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CHAPTER 13

Hamilton v. Lanning (08-998)

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Appealed from the United States Court of Appeals for the Tenth Circuit (Nov. 8, 2008)

Oral argument: Mar. 22, 2010

BANKRUPTCY, CHAPTER 13, BAPCPA

This case concerns the extent of a bankruptcy court's flexibility in determining the "projected disposable income" of a debtor under 11 U.S.C. § 1325(b)(1)(B). Stephanie Kay Lanning filed for bankruptcy in October 2006 and proposed monthly payments of $144, based on her current income and expenses. Jan Hamilton, Lanning's bankruptcy trustee, objected and said that Lanning's "projected disposable income" was actually over $1,000 per month. The U.S. Bankruptcy Court for the District of Kansas overruled the objection and approved Lanning's plan. The court found that, while Hamilton's calculation of "projected disposable income" based on Lanning's income from the prior six months was correct under Form 22C, the results were inequitable because Lanning's income was artificially inflated for two months because of a buyout from her prior employer. The Bankruptcy Appeals Panel and the Tenth Circuit Court of Appeals both affirmed. Hamilton argues that the plain language of the statute mandates his “mechanical” approach, while Lanning argues that her "forward-looking" approach avoids absurd results. The Supreme Court's decision in this case will provide clarity to a statutory term that has flummoxed the lower courts, while simultaneously affecting the flexibility of bankruptcy judges.

United Student Aid Funds v. Espinosa (08-1134)

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Oral argument: Dec. 1, 2009

Appealed from: United States Court of Appeals for the Ninth Circuit (Dec. 10, 2008)

BANKRUPTCY, STUDENT LOANS, CHAPTER 13, DISCHARGE, RES JUDICATA, DUE PROCESS

Francisco J. Espinosa filed for Chapter 13 bankruptcy and proposed in his Chapter 13 reorganization plan that he would repay $13,250 in student loans to United Student Aid Funds (“Funds”). Although Funds claimed they were owed an additional $4,582.15, the U.S. Bankruptcy Court for the District of Arizona confirmed Espinosa's plan as proposed, and Funds did not object to the confirmed plan. Espinosa repaid all debts according to the Chapter 13 plan. Funds subsequently began to intercept Espinosa's income tax refunds, claiming that Espinosa had improperly discharged his student loans, because Espinosa had not initiated a statutorily required adversary proceeding to determine whether repayment of the student loans would constitute an "undue hardship." While the U.S. District Court of Arizona held that Espinosa had violated Funds' due process interests by failing to initiate an adversary proceeding and serve a complaint and summons upon Funds according to the statutory procedure, the United States Court of Appeals for the Ninth Circuit reversed, and Funds now appeals. The Supreme Court’s decision in this case will determine how student loans and other debts are collected in bankruptcy and will affect the overall relationship between debtors and creditors in America.

Bankruptcy

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bankruptcy: an overview

Bankruptcy law provides for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts by dividing his assets among his creditors. This supervised division also allows the interests of all creditors to be treated with some measure of equality. Certain bankruptcy proceedings allow a debtor to stay in business and use revenue generated to resolve his or her debts. An additional purpose of bankruptcy law is to allow certain debtors to free themselves (to be discharged) of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full.

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