(CN) – Bankruptcy courts can account for changes in a debtor’s income or expenses when calculating projected disposal income, the Supreme Court ruled Monday, rejecting a more mechanical approach.
When Stephanie Kay Lanning filed for Chapter 13 bankruptcy protection, she agreed to pay all projected disposable income for three years to a bankruptcy trustee to pay off $36,700 in unsecured debt.
The trustee objected to the proposed plan, claiming Lanning’s projected disposable income should have been based on her last six months of income, which included a one-time buyout from her former employer.
The buyout inflated her disposable income from $149 per month to $1,115 per month.
But Lanning argued that the buyout had skewed the numbers, as she couldn’t afford monthly payments of $756 over five years, as the trustee sought.
The bankruptcy court endorsed Lanning’s proposed monthly payment of $144, but required a five-year plan. The 10th Circuit in Denver affirmed, saying the mechanical calculation — based on Lanning’s income over the past six months — can be rebutted by evidence of a “substantial change” in her circumstances.
The Supreme Court agreed that Lanning’s forward-looking approach was more reasonable than the mechanical approach.
Justice Samuel Alito said the term “projected” is a strong indicator that Congress meant for other factors to be considered besides past income.
“While a projection takes past events into account, adjustments are often made based on other factors that may affect the final outcome,” he wrote. He added that lawmakers have rarely used “projected” to mean “simple multiplication.” For that, they use the term “multiplied.”
“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.
In a lone dissent, Justice Antonin Scalia called the majority’s view “contrary to the [Bankruptcy] Code’s text.”
“It would be pointless to define disposable income in such detail, based on data during a specific 6-month period, if a court were free to set the resulting figure aside whenever it appears to be a poor predictor,” he wrote.