Document Type

Research Memorandum

Publication Date




Imagine a debtor who lives in New York State, where the median household income for 2007 was approximately $53,000. The debtor is a doctor and receives $80,000 of income from the hospital where she works. The good doctor, however, has gotten in over her head. She purchased a gigantic home she could not afford, has too many student loans to pay back, and regrets buying that expensive car. Her credit card debt is staggering, and she incurs thousands of dollars each month in interest and fees. She decides she can no longer handle the financial pressure and wants to file for Chapter 13 bankruptcy. However, because her income exceeds the median income in New York, the doctor is classified as an above-median income debtor, which requires a debtor to propose a repayment plan that lasts five years. The doctor is not thrilled about the prospect of subjecting herself to the five-year bankruptcy period, particularly because she has been offered a lucrative position as a partner in a prestigious medical practice. She decides to defer the offer because she does not want to increase her income during the time she is in bankruptcy and therefore have to pay more to her unsecured creditors.

After filing for bankruptcy, she determines that, due to the amount of debt held by her secured creditors, her projected disposable income amounts to zero or a negative number. As a result, she is not subject to the five-year commitment period and proposes a plan to repay her unsecured creditors for 2 years. The plan is confirmed, although it guarantees the unsecured creditors recover only a fraction of the debt owed to them. After the two years has ended, she accepts a position with the medical practice and now receives $200,000 per year in compensation. The unsecured creditors, however, would not enjoy in her increased income because the bankruptcy period has ended. Is this a fair result? According to the Ninth Circuit, there is nothing wrong with increasing secured debt or deferring income as a means of cheating unsecured creditors out of their money.


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