More Attacks on the "Snap-shot" Approach to Bankruptcy
One of the central tenants of bankruptcy law says that if a debtor has disposable money lying around at the end of each month, they should pay it to their creditors. How to determine a debtor’s disposable income is, however, rather complicated. A regular question that arises is this: what if, on the filing date of the bankruptcy case, a debtor has a mortgage payment of $3,000 per month. Furthermore, what if, three monthly after the bankruptcy case is filed he surrenders that house and moves to an apartment that costs him $1,000 per month in rent. Our debtor now has an extra $2,000 each month. Who should get that money?
In Morris v. Quigley, the 4th Court of Appeals decided that the creditors should get that money. The ruling in Quigley followed the reasoning of the US Supreme Court case of Hamilton v. Lanning that said that changes in income or expenses that were “known or virtually certain to occur” should be considered when determining a debtor’s projected disposable income.
The good news is that Quigley and Lanning were both chapter 13 bankruptcy cases. In chapter 7 bankruptcy case, the “snap shot” approach still rules: if a debtor has a secured debt that is “contractually due,” their disposable income is calculated with that payment in mind, whether or not they decide to surrender the collateral securing that debt the very next month.
In this post-Lanning landscape, it is increasingly the case that chapter 7 bankruptcy cases remain a “snap-shot” of a debtor’s financial life while chapter 13 bankruptcy cases have evolved into a “video camera” of a debtor’s life, capturing a debtor’s post-bankruptcy successes and failures and re-calculating their repayment plans accordingly.
- About the Author
- Latest Posts
For more than 20 years, the Sasser Law Firm has been helping individuals and business owners sort through financial hardships to see the light at the end of the tunnel. Our North Carolina bankruptcy attorneys are all board-certified specialists, which means we have passed a complex exam, undergone a thorough peer review, and continue to earn legal education credits in this ever-evolving area of law.
