Keywords: surrender . IRS standards . means test allowances . means test .
Means Test > Expenses > Secured Debts > Loan Expense Deduction > Surrender Secured Debts: Expense allowances for collateral that is to be surrendered (see also 9A)42 Cases , IssueID 7 |
||||||||||||
Ch 7 Means Test |
Ch 13 Means Test |
|||||||||||
Topic Description:The means test Forms 22A (Chapter 7) and 22C (Chapter 13) allow you to deduct the full amount of secured debt payments you are currently making at the time you file your bankruptcy petition. Lines of Cases:
Topic Background / Overview: |
||||||||||||
may a debtor "deduct" secured debt payments not being paid because the property has been surrendered? We part company with several of our colleagues and conclude that debtors may not take those deductions
Effectively the court would not allow a phantom expense deduction. It said that while the debtor could technically deduct the amount, it would not grant the discharge.
"In calculating monthly income under the means test, the plain language of Section 707(b)(2)(A)(iii)(I) allows debtors to deduct payments due on secured debts notwithstanding the debtor's intention to surrender the collateral. However, despite finding that a presumption of abuse does not arise in the instant case, the court may still find the case abusive pursuant to Section 707(b)(3) [totality of the circumstances]."
above-median debtor in a Chapter 7 case is allowed under the Means-Test to take deductions for payments on secured debt when the debtor states an intent to surrender the underlying collateral
the debtors, in performing their means test calculations, are entitled to deduct the average of the payments that would be contractually due, as of the filing date of the petition, for the subsequent 60 months on the four mortgages, notwithstanding their stated intent to surrender both houses.
Although debtor is allowed to deduct surrendered home on means test form 22C, ability to pay a Chapter 13 plan relevant in determining whether to deny discharge under 702(b)(3). Reduced mortgage payments sufficient for finding of abuse under 703(b)(3). Good history of Sixth Circuit law on 703(b)(3) "totality of circumstances" cases.
The court found debtor's case to NOT be presumptively abusive, saying, "As the function of the Means Test is to be a mechanical formula for establishing a presumptive bar to obtaining relief in a Chapter 7 case, it is fitting that the deductions should be bright line measurements. Otherwise, courts would have to consider the facts and circumstances of each case, including post-petition events, such as the surrender of collateral, when conducting a Means Test analysis under Chapter 7."
Debtor tried to amend his Chapter 13 plan without also amending his means test deductions.
The court said, "Pursuant to [Section 1325(b) and 707(b)(2)], the court must look at a debtor's stated intentions of record as they exist on the date of confirmation to determine what expenses are 'reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor during the Chapter 13 plan."
The court sustained the Trustee's objection to confirmation of this new plan.
Using a "snapshot" view of the Debtor's expenses on the date of filing makes sense 97 in the context of a Chapter 7 case. The application of the provisions of section 707(b)(2) involves an evaluation of the Debtor's financial condition on the petition date such that a post-petition surrender of collateral is irrelevant and inconsequential.
a Chapter 7 debtor who has stated an intention to surrender the collateral securing the debt may nonetheless deduct payments secured by that property
A motion to dismiss under Section 707(b)(2) must be made no later than 30 days after the filing of the Section 704(b)(1) Statement of Presumed Abuse.
The Fourth Circuit has not yet spoken to the issue presented in this case, and the lower courts are not in agreement. The majority of courts within this circuit hold that a debtor may deduct payments on debts secured by property that he or she intends to surrender. ....This Court finds the majority interpretation persuasive.
Debtor's disclaimer of interest in vehicles was treated as a surrender of collateral would be treated.
"For purposes of determining the debtor's projected disposable income, her disclaimer of interest in and liability for the motor home must be treated the same as a surrender of collateral. The debtor forthrightly admits that the co-debtor has exclusive possession, use and enjoyment of the motor home and sloe responsibility for the debt service payments and all other expenses associated therewith. Although her legal liability still exists, the debtor pays nothing."
Effectively the court would not allow a phantom expense deduction. It said that while the debtor could technically deduct the amount, it would not grant the discharge.
"In calculating monthly income under the means test, the plain language of Section 707(b)(2)(A)(iii)(I) allows debtors to deduct payments due on secured debts notwithstanding the debtor's intention to surrender the collateral. However, despite finding that a presumption of abuse does not arise in the instant case, the court may still find the case abusive pursuant to Section 707(b)(3) [totality of the circumstances]."
above-median debtor in a Chapter 7 case is allowed under the Means-Test to take deductions for payments on secured debt when the debtor states an intent to surrender the underlying collateral
may a debtor "deduct" secured debt payments not being paid because the property has been surrendered? We part company with several of our colleagues and conclude that debtors may not take those deductions
the debtors, in performing their means test calculations, are entitled to deduct the average of the payments that would be contractually due, as of the filing date of the petition, for the subsequent 60 months on the four mortgages, notwithstanding their stated intent to surrender both houses.
Although debtor is allowed to deduct surrendered home on means test form 22C, ability to pay a Chapter 13 plan relevant in determining whether to deny discharge under 702(b)(3). Reduced mortgage payments sufficient for finding of abuse under 703(b)(3). Good history of Sixth Circuit law on 703(b)(3) "totality of circumstances" cases.
The court found debtor's case to NOT be presumptively abusive, saying, "As the function of the Means Test is to be a mechanical formula for establishing a presumptive bar to obtaining relief in a Chapter 7 case, it is fitting that the deductions should be bright line measurements. Otherwise, courts would have to consider the facts and circumstances of each case, including post-petition events, such as the surrender of collateral, when conducting a Means Test analysis under Chapter 7."
Debtor tried to amend his Chapter 13 plan without also amending his means test deductions.
The court said, "Pursuant to [Section 1325(b) and 707(b)(2)], the court must look at a debtor's stated intentions of record as they exist on the date of confirmation to determine what expenses are 'reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor during the Chapter 13 plan."
The court sustained the Trustee's objection to confirmation of this new plan.
Using a "snapshot" view of the Debtor's expenses on the date of filing makes sense 97 in the context of a Chapter 7 case. The application of the provisions of section 707(b)(2) involves an evaluation of the Debtor's financial condition on the petition date such that a post-petition surrender of collateral is irrelevant and inconsequential.
a Chapter 7 debtor who has stated an intention to surrender the collateral securing the debt may nonetheless deduct payments secured by that property
A motion to dismiss under Section 707(b)(2) must be made no later than 30 days after the filing of the Section 704(b)(1) Statement of Presumed Abuse.
The Fourth Circuit has not yet spoken to the issue presented in this case, and the lower courts are not in agreement. The majority of courts within this circuit hold that a debtor may deduct payments on debts secured by property that he or she intends to surrender. ....This Court finds the majority interpretation persuasive.
Debtor's disclaimer of interest in vehicles was treated as a surrender of collateral would be treated.
"For purposes of determining the debtor's projected disposable income, her disclaimer of interest in and liability for the motor home must be treated the same as a surrender of collateral. The debtor forthrightly admits that the co-debtor has exclusive possession, use and enjoyment of the motor home and sloe responsibility for the debt service payments and all other expenses associated therewith. Although her legal liability still exists, the debtor pays nothing."
All Cases A to Z
If you're not familiar with what "case law" is, and how to use it, check out Chapter 7 of Nolo's LegalResearch: How to Find and Understand the Law for a guide to how to read through a case to get the parts that matter.
Also, you need to be familiar with the concept of "jurisdiction." Here are some helpful links:
When you read a case, check to make sure that the case's decision applies to your local district. Do this by looking at which court has decided the case -- either the U.S. Supreme Court, a court of appeal (listed here in large type), or a district court (listed in small type). Your local district court judge is not bound to follow the opinion of judges from other district courts, but often they look to these cases for advice. Your local district, however, is bound to follow decisions in cases from it governing circuit court. You'll see fairly few Supreme Court case here, but those cases are also binding on all districts."
NO! NO! NO! This is a start for your research. New cases are constantly being decided. I update this when I have time. This is only a fraction of the actual published opinions out there. Dozens of cases are handed down nationwide every week. I catalog interesting ones when I have time. They are meant to serve as a starting point for your research -- NOT as a comprehensive listing of the current state of the law.