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Supreme Court rules 'forward-looking approach' must be used in bankruptcy cases

By Dwyer Arce

[JURIST] The US Supreme Court [official website; JURIST news archive] on Monday ruled [opinion, PDF] 8-1 in Hamilton, Chapter 13 Trustee v. Lanning [Cornell LII backgrounder] that the "projected disposable income" of a debtor filing Chapter 13 bankruptcy [text] must be calculated using the "forward-looking approach." In finding so, the court resolved a dispute about the meaning of the statutory term "projected disposable income." The petitioner argued that this meant a "mechanical approach," only taking into account the past monthly average income multiplied by the months in the repayment plan. Respondent contended that in exceptional cases, the court should use the "forward-looking approach," taking into account significant changes in the debtor's circumstances where those changes are known or virtually certain. In backing the respondent's argument and affirming the decision [opinion, PDF] of the US Court of Appeals for the Tenth Circuit, Justice Samuel Alito explained:

[R]espondent's argument is supported by the ordinary meaning of the term "projected." ... Here, the term "projected" is not defined, and in ordinary usage future occurrences are not "projected" based on the assumption that the past will necessarily repeat itself. For example, projections concerning a company's future sales or the future cash flow from a license take into account anticipated events that may change past trends. On the night of an election, experts do not "project" the percentage of the votes that a candidate will receive by simply assuming that the candidate will get the same percentage as he or she won in the first few reporting precincts. While a projection takes past events into account, adjustments are often made based on other factors that may affect the final outcome. ... Second, the word "projected" appears in many federal statutes, yet Congress rarely has used it to mean simple multiplication. For example, the Agricultural Adjustment Act of 1938 defined "projected national yield," "projected county yield," and "projected farm yield" as entailing historical averages "adjusted for abnormal weather conditions," “trends in yields," and "any significant changes in production practices." By contrast, we need look no further than the Bankruptcy Code to see that when Congress wishes to mandate simple multiplication, it does so unambiguously—most commonly by using the term "multiplied."

As the lone dissenter, Justice Antonin Scalia stated that the court's statutory interpretation was contrary to the text of the statute [11 USC § 1325 text], which he argued sets out an "inflexible formula" that the court is departing from in its decision. He explained: "Th[e court's] interpretation runs aground because it either renders superfluous text Congress included or requires adding text Congress did not."

Respondent filed for bankruptcy protection in October 2006. During the period preceding this, she had received a buy-out from a former employer, inflating her income for the six month period that was to serve as a basis for calculating her projected disposable income. The court heard oral arguments [transcript, PDF; JURIST report] in the case in March. In November, the court granted certiorari [JURIST report], limiting its grant of certiorari to "[w]hether, in calculating the debtor's 'projected disposable income' during the plan period, the bankruptcy court may consider evidence suggesting that the debtor's income or expenses during that period are likely to be different from her income or expenses during the pre-filing period."

Full post as published by JURIST - The Paper Chase on June 07, 2010 (boomark / email).