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Saturday, July 25, 2009
Courts - "5th Circuit Rules That Changes in Debtor Income Should Be Addressed in Chapter 13 Bankruptcies"
John Council has this lengthy story in the Texas Lawyer. A few quotes:
The 5th U.S. Circuit Court of Appeals has determined how "projected disposable income" is to be calculated in Chapter 13 bankruptcies, an important ruling that could mean debtors pay more or less to their unsecured creditors in some instances.The 7th Circuit is not mentioned.The case, Nowlin v. Peake, involves an issue of first impression in the 5th Circuit concerning a common problem in Chapter 13 bankruptcy proceedings: What happens when a debtor's level of disposable income changes during the 60-month payment plan period? The court's answer gives U.S. Bankruptcy Court judges and litigants more flexibility in dealing with that issue, several experts say. * * *
On July 17, the 5th Circuit affirmed the U.S. District Court ruling, noting that it has yet to interpret §1325(b)(1) in light of the changes made by Congress in the BAPCPA.
The 5th Circuit also noted in Nowlin that other circuit courts are split on how to handle "projected disposable income" calculations. The 8th and 10th U.S. Circuit Courts of Appeals found that the calculation of "disposable income" was a starting point, or presumption, for the projection of future income into the future. Their approaches allow for a debtor, a trustee or a creditor to present rebuttal evidence during the course of the bankruptcy to show that circumstances have changed and the figure should be modified to accurately reflect the debtor's finances going forward.
However, according to the 5th Circuit's opinion, the 9th U.S. Circuit Court of Appeals found that the definition of "disposable income" requires a mechanical approach. That court held that the definition of "projected disposable income" is bound to the new definition of "disposable income" found in §1325(b)(2). To arrive at what "projected disposable income" is, one takes the calculation mandated by §1325(b)(2) and does the math.
With Nowlin, the 5th Circuit joined the 8th and 10th Circuits in ruling that §1325(b)(2)'s definition of "disposable income" is a starting point for calculating the disposable-income figure, and that changes in a debtor's income should be taken into account.
"We join the Eighth and the Tenth Circuits in adopting a forward-looking interpretation of 'projected disposable income' in §1325(b)(1). It accounts for the relevant statutory language, including the phrases 'to be received in the applicable commitment period,' 'as of the effective date of the plan,' and 'will be applied to make payments,'" wrote 5th Circuit Judge Jennifer Elrod in an opinion joined by Judges Carolyn Dineen King and James Dennis.
"The position adopted by Nowlin and the Ninth Circuit fails to address this language, and overly emphasizes the modified definition of 'disposable income' without recognizing the independent significance of the word 'projected,'" Elrod wrote. "This word allows for calculation of future income and expenses based on present data, including evidence extrinsic to that used in the calculation of 'disposable income' under §1325(b)(2). Thus, any party could present such evidence of changed circumstances (e.g. finding or losing a job, a promotion, increased medical expenses, etc.), and the bankruptcy court could adjust projections accordingly."
Posted by Marcia Oddi on July 25, 2009 01:12 PM
Posted to Courts in general