The lack of clarity of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act has generated a flurry of litigation. Another case reached the Supreme Court last week, as the Court heard oral arguments in Hamilton, Chapter 13 Trustee, v. Lanning.
The Court will address the issue of whether bankruptcy courts may look at evidence that a debtor's income and expenses differ from his/her prior income and expenses in calculating a debtor's projected disposable income. The Bankruptcy Code's means test for Chapter 13 bankruptcy filers appears to mandate that the court only look backwards to project how much a filer will be able to pay to his/her creditors. But because unemployment often spurs the bankruptcy filing, the means test often over-projects future income. Therefore, the Chapter 13 plan can set the filer up for failure.
The bankruptcy trustee argued that the means test is clear in mandating that the court only look at a filer's past. The 2005 amendments intended to remove judicial discretion in calculating the means test. Allowing courts to factor in projections is too unreliable.
The debtor countered that the means test is supposed to capture projected income, and the word "projected" requires that the court obtain a realistic approximation of future income and expenses. Such a realistic estimation compels considering evidence of what the future will be.
Unfortunately for debtors, as irrational as the means test is, the plain language is fairly certain that the court should only look backwards. Hopefully, the Supreme Court will allow common sense to govern its decision because the current law leads to many unfair results. The Supreme Court should issue its decision in the coming months.
