has been called the “forward-looking approach.” We hold that the “forward-looking approach” is correct.

I

As previously noted, § 1325

provides that if a trustee or an unsecured creditor objects to a Chapter 13 debtor's plan, a bankruptcy court may not approve the plan unless it provides for the full repayment of unsecured claims or “provides that all of the debtor's projected disposable income to be received” over the duration of the plan “will be applied to make payments” in accordance with the terms of the plan. 11 U.S.C. § 1325(b)(1); see also § 1325(b)(1) (2000 ed.). Before the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), 119 Stat. 23, the Bankruptcy Code (Code) loosely defined “disposable income” as “income which is received by the debtor and which is not reasonably necessary to be expended” for the “maintenance or support of the debtor,” for qualifying charitable contributions, or for business expenditures. § 1325(b)(2)(A), (B).

The Code did not define the term “projected disposable income,” and in most cases, bankruptcy courts used a mechanical approach in calculating projected disposable income. That is, they first multiplied monthly income by the number of months in the plan and then determined what portion of the result was “excess” or “disposable.” See 2 K. Lundin, Chapter 13 Bankruptcy § 164.1, p. 164–1, and n. 4 (3d ed.2000) (hereinafter Lundin (2000 ed.)) (citing cases).

In exceptional cases, however, bankruptcy courts took into account foreseeable changes in a debtor's income or expenses.

See In re Heath, 182 B.R. 557, 559–561 (9th Cir. BAP 1995)

; In re Richardson, 283 B.R. 783, 799 (Bkrtcy.Kan.2002); Tr. of Oral Arg. 7. Accord, 1 Lundin § 35.10, at 35–14 (2000 ed.) (“The debtor should take some care to project estimated future income on Schedule I to include anticipated increases or decreases [in income] so that the schedule will be consistent with any evidence of income the debtor would offer at a contested confirmation hearing”).

BAPCPA left the term “projected disposable income” undefined but specified in some detail how “disposable income” is to be calculated. “Disposable income” is now defined as “current monthly income received by the debtor” less “amounts reasonably necessary to be expended” for the debtor's maintenance and support, for qualifying charitable contributions, and for business expenditures. § 1325(b)(2)(A)(i) and (ii) (2006 ed.)

.

“Current monthly income,” in turn, is calculated by averaging the debtor's monthly income during what the parties refer to as the 6–month look-back period, which generally consists of the six full months preceding the filing of the bankruptcy petition. See § 101(10A)(A)(i)

.1 The phrase “amounts reasonably necessary to be expended” in § 1325(b)(2) is also newly defined. For a debtor whose income is below the median for his or her State, the phrase includes the full amount needed for “maintenance or support,” see § 1325(b)(2)(A)(i), but for a debtor with income that exceeds the state median, only certain specified expenses are included,2 see §§ 707(b)(2), 1325(b)(3)(A).

II
A

Respondent had $36,793.36 in unsecured debt when she filed for Chapter 13 bankruptcy protection in October 2006. In the six months before her filing, she received a one-time buyout from her former employer, and this payment greatly inflated her gross income for April 2006 (to $11,990.03) and for May 2006 (to $15,356.42). App. 84, 107. As a result of these payments, respondent's current monthly income, as averaged from April through October 2006, was $5,343.70—a figure that exceeds the median income for a family of one in Kansas. See id., at 78. Respondent's monthly expenses, calculated pursuant to § 707(b)(2)

, were $4,228.71. Id., at 83. She reported a monthly “disposable income” of $1,114.98 on Form 22C. Ibid.

On the form used for reporting monthly income (Schedule I), she reported income from her new job of $1,922 per month—which is below the state median. Id., at 66; see also id., at 78. On the form used for reporting monthly expenses (Schedule J), she reported actual monthly expenses of $1,772.97. Id., at 68. Subtracting the Schedule J figure from the Schedule I figure resulted in monthly disposable income of $149.03.

Respondent filed a plan that would have required her to pay $144 per month for 36 months. See id., at 93. Petitioner, a private Chapter 13 trustee, objected to confirmation of the plan because the amount respondent proposed to pay was less than the full amount of the claims against her, see § 1325(b)(1)(A)

, and because, in petitioner's view, respondent was not committing all of her “projected disposable income” to the repayment of creditors, see § 1325(b)(1)(B). According to petitioner, the proper way to calculate projected disposable income was simply to multiply disposable income, as calculated on Form 22C, by the number of months in the commitment period. Employing this mechanical approach, petitioner calculated that creditors would be paid in full if respondent made monthly payments of $756 for a period of 60 months. Id., at 108. There is no dispute that respondent's actual income was insufficient to make payments in that amount. Tr. of Oral Arg. 3–4.

B

The Bankruptcy Court endorsed respondent's proposed monthly payment of $144 but required a 60–month plan period.

No. 06–41037 etc., 2007 WL 1451999, *8 (Bkrtcy.Kan.2007)

. The court agreed with the majority view that the word “projected” in § 1325(b)(1)(B) requires courts “to consider at confirmation the debtor's actual income as it was reported on Schedule I.” Id., at *5 (emphasis added). This conclusion was warranted by the text of § 1325(b)(1), the Bankruptcy Court reasoned, and was necessary to avoid the absurd result of denying bankruptcy protection to individuals with deteriorating finances in the six months before filing. Ibid.

Petitioner appealed to the Tenth Circuit Bankruptcy Appellate Panel, which affirmed. 380 B.R. 17, 19 (2007)

. The Panel noted that, although Congress redefined “disposable income” in 2005, it chose not to alter the pre-existing term “projected disposable income.” Id., at 24. Thus, the Panel concluded, there was no reason to believe that Congress intended to alter the pre-BAPCPA practice under which bankruptcy courts determined projected disposable income by reference to Schedules I and J but considered other evidence when there was reason to believe that the schedules did not reflect a debtor's actual ability to pay. Ibid.

The Tenth Circuit affirmed. 545 F.3d 1269, 1270 (2008)

. According to the Tenth Circuit, a court, in calculating “projected disposable income,” should begin with the “presumption” that the figure yielded by the mechanical approach is correct, but the Court concluded that this figure may be rebutted by evidence of a substantial change in the debtor's circumstances. Id., at 1278–1279.

This petition followed, and we granted certiorari. 558 U.S. 989, 130 S.Ct. 487, 175 L.Ed.2d 343 (2009)

.

III
A

The parties differ sharply in their interpretation of § 1325

's reference to “projected disposable income.” Petitioner, advocating the mechanical approach, contends that “projected disposable income” means past average monthly disposable income multiplied by the number of months in a debtor's plan. Respondent, who favors the forward-looking approach, agrees that the method outlined by petitioner should be determinative in most cases, but she argues that in exceptional cases, where significant changes in a debtor's financial circumstances are known or virtually certain, a bankruptcy court has discretion to make an appropriate adjustment. Respondent has the stronger argument.

First, respondent's argument is supported by the ordinary meaning of the term “pr...

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