I just read the entire Supreme Court case of a debtor, Stephanie Kay Lanning, that was decided by the Court on June 7 of this year.
I then read another case of a debtor named David Andrew Darrohn, decided in the US Court of Appeals - 6th District (California) on July 22.
Both of these cases will lead to HUGE impacts on how Courts decide what is included on Schedules I & J (but have no impact on the Means Test.)
Here is the summary if you do not want to read them in full.
UNDERSTAND I AM NOT A LAWYER AND THIS IS JUST MY OPINION!
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MEANS TEST
As I mentioned above, there is no mention of changes to the Means Test. Remember, the Means Test has a simple function. It determines using a formula if there is a Presumption of Abuse for Chapter 7 cases.
The Court makes their ultimate decision based on what is found in Schedules I (income) and J (expenses).
SCHEDULE I - INCOME
The Lanning case was one where Ms. Lanning received a one-time bonus in the last 6 months prior to filing. The Trustee wanted her to include this as income on her Schedule I. The Court disagreed and said that income is actually "projected income." Just because she received a one-time windfall, the Court decided she should not have to include that in her "projected income" because there was no basis that she would ever receive that bonus again. This helped out Ms. Lanning and significantly reduced the amount she had to pay in her Chapter 13. Note here that her Means Test (past 6 month average) income and her Schedule I (projected) income ended up to be very, very different.
In the Darrohn case, he had a job paying $100k+ and lost the job and was unemployed for 90 days during the 6 months prior to filing. This made his income for the Means Test come to $4,300/mo - which was fine with the Court. However, he took a new job paying $6,900/mo before the plan was confirmed. The Trustee argued that due to the Lanning case, the Court should use his projected income ($6,900/mo) because it was known and virtually certain this would be his income going forward. The Court agreed and the $6,900/mo income figure was used.
SCHEDULE J - EXPENSES
In the Darrohn case, he had listed on his Means Test a $2,700 monthly mortgage payment for a home that he was surrendering. (Note: Other court decisions have been OK with this expense being on the Means Test.) The Court of Appeals did not overturn this. However, Mr. Darrohn also had this listed as an expense on Schedule J. The Court, again citing the Lanning case, did not allow him to include that as a projected expense because it was clear that it would no longer be an expense since he was surrendering the property.
This also meant that his Means Test expenses and his Schedule J expense were significantly different.
SUMMARY
You can quickly see that Mr. Darrohn is in for a brutal Chapter 13 with some very high payments he likely was not counting on when he filed.
On the flip side, Ms. Lanning was able to significantly reduce her Chapter 13 plan payments.
The key in both decisions is that projected income is NOT what the courts calls a "mechanical" formula, but is based upon what is reasonably known at the time the bankruptcy plan (7 or 13) is confirmed.
There have been many threads about getting a job before the 341 hearing. I think this case decision makes it rather clear about the potential impact to a 7 or 13.
Hope this helps everyone. Good luck with your situation!
I then read another case of a debtor named David Andrew Darrohn, decided in the US Court of Appeals - 6th District (California) on July 22.
Both of these cases will lead to HUGE impacts on how Courts decide what is included on Schedules I & J (but have no impact on the Means Test.)
Here is the summary if you do not want to read them in full.
UNDERSTAND I AM NOT A LAWYER AND THIS IS JUST MY OPINION!
--------------------------------
MEANS TEST
As I mentioned above, there is no mention of changes to the Means Test. Remember, the Means Test has a simple function. It determines using a formula if there is a Presumption of Abuse for Chapter 7 cases.
The Court makes their ultimate decision based on what is found in Schedules I (income) and J (expenses).
SCHEDULE I - INCOME
The Lanning case was one where Ms. Lanning received a one-time bonus in the last 6 months prior to filing. The Trustee wanted her to include this as income on her Schedule I. The Court disagreed and said that income is actually "projected income." Just because she received a one-time windfall, the Court decided she should not have to include that in her "projected income" because there was no basis that she would ever receive that bonus again. This helped out Ms. Lanning and significantly reduced the amount she had to pay in her Chapter 13. Note here that her Means Test (past 6 month average) income and her Schedule I (projected) income ended up to be very, very different.
In the Darrohn case, he had a job paying $100k+ and lost the job and was unemployed for 90 days during the 6 months prior to filing. This made his income for the Means Test come to $4,300/mo - which was fine with the Court. However, he took a new job paying $6,900/mo before the plan was confirmed. The Trustee argued that due to the Lanning case, the Court should use his projected income ($6,900/mo) because it was known and virtually certain this would be his income going forward. The Court agreed and the $6,900/mo income figure was used.
SCHEDULE J - EXPENSES
In the Darrohn case, he had listed on his Means Test a $2,700 monthly mortgage payment for a home that he was surrendering. (Note: Other court decisions have been OK with this expense being on the Means Test.) The Court of Appeals did not overturn this. However, Mr. Darrohn also had this listed as an expense on Schedule J. The Court, again citing the Lanning case, did not allow him to include that as a projected expense because it was clear that it would no longer be an expense since he was surrendering the property.
This also meant that his Means Test expenses and his Schedule J expense were significantly different.
SUMMARY
You can quickly see that Mr. Darrohn is in for a brutal Chapter 13 with some very high payments he likely was not counting on when he filed.
On the flip side, Ms. Lanning was able to significantly reduce her Chapter 13 plan payments.
The key in both decisions is that projected income is NOT what the courts calls a "mechanical" formula, but is based upon what is reasonably known at the time the bankruptcy plan (7 or 13) is confirmed.
There have been many threads about getting a job before the 341 hearing. I think this case decision makes it rather clear about the potential impact to a 7 or 13.
Hope this helps everyone. Good luck with your situation!
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