Supreme Court Issues Important Ruling Regarding Chapter 13 Bankruptcy

Last week, the Supreme Court of the United States handed down a ruling that may help some people who are forced into filing a Chapter 13 Bankruptcy. In most instances of a chapter 13 bankruptcy, a mechanical formula is used to look at a debtor’s previous financial history in the months leading up to the filing, and then based on these figures of income and expenses, a repayment plan is established to allow for the filer to gradually repay the debts owed in a responsible fashion.

In the case Hamilton v. Lanning, the court ruled that when setting up a repayment plan, there are possibly extenuating financial circumstances that warrant an adjustment to the mechanical calculation. In the example presented before the court, the debtor had been laid off and received a buy-out package from her former employer in the six months preceding the filing of her bankruptcy. Under the strict mechanical calculation, such “added income” inflated the amount of money that she was expected to pay under the formula, even though both her and the creditors did not dispute that her actual income was not sufficient to pay the proposed payments.

The court ruled in favor of a “Forward-Looking Plan” that relies not only on the calculations derived from past financial history, but also on the discretion of the bankruptcy court to adjust such calculations when financial circumstances are not accurately represented.

Chapter 13 bankruptcy provides honest people a fresh start. A Chapter 13 bankruptcy provides an avenue for an individual to save their home from foreclosure, as long as the debtor agrees to commit all of their personal disposable income. At Perenich The Law Firm, we understand that things happen to us in life that we do not expect. As experienced Tampa Bay and Clearwater bankruptcy attorneys, we can assist you in a free consultation to discuss your situation in depth and to determine what the best course of action is.