Still Slogging Through the Mud of BAPCPA

Over eight years ago Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). While the banking world hailed its passage as a victory, bankruptcy practitioners cursed the Act as a wrench in the gears of the bankruptcy machine. Before BAPCPA judges were often free to fashion just orders in a bankruptcy case that balanced the rights of creditors and debtors. After BAPCPA, bankruptcy judges were at the mercy of trying to implement a series of brand new laws while attempting to make sense of a legislative scheme that was dense and unclear.

Case in point: BAPCPA introduced a new requirement that a Chapter 13 bankruptcy case should last five years if the debtor has an average income that is more than his state’s median income. During that time the debtor must commit his projected disposable income to repay unsecured creditors. But what if the debtor is determined to be in the above median income category, but has no projected disposable income? That may sound like an unusual situation, but it actually happens quite often.

Courts around the country struggled with this issue and came to different conclusions. Notably, the Ninth Circuit decided that if the debtor has nothing to pay, it was pointless to keep the debtor in bankruptcy for a full five years. That case, In re Kagenveama, 541 F.3d 868 (9th Cir. 2008), was later overruled by the United States Supreme Court case of Hamilton v. Lanning, 130 S. Ct. 2464 (2010). The Supreme Court found that Congress did indeed mean to keep above-median debtors in bankruptcy for five full years.

But that’s not the end of the story.

While Lanning clearly overturned part of the Ninth Circuit’s Kagenveama opinion, other questions remained as to how Lanning applied in other situations. Last year the Ninth Circuit again addressed the issue in In re Flores, 692 F.3d 1021 (9th Cir. 2012). A panel of three judges (the way most federal Court of Appeals cases are decided) ruled that Lanning did not overruled all of the Kagenveama decision, and therefore the Court of Appeals was still obligated to follow Kagenveama and allow a Chapter 13 case for an above median debtor with no projected disposable income to last less than five years.

But that’s not the end of the story!

The Ninth Circuit decided to review the case again, this time with all of the Ninth Circuit judges participating. This time, in a 9 to 2 majority opinion, the Ninth Circuit decided that Lanning holds unequivocally that a Bankruptcy Court may confirm a Chapter 13 plan only if the plan’s duration is at least as long as the applicable commitment period (in this case five years), without regard to whether the debtor has positive, zero, or negative projected disposable income. The case cite is: Danielson v. Flores (In re Flores), No. 11-55452, — F.3d — (9th Cir. Aug. 29, 2013).

Bankruptcy law is constantly evolving and changing, especially when it comes to interpreting BAPCPA. What is permissible today may not be allowed tomorrow. That is why it is important to retain a skilled bankruptcy attorney who devotes his practice to staying ahead of the changes.