Looking Forward in the Supreme Court

This just in from our Washington, DC, bureau: the Supreme Court has granted certiorari in Hamilton v. Lanning, No. 08-3009 (10th Cir. Nov. 13, 2008), where the Tenth Circuit adopted the "forward-looking test" for how much a chapter 13 debtor has to pay creditors. The alternative is the "mechanical test" adopted by the Ninth Circuit in an often-discussed and often-criticized decision called Kagenveama.

The forward-looking test allows for a more flexible consideration of the debtor's circumstances in the future. The mechanical test, as the name implies, requires only the application of the amounts fixed in the statute. As the Tenth Circuit said, reasonable people could read the Bankruptcy Code to reach either result. The forward-looking test can account for changed circumstances of the debtor, such as a decline in income that often precedes a bankruptcy filing.

Of the four bankruptcy cases the Supreme Court has on its docket right now, Hamilton may have the greatest practical effect on real people. It will not only determine the rules for those who file chapter 13 but, as a result, also play a big role in whether chapter 13 will be a good solution for many persons with financial problems, especially homeowners facing foreclosure.