RSS FeedWhenever a consumer debtor files bankruptcy under Chapter 13 of the Bankruptcy Code, they may need to provide a Plan payment of all of their projected disposable income pursuant to 11 U.S.C. § 1325(b)(1). That may sound easy to provide your projected disposable income, but the interpretation of the term is one of the most controversial issues arising in consumer cases according to Professor Ned W. Waxman who wrote an excellent article entitled, “Projected Disposable Income: Legislative Lunacy and Judicial Gyrations,” 46 Houston Law Review 867 (2009).
Professor Waxman laid out the then existing judicial approaches being utilized in courts throughout the country. They are the Starting Point approach, the Mechanical/Multiplier approach, The I and J approach, and the Excusal from filing I and J, and Resetting the 6-Month period to Determine Current Monthly Income approach. His journal article is a must read for consumer bankruptcy practitioners and provides an overview of the cases leading up to the Lanning case.
Last year, I briefly discussed the topic of projected disposable income in Chapter 13 bankruptcy cases while the Hamilton v. Lanning, 130 S. Ct. 2464 case was still pending before the U.S. Supreme Court. Lanning was decided on June 7, 2010 and the Supreme Court settled on the Forward Looking approach on the issue. Since then, the case has been cited/distinguished in more than 72 cases throughout the country. So, where are we now? I’ll give you the Lanning decision update from a California perspective, which is the 9th Circuit approach.
In re Smith, 418 B.R. 359 (2009) held that Debtors may not deduct payments not being made because they intend to surrender the property, “Ironic it would be indeed to diminish payments to unsecured creditors in this context on the basis of a fictitious expense not incurred by a debtor.” Ransom v. MBNA Am. Bank (In re Ransom), 577 F.3d 1026, 1030 (9th Cir. 2009).
In re Thiel, 2011 Bankr. LEXIS 757, explained tha Lanning effectively overruled, in part, Maney v. Kagenveama (In re Kagenveama), 541 F.3d. 868 (9th Cir. 2008). A fair reading of Lanning indicates that the Supreme Court did not there discard the BAPCPA amendments to § 1325, nor jettison the calculation of current monthly income or disposable income under the Code that finds expression in each chapter 13 case through Form 22C. To the contrary, it was clear that Form 22C is to be followed, except in those exceptional cases where a forward-looking approach is required to take into account “known or virtually certain” information impacting the debtor’s income or expenses. Id. at 2475.
In re Gladwin, 2011 Bankr. LEXIS 489, At issue is whether the disposable income require-ment of § 1325(b), after enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), allows a below median income debtor to continue making monthly payments for a debt secured by a boat used solely for recreational purposes. For the reasons set forth below, this Court concludes that the Debtor failed to satisfy § 1325(b)(1)(B), and that the Debtor’s monthly boat/trailer payments are not reasona-bly necessary to be expended for the maintenance and support of the Debtor or a dependent of the Debtor.
In re Warren, 2010 Bankr. LEXIS 4644 denied the confirmation of the Debtor’s Plan and the Trustee’s request for dismissal as the Debtor’s did not propose their plan in bad faith, but failed to provide all of their projected disposable income to the Plan. These Debtors had two cars and two motorcycles and their expenses were above the standards provide in the Code without explanation to justify the increased expenses.
The bottom line with these cases is this: Be sure your expenses are necessary for the maintenance and support of your household; and your Chapter 13 Plan provides for all of your projected disposable income.
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