HAMILTON v. LANNING
A Kansas federal bankruptcy court denied objections to a Chapter 13 debtor's repayment plan. The Bankruptcy Appellate Panel of the Tenth Circuit affirmed the lower court's decision. On appeal, the U.S. Court of Appeals for the Tenth Circuit affirmed, holding that the starting point for calculating a Chapter 13 debtor's "projected disposable income" is presumed to be the debtor's current monthly income. However, the court stated that the calculation is subject to a showing that there is a substantial change in circumstances. The court remanded the case to the bankruptcy court to determine whether the debtor had shown there was a substantial change in her circumstances.
In calculating a debtor's "projected disposable income," may the bankruptcy court consider evidence suggesting that the debtor's income or expenses during that period are likely to be different from the debtor's income or expenses during the pre-filing period?
Legal provision: Bankruptcy Abuse Prevention and Consumer Protection Act of2005 (BAPCPA)
Yes. The Supreme Court affirmed the Tenth Circuit, holding that a bankruptcy court may account for changes in the debtor's income or expenses that are "known or virtually certain" at the time of confirmation when it calculates a debtor's projected disposable income. With Justice Samuel A. Alito writing for the majority, the Court reasoned that the plain meaning of "projected disposable income" within the statute supports the Court's holding.
Justice Antonin Scalia dissented. He disagreed with the majority's interpretation of the term "projected." He maintained that the term did allow for a bankruptcy court to depart from the "inflexible formula" provided by the statute.
ORAL ARGUMENT OF JAN HAMILTON ON BEHALF OF THE PETITIONER
Chief Justice John G. Roberts: We will hear argument first this morning in Case 08-998, Hamilton, the Chapter 13 Trustee, v. Lanning.
Mr. Hamilton: Mr. Chief Justice, and may it please the Court:
The Tenth Circuit and Stephanie Lanning were wrong in ignoring the new Chapter 13 means test contained in the 2005 amendments to the Bankruptcy Code.
The amendments to the 2005 Bankruptcy Code were intended to reduce judicial discretion by inserting a formula rather than the judicial discretion that had previously been accorded to judges and to the litigants.
Stephanie Lanning fell afoul of the means test because during the first 2 months of a 6-month lookback period, which I will explain in a moment, she had more income than what she had in the rest of the 6-month lookback period.
That income was from a buyout from her former employer, Payless, and distorted what her income appeared to be during that 6-month period of time.
Because of that, the amount which the means test showed that she would be required to pay to her creditors was more than she could actually pay.
Justice Ruth Bader Ginsburg: Which means -- which means what?
What is the consequence of that?
You concede that on the strict application of the 6 months she -- her income is much too high for her possibly to pay the creditors.
So what happens to her?
Mr. Hamilton: What happens to her and what could have happened to her may be two different propositions, Justice Ginsburg.
In the first place, there are two parts to that 6-month lookback period, which are found in 101(10A) of the United States Bankruptcy Code -- and the statutes, by the way here, are found at pages 83 through 96 of the petition appendix.
101(10A) has a first part which defines the 6-month lookback period as being 6 months prior to the filing of the date of the petition -- actually, the end of the month prior to the filing of the petition.
Congress's thought was, it seems, that that would be more representative of what an individual's actual income would be.
There is a second part to that 6-month lookback period which says essentially that the debtor can move that 6-month lookback period by not filing certain papers with the court.
Justice Ruth Bader Ginsburg: That's -- can you explain that?
It seems very odd.
It says she can do that if she doesn't do what the statute requires her to do.
I mean, she's supposed to file that schedule.
She's required, the statute says, to file it.
But she gets an advantage if she doesn't do what she's instructed to do?
Mr. Hamilton: The part of the statute that you are referring to is under 523, and it essentially says that debtor shall file -- 521, excuse me -- shall file certain schedules and that would include the income and expense schedules, Schedule I and Schedule J.
And certainly the court has the ability, under that statute, to extend the time or to excuse the performance of a debtor in that regard.
So there's nothing incongruous about that wording in the statute.
Justice Sonia Sotomayor: What do you -- what do you do with the contention that the court is bounded by other requirements such as the timing of the meeting of creditors and the plan confirmation, that that binds the district court from resetting it?
Mr. Hamilton: Certainly all of those time frames can be moved, Justice Sotomayor.
There is -- again, the actual timing of the confirmation hearing in a Chapter 13 case may be fluid, although there are certain time limits for the first meeting of creditors and for when the first -- when the confirmation hearing is held.
They can be extended, just as the confirmation hearing would be in a Chapter 12 or in a Chapter 11 case.
So the idea is the second part of 101(10A) allows the debtor to say: Your Honor, my 6-month time frame immediately prior to the filing of the bankruptcy petition is not representative of my income; I would like to have that time frame moved.
And that time frame would appear to be moveable up to the confirmation hearing.
Justice Ruth Bader Ginsburg: Moveable to where?
What -- what would be -- you say -- this time period, the statutory -- the 6-month lookback, she has these 2 extraordinary months.
So now she's going to say: Court, please change the period.
Change it to what?
Anything she wants?
Mr. Hamilton: No, Your Honor.
That would be up to the court.
It would be discretionary with the court, as the language suggests in the second part of 101(10A).
Justice Samuel Alito: But isn't it the case that before the 2005 amendments, bankruptcy courts were recognized as having discretion in calculating projected disposable income to take into account changes in the debtor's income after the filing of the plan, and shouldn't we presume that -- that Congress intended to continue essentially the same regime, unless Congress provided some clear indication that they wanted to depart from it?
Mr. Hamilton: Certainly prior to the 2005 amendments, your assessment is correct.
The court had the discretion to be able to assess the debtor's situation, use its discretion to determine what income and expenses should be calculated in determining whether or not a debtor was paying his or her best efforts under 1325(b)(1).
Here, there is a clear formula.
And if you read these -- there are three, three key statutes that form a triangle in order to give me the conclusion that I make and that I suggest to Your Honor.
And that is, we start with 1325(b)(1), which is the statute that brings into play the disposable income and projected disposable income requirements.
"Disposable income" is now defined as "current monthly income".
Justice Samuel Alito: It is odd that Congress provided this very detailed formula and -- and that they would provide such a detailed formula and then say: But the bankruptcy court can modify that based on a projection.
But still we have the word "projection -- projected".
And your interpretation leads to very strange, really absurd results; isn't that true?
And you have to devise some really elaborate escape strategies in order to allow a debtor to avoid those very strange results.
Mr. Hamilton: Respectfully, Justice Alito, I don't any agree with the assessment that -- of what you just stated.
Essentially, this formula allows the bankruptcy court to move that 6-month period of time, not to ignore the formula.
The formula's there.
The formula defines "current monthly income".
From the current monthly income then is subtracted reasonable and necessary expenses.
And formerly, under the old law, the '78 code, those reasonable and necessary expenses contained a few specifics, but largely it was up to the court to determine them.
Justice Samuel Alito: But you say that that can be done only if the debtor fails to file a form that the debtor is required to file; isn't that right?
Mr. Hamilton: In -- under 101(10A), the second part, yes.
But I think there are -- there are some other -- other avenues for the debtor that are statutory.
Justice Samuel Alito: What do you do with the situation in which the change that is projected to occur and in fact may be almost certain to occur is one that causes an increase in the debtor's income?
Let's say the debtor was unemployed through almost all of the lookback period and then just before the filing of the plan gets a job with a good salary.
You would say that the -- if you just look at the lookback period, the debtor would be required to pay practically nothing.
Mr. Hamilton: No, Your Honor, I would not agree with that.
Justice Samuel Alito: What is a creditor to do in that situation?
Mr. Hamilton: Well, there -- there are a couple of avenues.
There is a new statutory provision under 1325(a)(7) that says the plan must be filed in good faith and -- I'm sorry, the petition must be filed in good faith.
1325(a)(3) provides that the petition must be filed in good faith.
So we still have the good faith analysis that the debtor's actions may be subjected to even after the plan is filed.
And that would be as trustee the avenue that I would approach is that, even though the schedule formula may have been complied with, that if there had been a drastic increase in income post-petition, then that -- that should need to be accounted for.
Justice Sonia Sotomayor: Counsel, why -- what commends going through all these machinations, all of these alternative ways of avoiding absurd results?
Isn't the answer simply that we just narrow the circumstances in which a court can deviate from the statutory formula?
I mean, it's not -- even before this change, it wasn't that the district courts could at whim change the projected income.
They have to have a clear ground to do so.
Why is that inadequate to protect the interests that Congress had in creating this new formula for income and expenses?
Mr. Hamilton: My answer, Justice Sotomayor, is that Congress provided the formula, and it's not up to the courts, I suggest, to modify that formula.
Part of the--
Justice Sonia Sotomayor: There was a formula before.
It was somewhat ambiguous, and that's what led to the more defined terms for income and expense.
But that says nothing about changing the court's power to act in a situation where the formula's clearly not going to work.
That was the standard before.
Mr. Hamilton: --Two points, Justice Sotomayor.
One is that there was no formula before.
There was some general guidance that was given in the statute.
It's much like the proposition of good faith.
Good faith is almost incapable of definition, yet every circuit in the United States has a laundry list of factors that are taken into account for good faith.
Here, reasonable and necessary expenses under the old law had a few suggestions as to what needed to be involved with them.
Now we have a portion of another part of the triangle, which is under 707(b).
Justice Anthony Kennedy: But in a sense that cuts against you.
As I was -- when I was reading your opening brief, it seemed to me the tone was, well, if you accept the Respondent's position Congress did nothing at all.
Well, they did do something very important.
They had a formula for disposable income.
The question is, does that formula apply to projected?
Can that formula be modified altered or projected for projected?
So it's not as if Congress did nothing or it's not as if the amendment accomplishes nothing even under the Respondent's view.
It accomplished something very important.
Mr. Hamilton: My answer, Justice Kennedy, is that the definition of the word, quote, "projected", end of quote, has -- there's never has been one in the code.
That was a term that was in the 1978 code and is carried over into the present code.
How it was applied is vastly different.
The dispute under the prior law was over whether or not the court could take into account changes in circumstances which were likely to occur post-confirmation.
And so we had cases like the Anderson v. Satterlee case out of the Ninth Circuit and the Midkiff case out of the Tenth Circuit that disagreed as to how that ought to be applied.
In the Anderson v. Satterlee case the Chapter 13 trustee requested that the debtor sign essentially a pledge that they would devote their excess income to the plan, and the Anderson court said: Wait a minute; there is another statute at issue here and that is 1329.
1329 allows for the modification of the plan after the plan has been confirmed.
Prior to the confirmation of the plan, the debtor still has the ability -- and this ties in with some of the comments made by Justice Alito -- the debtor still has the ability to amend the plan under 1323.
So all of these statutes need to be read together to show what the result is.
Now the question is not whether or not changes should be taken into account for post-confirmation that may be likely to occur, but whether or not the court may deviate from the statute where Congress has said this is how we want you to determine current monthly income, therefore disposable income and consequently projected disposable income.
Justice Ruth Bader Ginsburg: But you already told us that there could be a deviation through this 101(10A)(ii).
And why, if that was all that needed to be done, did the trustee recommend, did the trustee say, bankruptcy judge, let's move the period, let's use this provision and we will get another period that doesn't have those 2 months with the extraordinary income?
Mr. Hamilton: No, Justice Ginsburg, and the reason is, is that that privilege is accorded only to the debtor to move that 6-month period.
Neither the unsecured creditors nor the trustee have the ability to request that that 6-month period be moved.
Justice Ruth Bader Ginsburg: Well, it could have been suggested to the debtor: You can accomplish what you want by using this provision.
Mr. Hamilton: The record is silent as to whether or not that occurred.
Justice Anthony Kennedy: What -- where can you move it?
I don't really -- this is the same line of inquiry as Justice Ginsburg.
What's the -- what has to be the ending date if you move the -- you can't move it any -- much beyond the date of what, the hearing?
Mr. Hamilton: It would be up to confirmation, but the confirmation hearing could be continued as the court saw fit.
Chief Justice John G. Roberts: The review of the determination or the request to move the period is -- is what?
Up to the total discretion of the -- of the judge?
Mr. Hamilton: It appears to be so under the statute, Chief Justice Roberts.
Chief Justice John G. Roberts: So your objection to the fact that the judge has more discretion with respect to defining "projected disposable" -- you don't mind the discretion on the other side.
Mr. Hamilton: No, Your Honor, I believe the discretion is not in determining the income, only in determining the time period.
Chief Justice John G. Roberts: Right, but the only purpose of moving the time period is to change the income.
Mr. Hamilton: That's true.
And there are other options that the debtor had available in addition to that, that we have referred to as the four options, which would be the debtor could have here just delayed filing the case for a couple of months and these problems would not have occurred.
Justice Antonin Scalia: There is another discretion that you don't seem to object to.
You say that one -- one way the debtor can get out of the bind that he's put in by the fixing of the confirmed plan is simply to move for a revision of the confirmed plan.
Mr. Hamilton: Absolutely, Justice Scalia.
Justice Antonin Scalia: What constrains the judge in allowing or not allowing the revision?
Doesn't he have the same kind of discretion with regard to the revision that you're objecting to with regard to his establishing the payments?
Mr. Hamilton: Justice Scalia, I don't think so.
1329 has been subject to quite a bit of litigation, but the argument that we make in our reply brief is that it would be simply necessary to plug in and plug out whatever the change in circumstance is.
So the debtor would be able to say, my wife's income is now gone, so we want to take that out of the formula.
Justice Antonin Scalia: But that's the same thing that's being argued here, that -- that you start with the fixed calculation based on the 6 months before and then you have to show that there were some extraordinary circumstances that justify a change.
I don't see that there's any difference.
Mr. Hamilton: There may not be, except that there is a statutory requirement as to how that is accomplished and that's where the 101(10A)(ii) comes into play.
It's not so much that there is a problem with--
Justice Antonin Scalia: What your case comes down to is the bankruptcy court can do this, but it has to do it by simply revising the plan, not by establishing the plan initially but by revising it.
Mr. Hamilton: --Not necessarily, Your Honor.
That certainly is one way.
Justice Antonin Scalia: Maybe?
Mr. Hamilton: It may be, yes.
It depends on the facts of the case.
Chief Justice John G. Roberts: Well, that's a good answer, isn't it, because your point would be the statute does not allow that exercise of discretion with respect to projected disposable income, but it does in the other areas.
Mr. Hamilton: Well, again I respectfully disagree, Chief Justice Roberts.
Justice Antonin Scalia: That was a friendly question.
Mr. Hamilton: --I'm sorry?
I'm sorry, I didn't hear.
Chief Justice John G. Roberts: No, my -- my point and what I thought your point would be is that the fact that there is exercise of discretion in two different areas is not the problem.
The problem is that in one area the discretion is specifically permitted and in the other area, projected disposable income, it's not.
Mr. Hamilton: I agree.
Justice Samuel Alito: But can the -- can the plan be modified based on -- can the plan be modified based on something that was known before the plan was confirmed?
Mr. Hamilton: That depends on which jurisdiction one would be in, Justice Alito.
The most current example--
Justice Samuel Alito: Well, if it can't, then how is this modification remedy going to work?
Mr. Hamilton: --I think it should be.
For example, a good example of this would be debtor is expected 2 years from now to no longer have to repay a 401(k) loan.
And so one view would be that you ought to take that into account as of that date and figure those calculations, which becomes extremely unwieldy.
You are guessing at that point.
The debtor may say: Well, I may be losing that, but I don't know what my actual circumstances are going to be 2 years from now.
Chapter 13 is a fluid process.
Justice Samuel Alito: Your argument is that the Court has to confirm a plan that is really not confirmable because the debtor can't possibly make the payments under the plan, but then can turn around immediately and modify the plan so that it does call for payments to be made.
Mr. Hamilton: No, Your Honor.
That is not my argument.
Justice Samuel Alito: Well, I thought that -- explain it, then?
Mr. Hamilton: Well, what we are saying is that this plan cannot be confirmed as it stands because the debtor would have to be able to make those payments and the debtor obviously is not capable of making those payments.
But it's because she chose the wrong options.
If she had chosen the--
Justice Ruth Bader Ginsburg: But let me just stop you there, because then the answer you gave to the Chief and to Justice Scalia doesn't fit.
Chief -- you can not -- the bankruptcy judge is not going to confirm the plan was she has to pay over $1,000 a month, because she could never do that.
So you are not going to get that confirmed plan which could be amended later.
Mr. Hamilton: --Well, I agreed with that.
I may have misunderstood the question that I was asked.
But what I'm saying is that the statute needs to be followed and if the debtor had followed the statutes here then the debtor likely could have obtained a confirmed plan by moving that 6-month time frame.
Justice Ruth Bader Ginsburg: Well, what in addition to -- you brought up the 101 solution that she doesn't do what the statute tells her to do, so she's able to move it if the judge agrees.
And you said she has other options.
Mr. Hamilton: Yes.
Well, the other options -- and I referred to them as the four options and the 101(10A)(ii) is one of those options.
As I said, she could have delayed filing the case.
There is nothing in the schedules that would indicate that she was filing this bankruptcy under exigent circumstances.
There is no foreclosure, there is no repossession, there's no garnishment, there's no lawsuit.
So delay would have been a possible, and a debtor is always able to determine the date of the filing of the petition.
The second thing that she could have done is file a Chapter 7, and this is the anomaly between Chapter 13 and Chapter 7, is that she would have qualified in all likelihood for a discharge under Chapter 7 because she would have met the special circumstances test in 707(b).
Justice Ruth Bader Ginsburg: But then the creditors would have been a lot worse off, would they not have been?
Mr. Hamilton: That's very possible, but it's a formula that Congress thought to place into effect and it's not--
Justice Ruth Bader Ginsburg: Well, why would -- why would the trustee be urging the possibility that it would be okay for her to file under Chapter 7, in which case the unsecured creditors would get very little, but it's not okay for her to use chapter 13 with a plan that would give the unsecured creditors substantial payments?
Mr. Hamilton: --Here, Justice Ginsburg, the reason is plain and simple, and that was I sought to enforce the rule of law in order to have the courts determine how the rules were supposed to be interpreted.
By my view, it seemed like that had she followed the rules maybe she would have gotten there, but the way she did it she can't.
It's kind of like driving a car.
You can't expect that a the car is going to perform well if you don't turn the engine on.
Justice Antonin Scalia: Can I--
Mr. Hamilton: And here she didn't turn the engine on.
Justice Antonin Scalia: --Can I come back to Justice Ginsburg's question about whether there would ever be the opportunity to adjust the confirmed plan?
Because as you say, the plan here would not have been confirmed, but that -- that isn't the case always.
I mean, in many cases a plan would be confirmed because the -- the bankrupt could -- could barely make the payments that it requires; and then when it -- it is clear that, because of the extraordinary event in the preceding 6 months, the bankrupt is -- is not going to have that -- that amount of money, there would be the opportunity to adjust.
Mr. Hamilton: Maybe not -- I'm sorry.
Justice Antonin Scalia: In other words, is your response to Justice Ginsburg "always", that it will always be the case that where there would be an adjustment under this theory, there would not have been a confirmation in the first place?
Mr. Hamilton: If the plan is not confirmable by an analysis of Schedules I and J, which are the income and expenses statutes, I am not going to recommend confirmation, and nor do I think any trustee would.
Any events that are in the equation before the date of confirmation would likely be then subject to 1327, the res judicata provisions of chapter 13.
So if the plan is confirmed, say in Stephanie Lanning's case, with these facts known, then she would not be able to come in afterwards and ask for the court to modify under 1329 because that's part of the confirmation order.
The other options that were available -- we discussed briefly the ability to file this as a Chapter 7.
She also could have converted this case to a Chapter 7 post-petition with the same result, or she could have dismissed this case and refiled.
Justice Ruth Bader Ginsburg: Isn't that -- wouldn't that amount to just a -- a waste of everybody's time, to dismiss it and then refile it, and then she gets a time period that doesn't -- why -- why not just drop out those 2 months that are not representative of her income?
Mr. Hamilton: Because, Justice Ginsburg, the statute does not permit that.
It's not within the formula, and that's the question: Is the formula binding or is it not binding?
If it is binding then this -- obviously.
Congress intended a more rule-bound statute.
It got that.
It was obvious that it intended to reduce judicial discretion, and the statute seems to accomplish that.
Justice Ruth Bader Ginsburg: But the thing is -- but you have explained, your number one solution for her is this 101 route, which is -- gives lots of discretion in the court.
Mr. Hamilton: Only in moving the 6-month period, Justice Ginsburg.
Justice Ruth Bader Ginsburg: Yes.
Mr. Hamilton: That would be the only discretion that the statute would appear to accord to the court.
Chief Justice John G. Roberts: Where is that, by the way, the provision that allows it to move the 6-month period?
Mr. Hamilton: It's in 101(10A) and it provides that the term 6-month period ending on -- and then we come to subsections (i), little (i) -- or (ii).
And those are -- that's the disjuncture; it's the 6-month period prior or some other time frame, and the language is important.
Justice Samuel Alito: What do you say about cases in which moving the 6-month period can't solve the problem?
For example, if the debtor had good income for many years going back, but then slight -- shortly before the filing of the plan loses his or her job, and there is no prospect that the debtor is going to get another job?
Or it could be the converse, has very low income for a long period and then right before gets a job.
So you are not going to be able to cure those problems by moving the 6-month period.
What do you do then?
Mr. Hamilton: Well, Justice Alito, I think I would tie in 1323 with respect to the first proposition, and that is if the debtor's circumstances have markedly changed, then the debtor has the ability to file an amended plan; and that amended plan could ask the court to move that time frame forward to a confirmation hearing that would take into account the drop in income.
With respect to the second part of your proposition, and that is an increase in income, then I as Chapter 13 trustee would have the ability to object to it on the basis of -- of good faith under either 1325(a)(3) or 1325(a)(7), either the plan or the filing of the case itself.
And those -- the filing of the 1325(a)(3) was the primary way in which all of these disputes were resolved before the 1984 amendments which brought in subsection (b) to 1325 which introduced the concept of disposable income.
Justice Sonia Sotomayor: How do you file an amended plan and have the court restart the clock, when 101(10A) says only if the debtor has not filed a schedule of current income?
If there's been a plan confirmed or a plan proposed, then the income schedule had to have been filed.
Mr. Hamilton: Those are--
Justice Sonia Sotomayor: You don't do one without the other.
Mr. Hamilton: --Those are two different propositions, Your Honor.
One is if the plan is confirmed and one if it is not confirmed.
If it is not confirmed, then you are correct; at some point the trustee and the court are going to want to see a Schedule I and J to see what the actual income and expenses are.
If the plan has already been confirmed, then the ability to change the plan has to be done under 1329, which is--
Justice Sonia Sotomayor: Forget about 1329.
I'm going to the situation where the plan has been proposed, let's say.
The courts -- if a schedule of income has been filed, then it's without any jurisdiction to change the 6-month lookback period, correct?
Mr. Hamilton: --I don't agree with the word "jurisdiction", Justice Sotomayor.
Justice Sonia Sotomayor: Well, it can't under 101(10A).
Mr. Hamilton: The debtor would certainly have the ability to ask the court to be excused from that requirement given a change in circumstances.
But again it would be the formula that would be honored, rather than the court substituting judicial discretion.
Justice Antonin Scalia: Can I ask -- yes, there is one more question.
Mr. Hamilton: --Okay.
Justice Antonin Scalia: Can I ask whether 1323, which you have now invoked, does not provide the same kind of discretion to the court that you are objecting to?
What -- what standards are there for granting or not granting modification of the plan?
Is it pretty much up to the judge?
Mr. Hamilton: No.
I believe again the court is bound, Justice Scalia, by the 101(10A) formula.
It's obvious that Congress intended the formula.
It would not make much sense to read the statute to have some other formula.
Justice Antonin Scalia: Well, then -- then -- okay.
You are between a rock and a hard place.
Either 1323 gets you out of that formula, which is what you've said, it's one way out, or it isn't.
Which is it?
Mr. Hamilton: I haven't said that it gets me out of the formula.
It gets me out of the time frame issue, because certainly the statute doesn't take into specific account what happens if the debtor loses a job, say, post-petition?
Obviously -- example, husband loses the job at Goodyear after the bankruptcy petition is filed.
And I think 1323 is broad enough to allow an amendment which would involve only moving the time frame.
Justice Antonin Scalia: Okay.
So any -- any amendment has to relate to a period--
Mr. Hamilton: I believe so, Justice Scalia.
Justice Antonin Scalia: --subsequent to the filing.
Mr. Hamilton: If there are no other questions I would like to reserve the remainder of my time, Chief Justice Roberts.
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF THOMAS C. GOLDSTEIN ON BEHALF OF THE RESPONDENT
Mr. Goldstein: Mr. Chief Justice, and may it please the Court:
The Court, I think, has the parties' arguments very well in hand.
I think the -- the one point that I can hopefully address, and it is I think the hardest part of our case, is to address the issue that Justice Alito raised, and that is, is there an anomaly in the fact that in BAPCPA Congress added the 6-month period, which would suggest perhaps that Congress was trying to lock in a particular period that we would look at.
And the answer to that question is no, and I want to take you to the relevant statutory provisions.
Everything is going to be in the cert petition.
I am going to start in the petition appendix at 91, which is 1325, which is the operative provision here.
And 1325(b)(1) tells us that if the trustee or a creditor objects, then as of the effective date of the plan it's only going to be confirmed in subsection (b), which is the third full paragraph on page 91 is going to control.
The plan has to provide that all of the debtor's projected disposable income to be received in the applicable commitment period beginning on the date the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.
And the thing to note first about that provision is that it, too, sets a timetable.
It's not just projected disposable income, but it's projected disposable income of a very particular type, to be received in the applicable commitment period.
So unless there is something particularly strange about the definition of "disposable income", Congress specified a period that the income is going to be measured in, and that's over the course of the plan; the word "projected" tells us to get a realistic estimation of what that amount of money's going to be.
Now, my friend makes the point that disposable income after BAPCPA is a defined term; the definition comes in the next paragraph; it's subsection (2), 1325(b)(2).
For purposes of this subsection the term "disposable income" means current monthly income received by the debtor subject to some deductions and then the expenses.
So then we have to go to the definition of "current monthly income".
Current monthly income is in 101; it's at page 83.
That's where we get the 6-month period.
And it tells us that current monthly income is the average monthly income from all sources, so it's very encompassing, without regard to whether such income is taxable income derived during the 6-month period.
So, my friend's argument is that, well, Congress said 6 months.
The answer to that point is a couple fold.
First, as was suggested in the first half-hour, Congress was addressing a very specific problem there.
Before BAPCPA courts didn't know what the -- didn't agree on what the baseline was for determining someone's income.
Some courts would say, all right, you are a Chapter 13 debtor, right away I'm going to look at the latest month.
Some courts said 6 months.
We have a court in our brief that said 4 years.
So, we have to have a starting point to project from.
But the second point is that this term 13 term at all.
So, my friend's argument is that Congress stuck this 6-month period into Chapter 13, so it would be very anomalous if we could just -- in effect, he says we are throwing it out, we are giving the district judges discretion.
It's not quite right.
The place to look is in section 707, which is two pages later.
707 is a Chapter 7 provision.
And my friend started out by saying the problem with our position is that we were not following the Chapter 7 means test.
That's the key.
This term is really a -- borrowed from Chapter 7.
So 707(b)(2)(A)(i) is at the beginning of page 85 of the appendix.
And, so, we are in a Chapter 7 case here.
And this is the means test.
It tells us that: 1> ["], so we are trying to figure out if there is a presumption of abuse under Chapter 7 --
"whether the granting of relief would be an abuse of the provisions of this chapter, the court shall presume abuse exists if the debtor's current monthly income, reduced by the amounts determined under clauses 2, 3, and 4. "
--those are expense clauses --
"and multiplied by 60 is not less than. "
a certain amount.
So what happened is Congress in BAPCPA created this presumption of abuse in Chapter 7 and it then borrowed that concept, as my friend pointed out, in Chapter 13.
So that 6-month period has real force and effect in the Bankruptcy Code in Chapter 7.
So it's not like Congress in Chapter 13 fixed the 6-month period, which would give -- have a sort of a gravitational pull.
You wouldn't want to throw that out too lightly.
Justice Sotomayor, I do agree that we ought to be pretty -- we ought to stick to it.
It indicates Congress is concerned with the 6-month period.
But it's not like Congress added to Chapter 13 this 6-month concept.
It added it to Chapter 7, where it's in full force and effect.
Can I make one other point about that language, just to repeat it again?
Justice Antonin Scalia: You -- you -- you have lost me.
Mr. Goldstein: --Okay.
Justice Antonin Scalia: Where is the 6-month--
Mr. Goldstein: Sure.
We have to go back two pages.
Justice Antonin Scalia: --No, I got -- I got it there.
Mr. Goldstein: Okay.
The term is "current monthly income".
So we are in Chapter 7, so four lines down.
"The court shall presume abuse exists if the debtor's current monthly income. "
--that's the 6 months, current monthly income.
That's the 6-month period of income.
Justice Antonin Scalia: I -- I -- I see.
Mr. Goldstein: See, that's mostly where it matters.
Then Congress borrowed it in Chapter 13.
But it didn't get rid of, as was pointed out before, the term -- "projected"; it didn't get rid of the period, the commitment period.
But I do want to point out something very particular about this language.
Here's the phrase:
"Current monthly income, reduced by the amounts determined under clauses 2, 3, and 4. "
--those are expenses -- 60> ["].
That's what my friend says the phrase
"projected disposable income to be received over the applicable commitment period is. "
Our point is that if Congress intended that mechanical formulation, it would have used the exact words that I have just read from you in Chapter 7, because that's mechanical.
Justice Anthony Kennedy: Without the word "projected"?
Mr. Goldstein: I'm sorry?
Justice Anthony Kennedy: Without the word "projected"?
Mr. Goldstein: That's exactly.
They used "multiplied".
And Congress did that several times in BAPCPA and before BAPCPA.
When Congress wanted, look, we are going to have a mathematical formula, it used a mathematical formula.
Chief Justice John G. Roberts: Why don't you follow his suggestion and just move the 6-month period, because the statute specifically grants that authority to the judge?
Mr. Goldstein: Sure.
Let me make a few points about that, sir.
So I'll again read the language again.
So we are on 83.
It says that -- little (ii) is going to be -- it's going to be
"6 months ending on the date on which current income is determined by the court for purposes of this title if the debtor does not file the schedule of current income. "
A couple OF points about that.
Justice Alito, you were right, this is a one-way prodebtor ratchet, right.
The creditor and the trustee, if the debtor a month before confirmation gets a new job or their expenses go down -- let's say you had a car, but you know that the car payments are going to be done.
Under the trustee's view, then you still get to count the car payments which are totally pretend, or if you got a much higher paying job.
In fact, in this case she did get a higher paying job.
Towards the end of the period, she got a raise.
And we say that has to be counted, too.
We have to have a debtor and creditor-neutral provision.
In a statute that's designed to make sure the debtor pays a much as possible to her creditors, it's very strange to put this entirely in the debtor's hands.
Justice Samuel Alito: Can I ask you this?
There seems to be at least a subtle difference between your position and the government's position.
You say that the projected disposable income will be different from the disposable income calculated during the lookback period when it is known or virtually certain that there will be differences in income or expenses.
And the government says that there is a difference when something is likely to occur in the future.
Where do you -- where do you get from the statute your known or virtually certain differences?
Mr. Goldstein: The contrast between 1325 and 1329.
What I tried to do in my brief, and I have laid it out at the beginning of the argument section.
That's where we try to articulate our rule.
What we have done is we have looked at the cases.
As you pointed out, this is pre-BAPCPA practice.
Courts have set a pretty high bar, both in terms of the level of certainty and the degree of deviation.
And courts have said -- I will give you an example that will illustrate the difference perhaps.
You have times when someone expects to get a raise.
They don't know that they are going to get it, or they expect to get a promotion.
And courts will say, even if that's pretty likely, until you have actually got it we are not going to count it for purposes of 1325(b); come back under 1329.
And we point out in our merits brief that in fact, it's not quite on point, but she got a settlement post-confirmation here, and under 1329 that money was applied.
So, Justice Scalia, there are post-confirmation events, but if you know ahead of time -- and this case is a perfect example, it -- we know she is not going to get another buyout from Payless Shoe Stores.
When it's known or virtually certain, we think that is sufficient -- akin to Justice Sotomayor's point about, you know, making it hard.
Let me make one other point.
I wanted to finish off my answer to the Chief Justice about 101.
This provision has taken on greater significance in the oral argument and the reply brief of the Petitioner.
I did want to point out to the Court a provision that is not reproduced in the parties' briefs, but if the Court were to go this route it would want to be aware of, and that's 521(i).
And 521(i) tells us that you do have to file the forms at the beginning or you have to file them within 45 days, but upon request of the debtor made within 45 days after the date of filing the petition, the court may allow the debtor an additional period of not to exceed 45 days.
So it does seem to constrain the power of the bankruptcy court to shift this period all around.
So, I have made two points.
One is it's a one-way ratchet for the debtor; second, it's not unlimited.
The third is it just doesn't make any sense.
Why would Congress design a system that would have all of these machinations.
If we agree that Congress wants -- it seems my friend and I agree that Congress believes that she shouldn't have to make the payments that would be required under the trustee's reading of "projected disposable income".
The question is how we get there.
The trustee's answer is that you are required by the text; I'm sorry, Congress took this option away.
And I think that, as I have explained, the term
"projected disposable income to be received in the applicable commitment period. "
really is not language that you would ordinarily construe to ignore changes that--
Chief Justice John G. Roberts: Well, I think -- I think that's exactly right when you look at term "projected disposable income".
Mr. Goldstein: --Yes.
Chief Justice John G. Roberts: But if you look as "disposable income"--
Mr. Goldstein: Yes.
Chief Justice John G. Roberts: --as a defined term and then add "projected", I think it's a different -- different -- different argument, different kettle of fish.
I mean, because particularly in a statute intended to restrict discretion, it's a way to do it.
You look at it in the abstract, "projected disposable income", it doesn't achieve that objective.
Mr. Goldstein: And that is exactly, Mr. Chief Justice, why I started with the definition of
"current monthly income in the 6-month period. "
I agree that it is an important point.
It is their strongest argument.
My only point is that I have explained, I think, why Congress put the 6-month period in for purposes of Chapter 7 and also to have the starting point.
If I -- to give you an example, take inflation.
If we were to define inflation as the amount in the rise in prices over the previous 6 months, if Congress did that in a statute and then told us to look at projected inflation, we would still not ignore things that will tell us that there are going to be -- there has been an oil price spike or an increase in health care costs.
It would take a pretty firm, firm period that told us to only look into the past and not look into the future, particularly when the whole point of the statute is to make sure that the money goes into the creditor's hands that the debtor is able to pay.
On the point of discretion, I should also say BAPCPA as a whole was intended to reduce discretion.
And, so, it's kind of odd to say that the answer to our position is to turn to all of these other discretionary provisions--
Chief Justice John G. Roberts: What if you -- you wanted to achieve your friend's result and you had a definition of disposable income, and you wanted the court to -- you don't want to say project that forward, what -- what word would be more natural than saying projected?
Mr. Goldstein: --I -- I -- I would use the language that Congress did in 707.
Remember, the current monthly income reduced by the amounts determined under clauses 2, 3, and 4 and multiplied by 60.
Chief Justice John G. Roberts: No, that's altering disposable income -- the definition of disposable income.
I'm asking isn't the most natural word to achieve your friend's result to use projected.
What other word would you say when you say this is the period you look at and you want to take it forward?
Mr. Goldstein: Multiply.
And Congress did that a bunch of times.
Projected -- if we try to project something, we try and make the -- and everybody agrees on the definition, so really, it's not an unusual term.
It is: You make your best estimate of the future based on the data you have now.
My friend is right.
One piece of data we have now is her previous 6 months' income.
Another piece of data is we know that she's not going to have the same income in the future.
If there are no further questions.
Chief Justice John G. Roberts: Thank you, Counsel.
ORAL ARGUMENT OF SARAH HARRINGTON ON BEHALF OF THE UNITED STATES, AS AMICUS CURIAE, SUPPORTING RESPONDENT
Ms Harrington: Mr. Chief Justice, and may it please the Court:
In bankruptcy, as in many areas of the law, Congress has tried to balance on the one hand, doing case-specific justice, and on the other hand, ensuring that the statutory scheme is administrable.
Now, Congress certainly could have chosen to elevate simplicity over accuracy by telling bankruptcy courts to take a debtor's current disposable income and multiply that number by the number of months in the plan in assessing whether the plan is confirmable.
But there are several strong signals in the code that that is actually not what Congress intended courts to do.
Justice Samuel Alito: But do you think bankruptcy courts are supposed to be economic forecasters?
For example, if you -- after calculating the debtor's income during the 6-month period, the 6-month lookback period, should the bankruptcy court said, well -- say: Well, it's -- inflation is projected to be such-and-such over the term of this plan, so I am just going to increase it by the amount of inflation; or: This person works in a particular industry where historically, over the last five years or ten years, there's been a 3 percent increase in salary per year, so I'm going to multiply it by -- multiply the disposable income figure like that?
Ms Harrington: Certainly not, Justice Alito.
Justice Samuel Alito: Well, why not?
You say that the bankruptcy courts should take into account things that are likely to occur in the future.
Ms Harrington: --Well, bankruptcy courts -- we are not saying that bankruptcy courts should ever speculate about what might happen in the future.
What we are saying is that bankruptcy courts should take into account what they know, in this case, already has happened, but also what they know will happen.
And so to give an example of a change that would benefit creditors, if as -- as I mentioned earlier, if a debtor has secured a higher-paying job just before or just after she filed her petition, a Court should be able to take into account the fact that her income going forward would be greater than would be reflected in the calculation of her current disposable income.
Justice Antonin Scalia: Well, "know will happen" is quite different from "likely to happen", and I thought your test was likely to happen.
Ms Harrington: Well, likely to happen based on what you know now.
I think -- we haven't suggested a particular burden of proof.
Justice Antonin Scalia: Not -- not likely, based on what you know.
Well, that's quite different from you know it will happen.
Ms Harrington: --Right.
So there is an example mentioned earlier: If the debtor is repaying a loan to her 401(k) program, that is the type of loan that can't be extended time-wise.
And so she will keep making those payments, which will be deducted as an expense in the calculation of her current disposable income, but -- but you know at a certain point, she is likely to stop making those payments.
Justice Antonin Scalia: Is there a difference between your test and the Respondent's test?
Ms Harrington: Not according to what I heard Mr. Goldstein say at the argument.
Again, we do not mean to suggest that a court should use--
Justice Sonia Sotomayor: His words were "known to a virtual certainty", which are -- likely to happen is different than likely to happen.
Ms Harrington: --I think, in part, it depends on what type of change you are talking about.
Again, we would never say that a court should speculate about what should happen.
But, for instance, to take another example on the expense side, if a debtor when she proposes her plan owns a second home, a vacation home that is secured by a mortgage, then that secured debt payment is an expense that would be deducted from her income in the calculation of her current disposable income.
But if she proposes to surrender that property as a condition of her plan, she will no longer have that debt payment going forward.
And so that's the type of -- so it will no longer be an expense going forward.
Under Petitioner's view, a court would not be able to take into account the fact that that current expense--
Justice Antonin Scalia: That's -- that's "know will happen".
That is "know will happen".
But I don't know how you can, at one and the same time, say: Courts shall not speculate, and then say that the test is "likely to happen".
Ms Harrington: --Well, again, in this--
Justice Antonin Scalia: I mean, to -- you know, to look forward and say: Is it likely or not likely?
I don't know a better definition of speculation, to tell you the truth.
Ms Harrington: --Okay.
But then, we wouldn't -- we are not trying to advance that view of "likely".
And again, in this case the change had already occurred, so there is no uncertainty about what her situation is now and what we can project it to be going forward.
Chief Justice John G. Roberts: It seems to me that, particularly since you are adopting a fairly broad -- well, depending on how broad a theory you are adopting of what's projected and what's not, that you are taking into account a lot of things that are more properly taken into account when it comes to whether the plan should be confirmed or not.
Ms Harrington: Well, this is--
Chief Justice John G. Roberts: What's going to happen?
What's the situation going to be?
What should, you know, the creditors get?
What should the debtor get?
There is no reason to kind of shoehorn those into the projected disposable income.
Ms Harrington: --Well, except that if the creditor or a trustee objects, then the calculation of projected disposable income is one of the conditions of confirmability of the plan.
The court can't confirm it unless it can--
Chief Justice John G. Roberts: Well, is that -- I mean, let's say your friend wins up to the point and somebody else, when it gets to confirmation, can say: Well, look, you know, there was this big payout before the filing.
So don't confirm it.
We know she has got all this -- all this other money.
That -- it could do it that way, couldn't it?
Ms Harrington: --I'm sorry, if she got a higher-paying job just before?
Is that what you're suggesting?
Chief Justice John G. Roberts: Well, whatever the situation is, can't that be taken into account when it comes to confirmation?
Ms Harrington: Well, it could affect the -- well, one thing that is important to note that hasn't been brought up is under Section 1325(a)(6), the court is actually -- which is the feasibility provision -- the Court is actually required to think about what is going to happen in the future, whether a debtor is going to be able to repay her creditors.
And so it doesn't make very much sense to, on the one hand, require a court to consider what it knows will happen in the future in determining feasibility, and then on the other hand, if there's an objection by the creditor or the trustee and 1325(b) comes into play, to prohibit a court from considering the same facts it knows about what is going to happen in the future--
Justice Samuel Alito: What if the debtor is a waiter and during the last month of the 6-month period, because of some change of the economy the waiter's tips have gone up either way up or way down?
What's the court supposed to do then?
Ms Harrington: --Well, I think one purpose of having the 6-month lookback period in the calculation of current income is exactly to take into account those situations.
There are many people who are gainfully employed full time, but whose -- whose income fluctuates over time.
And so requiring that courts use the 6-month lookback period, I think, gives creditors a better sense of whether the current income figure provided by the debtor is accurate.
It reduces the chance for strategic filing because it sort of takes some of the significance away of the time of filing.
And so it seems fairer in that case to consider that 6-month average in a case where income fluctuates up and down as an accurate sense of what the -- what the debtor's current income is.
And again, in many -- in a significant number of cases the calculation of a current disposable income will be a good prediction of what the debtor's disposable income will be going forward.
Justice Ruth Bader Ginsburg: How do you deal with the Petitioner's -- the two arguments Petitioner makes?
One is that on the expense side, Congress provided for special circumstances, exceptions, and it didn't on the income side?
Ms Harrington: Well, the special circumstances exception comes in, in the calculation of the debtor's current disposable income, but it doesn't tell you what to do in terms of projecting that disposable income.
And so you can adjust what you think the current disposable income is based on an expense that isn't accounted for in the standard expenses or an expense that is accounted for, but is higher than is accounted for in those expenses.
But again, it doesn't tell you what to do -- how to project that number going forward.
Justice Ruth Bader Ginsburg: What about the argument that this is a simple thing; she didn't have to file the plan -- she didn't have to file the petition at a time when those two months would be in the 6-month lookback.
She could have waited.
Ms Harrington: Well, that is certainly true of this debtor, of the Respondent in this case.
That is not an option available to all debtors, many of whom are facing foreclosure proceedings or imminent foreclosure proceedings.
Delay is simply not an option.
And if I could address Section 101(10A)(A)(ii) option that the Petitioner offers -- I mean, one thing to note is it doesn't give the Court the discretion to set any other -- to just pick any other 6-month lookback period.
They pick a date and go 6 months back from whatever that date is.
So if a change occurs very soon before the filing of the petition, it makes it very hard for a court to use that provision to change the lookback period because you would have to wait 6 months, essentially, after the filing of the petition to set it back.
But again, the biggest problem with using that section as a workaround is that that is an option that is available to debtors, but not to creditors.
If a debtor files a Chapter 13 petition along with all the Schedules that are required under Section 521 of the code, then the debtor has no option for -- excuse me, the creditor has no option and the trustee has no option--
Chief Justice John G. Roberts: Well, the creditor has the option of objecting the confirmation of the plan.
Ms Harrington: --They can object to confirmation of the plan, but on what -- what basis?
If the Petitioner argues that the calculation of projected disposable income is merely a mechanical multiplication of the current disposable income times 60 or 36, then they have no way of allowing the court to take account of a change that has happened just before or after the time of the petition that would inure to the creditor's benefit.
Chief Justice John G. Roberts: They can't say: I object because the 6-month period is unrepresentative because of this particular event?
Ms Harrington: They could say that, but it's not clear in the code that that is a basis for refusing to confirm a plan.
I think they would have to make the argument that--
Chief Justice John G. Roberts: Does the government have a position on that?
Ms Harrington: --I think unless there were bad faith it's not clear how that can be a basis for not confirming a plan, and that was the -- the reason that my friend on Petitioner's counsel suggested.
But again, it's not clear how that would be bad faith, if a debtor proposes a plan that -- that commits all of her projected disposable income under the trustee's view of what that number is, it's hard to see how you could say that that was a plan that was proposed in bad faith.
So again, I just want to -- just to respond to the -- the argument that the government in Respondent's view reads the 6-month period totally out of the code--
Chief Justice John G. Roberts: You can finish the sentence.
Ms Harrington: --Okay.
The calculation of a -- a debtor's current disposable income will often be a reliable predictor of her future disposable income and when that's the case, then a reliable way of projecting is simply be multiplying.
Chief Justice John G. Roberts: Thank you, Ms. Harrington.
Ms Harrington: Thank you.
Chief Justice John G. Roberts: Mr. Hamilton, you have two minutes remaining.
REBUTTAL ARGUMENT OF JAN HAMILTON ON BEHALF OF THE PETITIONER
Mr. Hamilton: Thank you, Mr. Chief Justice.
First of all, I want to note that the plan is not confirmed in this case; this was an interlocutory appeal.
There is an amended order at the BAP level that allows it as an interlocutory appeal.
So the debtor still has preconfirmation options, rather than having to rely upon 1329 or something else in the record.
Secondly I want to point out that 1325 as has been suggested by Justice Ginsburg only incorporates a part of 707(b), and the part it doesn't incorporate is the special circumstances on the income side.
It only incorporates special circumstances on the expense side.
The significance of that is that what has been substituted for special circumstances on the income side is the 101(10A) formula minus certain expenses from 707(b).
The certain expenses from 707(b) are not a wild card.
They are IRS standards in certain other specially defined circumstances.
The idea that this would allow a phantom car payment -- no, we don't think so.
There is language in that section that says that the expenses have to be applicable and actual.
And one case recently decided in the Ninth Circuit, the Ransom case, says that.
You have to look at the language in 707(b) in order to determine the propriety of the expenses, which has nothing to do with the applicability of the 6-month time frame.
What the government and what the Respondent choose to do here is to basically gut the entire means test based upon one word, and that's "projected".
And they choose to use an undefined term "projected" over the statutory language that Congress chose to determine what debtors should pay to their creditors, and it's a congressional choice.
And as many commentators have suggested, if there is a remedy here, it is a congressional remedy and not a judicial remedy.
Chief Justice John G. Roberts: Thank you, counsel.
The case is submitted.
Chief Justice John G. Roberts Jr.: Justice Alito has an opinion in this morning in case 08-998, Hamilton versus Lanning.
Justice Samuel Alito: This case comes so us on writ of certiorari to the United States Court of Appeals for the Tenth Circuit.
If an unsecured creditor or a bankruptcy trustee objects to the confirmation of the Chapter 13 debtors plan for the repayment of deaths, 11 U.S.C., Section 1325(b)(1) requires the debtor either to pay unsecured creditors in full or to pay all “projected disposable income” to be received by the debtor over the duration of plan.
We hold that a bankruptcy court may calculate projected disposable income by taking into account foreseeable changes in the debtor's income or expenses.
This approach is consistent with the ordinary meaning of the undefined word projected which does not require courts to assume that a debtor's past income and expenses will necessarily continue unchanged into the future.
It is also consistent with Congress' use of the word projected elsewhere in the United States Code as well as with bankruptcy practice before Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which did not eliminate judicial discretion to take into account known or virtually certain changes in the debtor's income or expenses.
An alternate interpretation of projected disposable income premised upon a mechanical extrapolation of the debtor's past income and expenses into the future would clash with certain terms of Section 1325 and lead to anomalous outcomes in which, in cases in which a debtor experiences unusually high or unusually low income during the period immediately preceding the filing of the petition.
We therefore affirm.
Justice Scalia has filed a dissenting opinion.