At Howard Law, P.C., our Rubidoux consumer bankruptcy attorneys do our best to structure Chapter 13 repayment plans in a way that serves our clients' best interests. This can mean prioritizing the debts our clients care most about or seeking to maximize their financial flexibility, within the framework of what's required and permitted by bankruptcy law. In Morris v. Quigley, however, the Fourth U.S. Circuit Court of Appeals faced an odd question: Could debtor Susan Quigley use a bankruptcy plan that accounted for payments on collateral she planned to surrender and a debt someone else was paying off? She listed payments in those categories as expenses, which both the bankruptcy court and the district court allowed, finding the Bankruptcy Code requires them to take only the previous six months into account. But the Fourth Circuit reversed.
Quigley's bankruptcy petition listed her as the co-owner of a 2004 Ford pickup truck, but noted that the truck really belongs to her ex-boyfriend. He was making the payments and he had possession of the truck. The petition also listed as an expense payments on loans secured by two ATVs as collateral. She said she intended to surrender the ATVs to satisfy the debts rather than continue making payments. Her bankruptcy plan took payments on all these vehicles into account, leaving her with no monthly disposable income. Trustee Helen Morris objected to the plan and the bankruptcy court agreed as to the pickup truck, but not the ATVs. It said it was required to take into account only the past six months of Quigley's expenses and income, so it forbidden by law to consider Quigley's undisputed future plan to surrender the ATVs. The federal district court agreed.
The Fourth Circuit reversed, finding that the lower courts had misunderstood the Bankruptcy Code. Quoting from the 2005 changes to the bankruptcy law, it noted that the code permits courts to consider "projected disposable income." The new law does not define that term, but it does define "disposable income" as current monthly income minus reasonable costs for the maintenance of the debtor and any dependents. The Fourth decided that the issue was whether "projected disposable income" must mean the same thing as the better-defined "disposable income," without reference to changes the court knows will take place. Citing 2010's Hamilton v. Lanning, a Supreme Court case involving a debtor whose income was artificially inflated by a one-time bonus at work, the Fourth decided they do not mean the same thing. The Supreme Court in that case said "projected" should take its ordinary meaning, or courts would risk inappropriately penalizing debtors or creditors. Thus, it reversed and remanded.
Vincent Howard and our Tustin personal bankruptcy lawyers believe this is a good result, even if the outcome is not the best for this particular debtor. Quigley's income was set to change based on foreseeable circumstances; the court did not have to guess at the exact number or what the effect might be on her or on creditors. It's extremely easy to envision a situation like Lanning, in which a one-time influx of money might happen within the six months preceding a bankruptcy, artificially inflating the debtor's income during the period defined by BAPCPA. If courts are not permitted to acknowledge this, they can end up creating onerous bankruptcy plans that are almost guaranteed to fail, dooming debors' efforts to dig themselves out of bankruptcy. Vincent Howard and our Fallbrook individual bankruptcy attorneys believe this would undermine the point of bankruptcy: to give people in financial trouble a way to earn a fresh start.
If you're deep in debt and you're afraid you can never get out without help, call Vincent Howard at Howard Law to discuss whether bankruptcy is right for you. You can send us a message online or call 1-800-872-5925.