SW Legal studies in Business

Current Income Most Relevant to Determining Bankruptcy Debt Repayment Plan
Description

Appeals court held that while the bankruptcy statute refers to using a six month average to calculate income to help determine repayment plan in Chapter 13, the court should look to the most relevant income due to changes in circumstances.

Topic Bankruptcy Law
Key Words

Chapter 13; Income Measure

C A S E   S U M M A R Y
Facts

Lanning, a single woman with no children, filed a Chapter 13 petition in October 2006 to address $36,793 in unsecured debt. Her annual gross income was $33,147 in 2004 and $56,516 in 2005. She took a buyout of $27,500 from her employer in May 2006. She then took another job that paid $1,922 monthly. Her expenses were listed as $1,773 monthly, leaving $149 monthly in “excess income.” However, the formula used to calculate “current monthly income” is the average of income for the six months before filing bankruptcy. Using that method, her monthly income was $5,344, as it included the buyout. Using that formula on the bankruptcy form, her “excess income” to apply to debt was $1,115. Lanning proposed to pay $144 per month for 36 months ($5,184) to satisfy her total debt. The bankruptcy court, noting her current income of $1,922, accepted her plan. The trustee appealed. The district court affirmed. Trustee appealed.

Decision

Affirmed. When a Chapter 13 plan contemplates less than full repayment of all unsecured claims, the starting point for calculating the debtor’s projected disposable income is presumed to be the debtor’s current monthly income subject to a showing of a substantial change in circumstances. The statute refers to “projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan.” While Lanning did have higher income prior to current employment, it is her current income that is most relevant to calculating income during the repayment period.

Citation In re Lanning, ---F.3d--- (2008 WL 4879134, 10th Cir., 2008)

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