U.S. Supreme Court to Decide How Chapter 13 payments are to be Calculated

[HHM]

November 2, 2009

The U.S. Supreme Court Makes a Rare Foray Into Bankruptcy Law.

The U.S. Supreme Court has agreed to hear the case of In Re Lanning (opens PDF) to decide this limited question: “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.”

The underlying bankruptcy case, In Re Lanning, raised the issue of how a debtor is to determine her chapter 13 payment. A chapter 13 bankruptcy is a monthly payment plan and under the bankruptcy code a chapter 13 debtor is to devote all her projected disposable income to the chapter 13 plan. The problem with the 2005 bankruptcy code amendment is that it created 2 sections where a debtor’s disposable income is calculated. Form B-22C, the means test; and Schedules I and J, the schedules of “current” income and expenses. Form B-22C calculates a debtor’s income based on an average of the person’s previous 6 months income and expenses based on IRS and Census data for average expenses; whereas Schedules I & J are a snap shot of a debtor’s actual, “current” and to some degree “estimated future” monthly income and expenses. The battle is over how to interpret conflicting language in the amended bankruptcy code (thank you Congress and the lawyers from the credit card industry that wrote the amendments).

The problem arises when the B-22C disposable income figure is higher than the Schedule I & J figure. Ms. Lanning proposed a monthly payment of $147 per month based on her Schedules I & J, (her income significantly decreased) but because of a severance payment from her prior employer, Form B-22C showed disposable income of $1,114.98. Thus, the chapter 13 trustee objected to the debtor’s chapter 13 plan payment. So far, each step of the appeal process has favored the debtor, the bankruptcy court, the Bankruptcy Appellate Panel (BAP) and the 10th Circuit Court of Appeals have ruled in favor of the debtor (note Colorado is in the 10th Circuit).

Common sense would seem to dictate that a chapter 13 plan must be based in “reality.” Most bankruptcy circuits have adopted the “forward looking approach” and only use Form B-22 to determine if a debtor belongs in a chapter 7 or chapter 13, but once the court determines if a debtor should be in a chapter 13 bankruptcy, the court uses real numbers in determining the actual monthly payment for a chapter 13. Let’s hope the U.S. Supreme Court agrees.

http://askmethner.com/?p=803
http://origin.www.supremecourtus.gov/docket/08-998.htm

[tjs1970]

interesting........

i don't know how anyone can say they have a crystal ball as to what the future holds.....it is, what it is.........my income in 2005 and 2006 indicated I was making 150k a year......2007 was a disaster as I had to take a job in a different industry at 30% of that pay.....then when that didnt work out, i got a job that paid about 50% of what my 2005 income was in 2008, only to be laid off in early 2009, and all the while used savings to pay the difference in my living and housing expenses which were still at 2005 and 2006 levels because we bought a home at the top of the bubble and new vehicles based on an assumption our income would continue........now we are going towards foreclosure, with little to no savings and our unsecured debt is through the roof........

crystal ball my a$$

[klandsb]

I surely hope the debtor comes out on top. In my case my disposable income is around $ 500.00 but with the I & J I am only around $ 230.00....
I hope the Supreme Court steps up to the plate and settles it fair & square .

[forgotten]

It makes more sense to go by schedule I & J. However, my case would have been a lot better if you could only go by B-22C.
B-22C would have had me at $0 to unsecured. I & J got me to $1000/mo.

[Mi Bankruptcy]

Originally Posted by tjs1970

interesting........

i don't know how anyone can say they have a crystal ball as to what the future holds.....it is, what it is.........my income in 2005 and 2006 indicated I was making 150k a year......2007 was a disaster as I had to take a job in a different industry at 30% of that pay.....then when that didnt work out, i got a job that paid about 50% of what my 2005 income was in 2008, only to be laid off in early 2009, and all the while used savings to pay the difference in my living and housing expenses which were still at 2005 and 2006 levels because we bought a home at the top of the bubble and new vehicles based on an assumption our income would continue........now we are going towards foreclosure, with little to no savings and our unsecured debt is through the roof........

crystal ball my a$$

LOL.. Someone should tell my CEO and RVP people don't have crystal balls. They asked me to do a 3 year projection of how much revenue my project will produce.. BTW.. my job is directly related to the economy and employers hiring..

[tjs1970]

http://www.bankruptcylawnetwork.com/...pter-13-plans/

[music12]

poor Ms. Lanning. can any of us even imagine being the guinea pig for a trustee, being dragged through appeals all the way to the supreme court, finding ourselves in all newspapers in a never-ending case. even if the trustee loses, the debtor has already lost a chunk of her life to this insanity. and, how she is paying legal fees at this point is beyond me (hopefully she has legal aid...)

[DSIG]

I brought up this very same contradiction to my attorney who reminded me its not my job to analyze the means test. I always wondered why it took him so long to review the schedules. The day I signed everything I knew how the game was played. Knowing very well that debtors inflate the amounts on schedule J, he asked me to adjust a few schedule J expenses (that dont change the means test, ie medical), so that the disposable income on schedule J is within $50-$100 of the disposable income on the means test. I had minor tweaks...but Ms. Lanning here, has a bit of a difference between her means test and her schedule J. I guess you have to litigate if the adjustment game doesn't work

[freshstart36]

With my situation this would be a good thing. Since they are currently considering the one time distributions that I received on a life insurance policy cash out into my six month income period, which is not regular monthly income, it's boosting my income to appear that I make much more than I normally make. It is not fair to consider that as my average income when it is not. I understand looking at it as past income, but not as current or future income in considering what my payment would be. To me that is setting me up for failure. My regular income is way under the median income on the means test but because of that distribution I probably won't qualify for Chap 7. I know what my projected income will be, it's the same every year with the exception of MAYBE a small cost of living raise

[STofSHK]

If the second lien is going to be stripped due to the fact that my house is worth less than my first, is it included in the means test?

[tjs1970]

I do not believe it is calculated in the means test........

[STofSHK]

I Iam using my domestic partners Income for my chpt13. I know you have to modify your schedule payments if your economic situation changes( i.e. his car payments are going to be done in March). Do I have to claim that. I am assuming that his car payments wont go on the means test? Thanxs you guys are a God Send!!!!!!!!!!!!!!!!!!!!

[DSIG]

If you are using his income, then yes, include his payments. This is an allowable expense on the means test

[STofSHK]

From what I understand you are only allowed one car. I already claimed my car, which I owe 20k and my monthly payments are $436 a momth.

[DSIG]

Originally Posted by STofSHK

From what I understand you are only allowed one car. I already claimed my car, which I owe 20k and my monthly payments are $436 a momth.

I think its one car per person. That's reasonable given that most Americans need a car to get to work. If you had any additional vehicles they would be considered luxury and probably have to be surrendered. Have you retained an attorney? The can provide info on this as well.