Part I. What's in a Number and What's in a Name: Statutory v. Case Law

Except for some lingering presence in contracts and pleadings, lawyers rarely employ a Latin lexicon. You can get through life quite well without ever having to utter, "per se." And if you do use it, you're probably not using it correctly. Yet if lawyer-speak is discouraged, attorneys still speak in numbers.

Our legislators draft and enact our laws in the form of statutes codfiied or arranged by variable titles, paragraphs, numbers, letters, fonts, and that funny squiggly § symbol for the word "section." Consequetly, we express legal concepts in symbolic or numerical shorthand. You could explain that a a debtor can't file chapter 13 because her unsecured debt is too high. Or simply state there's a §109(e) exclusion. You could say the debtor earns too much money to qualify for chapter 7, or simply refer to his §707(b) bar. Such number-talk is our jargon.

The term "statutory law" simply refers to all those statutues compiled in code books.

Statutory law is of course, just a starting point. Its crafters can't anticipate every contingency and predictable ambiguities must be resolved by opposing lawyers and presiding judges. The conclusions of that judicial treatment constitutes our case law or "common law," an English-derived legacy of rule-making throught the courts.

While statutues are methodically formatted in symbols, common law principles are oddly captured in litigants' names. Landmark rulings forever tie conclusions to an individual. Pursuant to Brown v. Board of Education, Linda Brown will always embody defeat of the "separate but equal" fallacy. Pursuant to Miranda v. Arizona, Ernesto Miranda's name remains shorthand for reading of criminal rights.

Like all practice areas, bankruptcy law is formed through marriage of the stautory and common law traditions. The above labored preamble leads to a new tradition: a weekly sampling of bankruptcy common (case) law.

We shift to first gear to discuss the case of Hamilton v. Lanning, affectionately known simply as, Lanning, because saying two names takes too long, and besides, Lanning was the "good guy [gal]."

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Part II: Disposable Income, Budgeting, and Chapter 13 bankruptcy in the Abstract

If you've come this far [sound of crickets], you know that I can hardly get straight to the point. Before addressing Lanning, we must address the notion of 'disposable income" and its relevance to chapter 13 bankruptcy (that's the one where you make monthly payments). Disposable income is also technically known as: "what's left over at month's end." Disposable income is the result of your income minus your "reasonable and necessary expenses." Disposable income is the amount by which your budget's in the red (a negative/shortfall) or in the black (a positive/excess). And disposable income is what you must commit to monthly payments in a chapter 13 bankruptcy.

What is chapter 13? In a nutshell, it's a payment plan: you commit your disposable income to a maximum of 60 monthly payments. Since disposable income may be limited, you'll often pay only a fraction of your total debt. The balance is forgiven.

If you're in the red, you can't do a chapter 13. If you're sufficiently in the black, you could do a chapter 13 payment plan and the more you're in the black, the more you'll be paying. Calculating disposable income, i.e. how much you're in the red or the black is a matter of balancing one's budget. Now, balancing a budget used to be easy. When you were 10. Mostly.

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Part III: Disposable Income, Balancing your Budget, and Chapter 13 In Real Life (sort of)

When you were 10, you'd feed the dog, water the plants, empty the trash, mow the lawn, and you'd get a fiver on Sunday. Daily, between Monday and Friday, you'd stop at 7-11 on the way home from school, Abe Lincoln tucked in your front jeans pocket. Through the week, $5 got you a grape Slurpee, 2 packs of baseball cards, a Baby Ruth, Nerds, and then some. If change remained, there was always something on the shelf to match its value. 'Cause you happened to be 10 back when change got you something. So, after making those reasonable and necessary expenses, you wouldn't be in the black.

And you wouldn't be in the red either, 'cause Mom cooked dinner, and you had plenty of hand-me-down clothes (you were 70s chic, except it was the 80s), and 7-11 didn't extend credit. But I said boyhood budget-balancing had been mostly easy, right?

It wasn't easy that time front-yard batting practice put your wayward baseball through a $1000 pane of imported stained glass. When you were 10, you could be in the red. And with a $1000 tab, you could be 10 years-old and bankrupt. To repay such a debt, you'd have to committ to debt-repayment all of your $5/wk allowance for 200 weeks. But then, how were you gonna snack and trade cards? So, you approached your dad seeking debt forgiveness. You didn't have disposable income to commit to a chapter 13 since your full allowance went toward the above-listed necessities. You considered chapter 7, another form of bankruptcy. This is the type of bankruptcy that requires $0 payment on the dollar. Yet, you learned that under chapter 7, you risked liquidation of your Cal Ripken, Jr. rookie card.* While it would've been exempted under California Code of Civil Procedure section 703.140(b)(5), it's not protected under Dad's Code of Civil Procedure.

So you rejected chapter 7, but remember, you didn't have disposable income, which is necessary to sustain a chapter 13 payment plan. After much hand-wringing, you conceded you could forego the reasonable necessity of $1/week for Big League Chew (that's that bubblegum masquerading as chewing tobacco, replacing cavities for mouth cancer), yet still sustain acceptable snacking standards. Tightening your belt would yield disposable income: $1 a week toward chapter 13 glass-repayment. Recall that chapter 13 is a proposition of partial repayment of debt. You'd pay $1 a week for 60 weeks, and the $940 remainder would be discharged. You proposed your chapter 13 payment plan to Trustee Dad. Dad smiled wryly and said, "Son, you have a problem here." You asked him to pray tell. Dad said one word. "Grandma."

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Part IV. The Applicable Period for Determining Disposable Income (which affects your chapter 13 payment amounts):

Ah, Grandma. See, you had forgotten about a little bit of supplemental income you'd had going. Six months prior, Grandma had sent you a $10 bill for your birthday. And then she started sending you $10 bills every week, 'cause she'd forget it was already your birthday.** Every week for three months, you'd toss aside that TVGuide and grocery fliers, rip open the envelope addressed in Grandma's spidery scrawl, pry open that Snoopy or Garfield card, and a greenback slipped out. On its face, the face of your friend, Alexander Hamilton.

But just about the time of the glass-smashing, you had suddently fallen out of favor with Grandma (always, always send a Thank You card). Those Hamiltons she'd been mailing dried up. And under statutory law, that made your chapter 13 unfeasible.***

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Part V. Disposable Income Surrealism

See, the Bankruptcy Code looks backward toward past income in determining your chapter 13 repayment ability. The backward-analysis is a feature of the so-called the Means Test. In consumer bankruptcy, the determination of your disposable income is influenced by your past-demonstrated earning capability. You must commit to monthly chapter 13 payments, an average of the monthly disposable income you had over the 6 months prior to filing.**** This applies even if your income has since gone down, as of the time of bankruptcy filing, resulting in less disposable income going forward. The result is absurd: your chapter 13 payments are a function of higher income you no longer have. This absurdity happened to you.*****

In your real life (sort of) your budget had decreased from $15 [Abe Lincoln ($5) + Grandma's Hamilton ($10)] and was sustained at $5 (just allowance) on the eve of bankruptcy. Your minimum chapter 13 payments would not be a function of your actual post-Grandma-fallout one-Lincoln income. The Means Test's look-back approach determined that your chapter 13 payments must incorporate old Abe AND the ghost of Hamilton. Through his arrival and departure, Hamilton would have you produce a phantom $10 each week. What a menace!

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Part VI: I just like Roman numerals

Which brings us after much long-windedness to Hamilton v. Lanning. Prior to filing her chapter 13 bankruptcy, Stephanie Kay Lanning received a one time buy-out from a former employer. That single income-spike skewed her prior 6-months average. Her prior 6 months income did not reflect her actual earnings going forward. Yet, in determining Lanning's monthly chapter 13 payments, the Trustee, Mr. Jan Hamilton--in applying the letter of the law,the statutory law--expected that Lanning apply "yesterday's" budget to today. The Supreme Court, with the exception of Justice Scalia, embraced in this case law the spirit of the law: granting Americans a second chance, a second lease on life. The Court opined that determination of Lanning's chapter 13 payments should not reflect that one-time spike in income. She should have a viable payment plan based upon actual projected income. Pending this result, Lanning had remained in bankruptcy-neutral for 3 1/2 years as the slow wheels of justice went round and round. Now she can shift into gear and get a fresh start.

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Part VII: Conclusion

And in short (I know, I know, it's nothing but short), Dad should let you repay your debt, while still enjoying the occasional grape Slurpee.

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*Chapter 7 is defined as liquidation bankruptcy (meaning assets can be lost). But if the bankruptcy's performed correctly under California (not Dad's) law, liquidation is rare and chapter 7 relief is readily available at a tremendous net benefit.

**Apologies to J.D. Salinger, RIP

***This application of present bankruptcy law to past-tense "facts" begs your suspension of disbelief.

****At least that amount

*****Yet, absurd can be rational. The 6-month look-back approach is about resilience. If the last 6 months showed high income, then a recent setback should not ignore one's implied high-earning potential, and then consider only present income. Setbacks should be temporary. If, upon a drop in income, we instantly ignore past earnings, then where is the incentive to pull oneself up by the bootstraps and into the saddle [at this juncture my mind plays Aerosmith's "Back in the Saddle," Steven Tyler's high-pitched ode to financial recovery. Of course the lyrics betray dirtier agendas, but that's just because rock is dirty. It's intrinsically filthy. Always is.].

Yet, such an approach contemplates a robust economy. This stautory conceit was published in 2005, before the crash. In this recession, that saddle eludes you, and it eluded you back when you were 10 too. See, after the fall out, you had quickly made up with Grandma; she promptly resumed her mailings. But then all you got in the Snoopy or Garfield cards were Snoopy or Garfield. You shook and shook that card, but no Hamilton fluttered out. Times were tough on everyone. Times are tough on everyone. Even grandmas.

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