The Supreme Court might help you out with the dreaded means test

Just before adjourning for their summer recess last month, the United States Supreme Court issued its decision in another bankruptcy case on its docket — and this one might be of some benefit to consumer debtors down the line.

In Hamilton v. Lanning, the Supremes took on issues concerning the dreaded “means test” that nearly all debtors must now complete when they file a bankruptcy case.

The Court backed away from endorsing a completely mechanical interpretation of the means test rules, allowing local judges for the first time to take into account a debtor’s extraordinary or unusual circumstances.

In Lanning, the debtor had recently received a buyout offer from a previous employer, which greatly inflated the means test calculation of her disposable income because the formula used looks back at all income received in the six months prior to filing.

But the debtor argued that the means test calculation wasn’t realistic in her circumstances, because going forward she wasn’t going to get that kind of large payment again. Using only the government’s backward looking test for disposable income produced a Chapter 13 payment figure that she couldn’t possibly hope to pay.

The Supreme Court then stepped in, and said that the local bankruptcy judge should have been allowed the leeway to determine the debtor’s true disposable income without slavishly adhering to the results produced by standard-issue government forms. In an unusual case, the Court said, judges should have the ability to consider a forward-looking estimate of what the debtor is expected to earn when determining “disposable income” and plan Chapter 13 plan payment amounts.

If you are thinking of filing for bankruptcy and have had some big life changing events occur in the last six months of so, this Supreme Court decision could be useful in your case. If you live in the Merrimack Valley, give me a call at (987) 975-2608 and we can talk it over, with no charge for an initial consultation.

 

By Doug Beaton

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