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Projecting the Past

posted by Bob Lawless

The sloppy drafting of the 2005 bankruptcy amendments created a large number of ambiguous statutory provisions. Among them is section 1325(b)(1)(B) says that a debtor has to devote all of his or her "projected disposable income" to payment under a chapter 13 plan. The problem is that section 101(10A) has a strict, technical definition of "currently monthly income" to mean the average of the debtor's income over the past six months. How does one "project" the average of the past six months? Isn't that simply the average of the past six months? On the other hand one might say that the statute must mean something different when it added the word "projected," because otherwise it would have used the defined term "current monthly income."

The bankruptcy appellate panel (BAP) for the Tenth Circuit recently was presented with the type of case where the problems arise. A debtor lost her job within the past six months and hence had a relatively low current monthly income of $1,922. The debtor had received a modest buyout of her employment contract and that extra income bumped the average of the last six months' income to $5,344. The technical statutory calculations would have required the debtor to devote almost sixty percent of her current income of $1,922 to payments under the chapter 13 plan.

Nonetheless, the chapter 13 trustee for the case argued that the courts should interpret the statute to make this large monthly payment. As the court put it, the trustee's argument "requires the Debtor to commit to payments she cannot possibly make in order to obtain the protections afforded by bankruptcy." The court quite sensibly rejected those arguments and held that the word "projected" in the statute meant the bankruptcy courts should use the technical calculation as a starting point and make adjustments where future circumstances indicate a departure is warranted. See here for the decision.

This case was noteworthy for two reasons. First, although the decision reaches the same result as what it seems to be the majority view, to my knowledge it is the first BAP decision on this issue. Although BAP decisions do not create binding precedent, BAP decisions come from appellate review by three bankruptcy judges and hence are often very persuasive to many other bankruptcy judges.

Second, I noted the U.S. Trustee's Office filed an amicus brief in support of the debtor's position. Various Credit Slips posters, including me, have been critical of the U.S. Trustee's Office for what we feel has been a less-than-robust protection of the public interest and a more-than-robust protection of creditor interests. I think the U.S. Trustee's Office got this one right. The public interest is best served by giving bankruptcy courts the discretion to make adjustments where a strict technical provision might lead to bad results. In the 2005 amendments, Congress locked down the bankruptcy courts' discretion in a lot of places. This issue was just not one of those places.


The First Circuit BAP addressed the issue for a "below median income debtor in In re Kibbe, 361 B.R. 302 (BAP 1st Cir. 2007), last February. Same conclusion.

Thanks. I could not find any other BAP opinions, but I did not look very extensively or (apparently) very carefully. So, that makes it two BAP opinions to reach the same conclusion. The trend is apparent.

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.