Future income and the disposable income

The Fifth Circuit recently interpreted the phrase “projected disposable income” in section 1325(b)(1) for above-median Chapter 13 debtors.  

The above-median debtor proposed a sixty-month plan pursuant to which she would pay nearly $200 per month.  In Schedule I and J, she listed a $1,062 contribution to her 401k loan.  The trustee objected to the plan confirmation.  The debtor testified that the 401k loan would be repaid within two years and that her 401k monthly contributions were capped at $1,250 per month.

The debtor argued that the then available income should not be considered at plan confirmation.  Additionally, the debtor argued that calculating “projected disposable income” involved multiplying current monthly income times the term of the plan.  The trustee argued that known future events should be considered when calculating “projected disposable income.”  The plan was denied.  Debtor appealed to the district court who affirmed.  

The 5th Circuit said that in interpreting that statute, the Trustee’s “forward-looking approach” should be used.  The court may consider evidence of substantial changes to the debtor’s income and expenses prior to plan confirmation and during the term of the Chapter 13 plan.

The court stated that “disposable income” as defined by the Bankruptcy Code is the “starting point from which the court projects that income over the course of the plan.”