The Supreme Court ruled that bankruptcy courts can now account for changes in a debtor’s income or expenses when calculating projected disposable income. The deciding case involved Stephanie Kay Lanning, a debtor who filed Chapter 13 bankruptcy and agreed to pay off $36,700 in unsecured debt in three years. The bankruptcy trustee objected to the debtor’s proposed bankruptcy plan because the debtor’s projected disposable income was not based on her last six months of income, which included a one-time buyout from her former employer. But the debtor argued that by using the prior six months to calculate her projected disposable income, it would falsely inflate her future income by $149 per month.
Eventually the bankruptcy court approved the debtor’s plan to pay $144 per month; but required her to pay that over a five year plan instead of a 3 year plan. The Supreme Court recently sided with the debtor saying that she is in fact correct, that her one-time buyout should not be included and that she could account for changes in income and expenses when calculating her projected disposable income.
In light of this historical practice, we would expect that, had Congress intended for ‘projected’ to carry a specialized – and indeed, unusual – meaning in Chapter 13, Congress would have said so expressly,” Alito wrote.
Fortunately for future Chapter 13 bankruptcy debtors this Supreme Court ruling will force bankruptcy courts to take into account changes in income and expenses when calculating debtors’ projected disposable income.