Keywords: means test . expenses . luxury expenses . totality of circumstances . dismissal .
Expenses: What constitutes a "luxury" vs. a "reasonable and necessary" expense?12 Cases , IssueID 47 |
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Ch 7 Means Test |
Ch 13 Means Test |
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Topic Description:Given the case by case nature of these decisions, it's hard to discern a pattern. But here is a collection. Lines of Cases:
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No Ninth Circuit cases in database on this topic
Chapter 13 plan to keep expensive Harley Davidson motorcycle with monthly payments of $401 was bad faith.
Although debtor documented additional expenses deductions for housing and utility expenses (Line 26 Form 22C) , court still found they are not all "reasonable and necessary" but still allowed some.
No "bad faith" found where Ch 13 debtors were living in home with $4,856 monthly mortgage payments (4.7x times the IRS allowance)
Debtor was allowed to deduct expenses for two cars because she left one for her father to provide child care for her kids while she went to work with the other car. However, debtor could not reaffirm debt of 27K on car worth only 12K -- must surrender and find cheaper replacement for that car for less than 16K.
Debtor's gambling and luxury lifestyle indicate that choices could be made to repay debts. Totality of circumstances prohibits chapter 7.
debtor can't keep boat while seeking discharge of unsecured debts.
Dismissal warranted under "totality of circumstances" where debtors purchased a new GMC Yukon shortly before filing, took a trip to Florida a month before filing, lived in an expensive home, wanted to keep their boat, and supported their 22-year-old son.
The court considered the debtors' house an excessive cost and debtors case was dismissed pursuant to Section 707(b)(3) [the totality of the circumstances].
No evidence was presented that demonstrates Debtor's mortgage expense is reasonably necessary. As in Wolf, Debtor's housing expense is more than five times that allowed by the I.R.S. and is not reasonable or necessary considering Debtor's family size, income level, location, and lack of other special needs. See In re Wolf, C/A No. 07-06119-D, slip op., 2008 WL 2117156, *5 (Bankr.D.S.C. May 16, 2008) (dismissing a chapter 7 case for abuse); Kaminski, 387 B.R. at 193 (discussing factors to be considered in determining whether a housing expense is excessive).
denying confirmation, despite the use of exempt social security income, for lack of good faith where debtor proposed to retain an expensive motorcycle as a second vehicle
Where debtor's housing expenses were three times the allowance. Trustee still must make a showing that this constitutes abuse under the totality of the circumstances.
Case remanded to have an evidentiary hearing where lower court shall apply the factors in Krohn (886 F.2d at 126.) That is:
"In determining whether a debtor was not needy, the Krohn court stated:
Among the factors to be considered in deciding whether a debtor is needy is his ability to repay his debts out of future earnings. Walton, 866 F.2d at 984-85; Kelly, 841 F.2d at 914-15 (collecting cases). That factor alone may be sufficient to warrant dismissal. For example, a court would not be justified in concluding that a debtor is needy and worthy of discharge, where his disposable income perm its liquidation of his consumer debts with relative ease. Other factors relevant to need include whether the debtor enjoys a stable source of future income, whether he is eligible for adjustment of his debts through Chapter 13 of the Bankruptcy Code, whether there are state remedies with the potential to ease his financial predicament, the degree of relief obtainable through private negotiations, and whether his expenses can be reduced significantly without depriving him of adequate food, clothing, shelter and other necessities."
Debtor was allowed to pay a small credit card bill outside the plan in order to allow her to keep the card which was necessary to continuing her independent contractor real estate business.
The court said, "there is a rational basis for the classification, and that the classification -- while it may or may not be 'necessary' in the strict sense -- is nevertheless likely to promote the debtors' rehabilitation under Chapter 13. As an independent contractor real estate agent, the [debtor] receives income only when a real estate sale is consummated, and it seems likely that a number of business- related expenses, such as advertising, would often need to be incurred in order to bring about the sale. Since the money to pay the expenses might not materialize for several months after the expense is incurred, having a credit card to which the payment could be charged makes sense."
Chapter 13 plan to keep expensive Harley Davidson motorcycle with monthly payments of $401 was bad faith.
Although debtor documented additional expenses deductions for housing and utility expenses (Line 26 Form 22C) , court still found they are not all "reasonable and necessary" but still allowed some.
No "bad faith" found where Ch 13 debtors were living in home with $4,856 monthly mortgage payments (4.7x times the IRS allowance)
Debtor was allowed to deduct expenses for two cars because she left one for her father to provide child care for her kids while she went to work with the other car. However, debtor could not reaffirm debt of 27K on car worth only 12K -- must surrender and find cheaper replacement for that car for less than 16K.
Debtor's gambling and luxury lifestyle indicate that choices could be made to repay debts. Totality of circumstances prohibits chapter 7.
debtor can't keep boat while seeking discharge of unsecured debts.
Dismissal warranted under "totality of circumstances" where debtors purchased a new GMC Yukon shortly before filing, took a trip to Florida a month before filing, lived in an expensive home, wanted to keep their boat, and supported their 22-year-old son.
The court considered the debtors' house an excessive cost and debtors case was dismissed pursuant to Section 707(b)(3) [the totality of the circumstances].
No evidence was presented that demonstrates Debtor's mortgage expense is reasonably necessary. As in Wolf, Debtor's housing expense is more than five times that allowed by the I.R.S. and is not reasonable or necessary considering Debtor's family size, income level, location, and lack of other special needs. See In re Wolf, C/A No. 07-06119-D, slip op., 2008 WL 2117156, *5 (Bankr.D.S.C. May 16, 2008) (dismissing a chapter 7 case for abuse); Kaminski, 387 B.R. at 193 (discussing factors to be considered in determining whether a housing expense is excessive).
denying confirmation, despite the use of exempt social security income, for lack of good faith where debtor proposed to retain an expensive motorcycle as a second vehicle
Where debtor's housing expenses were three times the allowance. Trustee still must make a showing that this constitutes abuse under the totality of the circumstances.
Case remanded to have an evidentiary hearing where lower court shall apply the factors in Krohn (886 F.2d at 126.) That is:
"In determining whether a debtor was not needy, the Krohn court stated:
Among the factors to be considered in deciding whether a debtor is needy is his ability to repay his debts out of future earnings. Walton, 866 F.2d at 984-85; Kelly, 841 F.2d at 914-15 (collecting cases). That factor alone may be sufficient to warrant dismissal. For example, a court would not be justified in concluding that a debtor is needy and worthy of discharge, where his disposable income perm its liquidation of his consumer debts with relative ease. Other factors relevant to need include whether the debtor enjoys a stable source of future income, whether he is eligible for adjustment of his debts through Chapter 13 of the Bankruptcy Code, whether there are state remedies with the potential to ease his financial predicament, the degree of relief obtainable through private negotiations, and whether his expenses can be reduced significantly without depriving him of adequate food, clothing, shelter and other necessities."
Debtor was allowed to pay a small credit card bill outside the plan in order to allow her to keep the card which was necessary to continuing her independent contractor real estate business.
The court said, "there is a rational basis for the classification, and that the classification -- while it may or may not be 'necessary' in the strict sense -- is nevertheless likely to promote the debtors' rehabilitation under Chapter 13. As an independent contractor real estate agent, the [debtor] receives income only when a real estate sale is consummated, and it seems likely that a number of business- related expenses, such as advertising, would often need to be incurred in order to bring about the sale. Since the money to pay the expenses might not materialize for several months after the expense is incurred, having a credit card to which the payment could be charged makes sense."
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