When “Projected Disposable Income” Means “Actual Disposable Income”—And How U.S. Supreme Court Disagrees

Projected v. Actual (photo by Marilyn Swanson)

By: Donald L Swanson

The phrase “projected disposable income” is a plan confirmation standard in all reorganization chapters of the Bankruptcy Code for individuals and businesses:

Inexplicably, three courts (two bankruptcy and one circuit) insist that “projected disposable income”:

  • doesn’t really mean “projected”; and
  • really means “actual disposable income.” 

The U.S. Supreme Court, to the contrary, declares that “projected disposable income” means what it says:

  • requires a forward-looking analysis; and
  • must be determined “as of the effective date of the plan.”

I’ll try to explain.

Three Courts: Converting “Projected” to “Actual”

–The Recent Two (Making Things Up!)

Two courts issuing recent rulings in a single case are:

  • In re Staples, Bankruptcy Case No. 20-8465 in the Middle District of Florida (Doc. 451; ruling issued February 3, 2022); and
  • On appeal—In re Staples, District Court Case No. 22-cv-157 in the Middle District of Florida (Doc. 15; opinion issued January 6, 2023).

The Bankruptcy Court confirms Debtor’s proposed Subchapter V plan in In re Staples—but with one modification (see Doc. 451).  The modification relates to Debtor’s plan provision for paying $150 per quarter to general unsecured creditors.  The modification is this: 

  • “Debtor shall file quarterly postconfirmation monthly operating reports”; and
  • “distributions to [general] unsecured creditors will be based upon the Debtor’s actual disposable income as reflected on the quarterly operating reports.”[Fn. 1]

In reality, the Bankruptcy Court is making things up.  There is no authority for a bankruptcy court to impose such a plan requirement. 

In fact, Subchapter V requires exactly the opposite.  Plan confirmation language on disposable income in Subchapter V is this:

  • “(b) . . . the court . . . shall confirm the plan . . . if the plan . . . is fair and equitable”; and
  • “(c) . . . the condition that a plan be fair and equitable . . . includes the following requirements: (1) . . . (2) As of the effective date of the plan—(A) the plan provides that all of the projected disposable income of the debtor . . . will be applied to make payments under the plan; or (B) the value of the property to be distributed under the plan . . . is not less than the projected disposable income of the debtor.” 

§ 1191(b)&(c) (emphasis added).

Such statutory language plainly says that, if debtor’s plan applies all projected disposable income to the plan, the court “shall confirm the plan.”  And Debtor’s proposed plan (before the Court’s modification) did exactly that.

Notably, subparts (A) and (B) of subsection (c)(2) are connected by the word “or”—which means that a plan satisfying either (A) or (B) “shall be” confirmed—if the other confirmation standards are met.  

On appeal, the District Court affirms, based on this two-part rationale.


  • “Paragraph (2)(A) of . . . § 1191(c), simply requires that a plan provide that all projected disposable income be applied”;
  • “Paragraph (2)(B) requires that the value of the property to be distributed is not less than the projected disposable income”; and
  • “Requiring all the actual disposable income to be reported and distributed does not violation [sic.] these statutory rules.”

[Explanation: The District Court ignores the “or” between subparts (A) and (B) and reads the “or” as an “and” instead.]

Second, § 105(a) authorizes a bankruptcy court to “issue any order, process, or judgement  that is necessary or appropriate to carry out the provisions of this title”; and the plan provisions added by the Bankruptcy Court “were clearly necessary and appropriate under the facts of this case.”

[Translation: A bankruptcy court can do whatever it darn well pleases—regardless of Bankruptcy Code words.]

–The Old One (Rejecting a Statute as “Absurd”)

The Eighth Circuit Court of Appeals exhibits a similar disgust for the “projected disposable income” concept.  In two Chapter 12 opinions from 1994, the Eighth Circuit:

  • rejects the plain meaning of “projected disposable income” as “absurd”; and
  • transforms the word “projected” into the word “actual.” 

The first opinion is Rowley v. Yarnall, 22 F.3d 190 (8th Cir. 1994).  The Eighth Circuit addresses the § 1225(b) confirmation requirement that “all of the debtor’s projected disposable income . . . will be applied to make payments under the plan.” 

Debtors argue that the plain meaning of such words obligates them to pay “projected” (i.e., “predicted” or “estimated”) disposable income.  The Eighth Circuit disagrees, saying:

  • “A plain reading . . . might appear to support” Debtor’s position”; but
  • such a reading “yields an absurd result” because it “would reduce Sec. 1225(b) to a nullity” by allowing farmers to confirm a plan over creditor objection by simply predicting that disposable income will be zero”;
  • “we cannot believe that the meaning advanced by [Debtors] is the one Congress intended”; and
  • “we hold that Sec. 1225(b)(1)(B) imposes a duty on debtors” to provide in their Chapter 12 plan a promise to pay “net disposable income received during the plan period to unsecured creditors.”

The second opinion is In re Broken Bow Ranch, Inc., 33 F.3d 1005 (8th Cir. 1994).  The Eighth Circuit applies the same “projected disposable income” standard and declares:

  • Creditors may also require a final disposable income determination at the end of the plan, prior to discharge,” to ensure that debtor does not “accumulate an unreasonably large reserve of funds that would provide a windfall at the time of discharge.”  33 F.3d at 1008-09; emphasis added.

U.S. Supreme Court—A Contrary Ruling

In 2010 (16 years after the Eighth Circuit’s Rowley and Broken Bow opinions and 13 years before the Middle Florida Staples opinion), the U.S. Supreme Court weighs-in on the meaning of the phrase “projected disposable income” in Chapter 13. 

The opinion is Hamilton v. Lanning, 560 U.S. 505 (2010).

In Hamilton, the Supreme Court applies Chapter 13’s “projected disposable income” requirement.  The Supreme Court has no problem with the plain meaning of the word “projected” and focuses, instead, on how disposable income is to be projected.

Moreover, the Supreme Court’s opinion emphasizes that “projected disposable income” in § 1325(b)(1) requires a “forward-looking” calculation that’s to be determined “as of the effective date of the plan”—because that’s what the statute says.

Notably, Subchapter V’s “projected disposable income” requirement (in § 1191(c)) is also to be determined “as of the effective date of the plan.” Chapter 12, too, contains the same “effective date of the plan” language (in § 1225(b)(1)).  

Accordingly, the U.S. Supreme Court’s Hamilton opinion is entirely inconsistent—and incompatible—with:

  • the Eighth Circuit’s 1994 directive that “disposable income” is to be computed at the end of the case using “actual” experience; and
  • the rulings of the Bankruptcy Court and the District Court from the Middle District of Florida in In re Staples.


Some courts really don’t like the plain meaning of “projected disposable income” as of “the effective date of the plan.”

Three courts dislike it so much that they reject it as “absurd” or simply read the word “or” out of the statute and interject their preferred word “and.”

Either way, their rulings are contrary to the U.S. Supreme Court’s reading of the same phrase as requiring a forward-looking analysis at the time of plan confirmation.

It will be interesting to see which approach prevails.


Footnote 1. The Bankruptcy Court offers no citation to legal authority and no legal analysis for requiring this modification. It is, therefore, left to the District Court to do so in affirming the Bankruptcy Court’s ruling.

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4 thoughts on “When “Projected Disposable Income” Means “Actual Disposable Income”—And How U.S. Supreme Court Disagrees

Add yours

  1. Our Chapter 13 Trustees require an annual submission of tax returns, and a recalculation of disposable income. I’m now wondering about that.


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