Court skeptical of strict mechanical test

Below, Professor Jonathan Hayes, who authors the BankruptcyProf Blog, recaps Monday’s oral argument in Hamilton v. Lanning (08-998).  Check the Hamilton v. Lanning page on SCOTUSwiki for additional information about the case. [Disclosure: Akin Gump and Howe & Russell represent the respondent Stephanie Lanning, but Professor Hayes was not involved in the case.]

At oral argument in Hamilton v. Lanning, the petitioner – chapter 13 trustee Jan Hamilton – faced questions from the outset regarding when, if ever, the Bankruptcy Court can deviate from the specific statutory formula set forth in the Bankruptcy Code.

Justice Alito’s questions captured the Court’s sentiment:  he emphasized that the argument that Congress devised a specific framework for computing the plan payment but then allowed for modification of that payment by using the word “projected” was “strange.”   But following Hamilton’s interpretation, he continued, would lead to an absurd result.  He inquired about the reverse of Ms. Lanning’s situation – that is, one in which the prior six months’ income would lead to payments that were less than the debtor can afford.  Hamilton responded that the Code’s “good faith” requirement would militate against such a scenario.

Justice Sotomayor also appeared skeptical, asking Hamilton, “why go through all these machinations?”  Instead, she suggested, shouldn’t the Court just find “narrow circumstances” in which the bankruptcy court “can deviate from the statutory formula?”  Hamilton’s argument over and over was that Congress established a specific formula, which should be followed even if, as here, the debtor cannot get a plan confirmed.  Responding to the concern, chiefly raised by Justice Ginsburg, that Lanning could not get a plan confirmed, Hamilton suggested that the debtor could use section 101(10A) to change the computation of current monthly income, or she could have filed at a different time (which would have changed the computations), or she could dismiss and refile.  The Chief and Justices Scalia and Kennedy chided Hamilton for suggesting that the bankruptcy court could make changes or modifications or adjustments in some areas but not others.  Any “reasonable” adjustments, for practical purposes, would change the statutory result by allowing the bankruptcy court to determine what a reasonable payment would be – seemingly the opposite of what Congress intended.

Counsel for the debtor, Thomas Goldstein, made a fairly lengthy statement at the outset of his presentation without interruption by the Court.  Chief Justice Roberts offered a few questions, joined by Scalia, agreeing that “disposable income” is defined but “projected disposable income” is not.  Goldstein pointed out that the word “multiplied” is used in other areas of the bankruptcy code but is not here.  Also, because Congress provided that the debtor must pay her income “to be received,” Congress intended the Bankruptcy Court to look into the future.

Arguing for the government as an amicus in support of the debtor, Assistant to the Solicitor General Sarah Harrington fielded questions about how the bankruptcy court is supposed to look into the future to determine the debtor’s disposable income.

Mr. Hamilton had a very short rebuttal, with no additional questions from the Court.  Justices Breyer, Stevens, and Thomas did not ask any questions during the argument.