At one time, (before the Supreme Court ruled on the Ransom case), the court rulings and trustees routinely agreed that even if a debtor does not have lease or loan obligation, they are still entitled to an extra $200 operating expense allowance for vehicles more than 75K miles or six years old.
This is based on the fact that the IRS follows this practice and BAPCPA uses IRS transportation spending allowances in the means test.
However, since the Ransom case, courts have almost unanimously ruled that you can no longer take the $200 "clunker allowance," based on what the Supreme Court said in that case about
It's been litigated. No, the regional variations in IRS expense allowances are constitutionally permissible.
The Supreme Court ruled in January 2011, that the Means Test Vehicle Ownership allowance is contingent on existence of loan or lease obligation. In other words, if you own a vehicle "free and clear" and are not making any payments, you cannot claim the ownership deduction. (Ransom v. FIA Card Services, __ U.S. ___ (S.Ct 2011 ) )
Before the Supreme Court settled the issue, lower courts were split on this question.
Note that lower court cases that deny the allowance often mention that debtors can claim a $200 extra operation deduction for vehicles over six years old with more than 75K miles (based on the IRS practice of doing the same).
Can debtor take expense allowance regardless of lower actual expenses.
Whether debtors are entitled to the full household expense allowance even if their actual expenses are less.
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.
The question arises, what if you plan to surrender that property during the course of your bankruptcy. This issue is particularly relevant in Chapter 13 cases, where the case continues on for 3 to 5 years, and your ability to pay in the future is one of the elements the court must consider in confirming a proposed Chapter 13 plan.
In a Chapter 7 case, the issue may turn on whether the debtor has actually surrendered the property yet -- that is, if the payments are still "contractually due" at the time the means test form is filed.
This timing question can become relevant because a trustee must make the "abuse" determination (based on the means test form) within 10 days after the section 341 meeting, Meanwhile, the debtor has up to 30 days from the date of the original filing (or the date of the 341 meeting if that comes first) to state whether they intend to surrender the property, and then gets another 30 days after that to actually act on their intentions. Thus, at the time of the abuse determination, it is possible that the debts are still "contractually due."
All of this may be a moot point in many courts, however, because a judge can still find a debtor ineligible to file if the judge thinks there is an ability to pay. Some courts have allowed the deduction, under Sec. 707(b)(2), then ruled that the surrender of the property (and the removal of that debt) means that the debtor has enough funds to pay his unsecured debts and therefore will refuse to grant a discharge of those debts based on the "totality of the circumstances" Sec. 707(b)(3).
This issue comes up in three contexts.
1. Forms 22A: First is the threshold determination of whether the debtor qualifies for Chapter 7 or only for Chapter 13 at the time of the original finding, as determined by the means test (Form 22A), and
2. Form 22C: if the debtor goes the 13 route, the length of the "applicable commitment period" as determined by Form 22C-- a fancy way of saying whether the plan has to be 3 or 5 years.
3. The third context applies only to above-median income debtors in Chapter 13, where debtors must complete Form 22C to determine their "disposable income" and also, later must must propose an actual monthly payment plan to repay their debts, which must be reviewed and approved by a Judge who can reject a plan for non compliance with the law and feasibility (i.e. whether the debtor will really be able to afford the proposed payments? or on the other end, whether the debtor will be paying enough into the plan to satisfy the law's standards against "abuse" of the bankruptcy system.)
The case law deals with the complications that arise because the first two, based on Forms 22A (for Chapter 7) and Form 22C (for Chapter 13) seem to ask for a snapshot in time (at the date the debtor first files for bankruptcy, whereas, under traditional bankruptcy law, a judge can look at the "real world" of the debtors circumstances several months later, when it finally comes time to determine whether a proposed Chapter 13 plan can be approved. Courts are split on whether the 2005 bankruptcy amendments require judges to use the Form 22C calculation, or whether they can consider changes in the debtor's actual circumstances at when the plan is finally up for approval (called the "confirmation hearing").
Some courts follow the Census bureau's "heads on beds" test Ellringer (who was in the household on the filing date). Other courts look to the definition of dependent from the IRS. You need to know what theory your jurisdiction follows. Here are a few selected cases. If you meet both tests, you're probably fine. Note that the U.S. Trustee's office advocates the IRS dependents test, but it depends on what your judge thinks.
Household size matters a lot in the means test. Do you count your unborn child as part of your household? -- because the child WILL be part of your household during the future five years in which you would be paying into a hypothetical Chapter 13 plan...
Household size matters for purposes of median income, and for the amount of the expense allowances you are allowed according to the IRS tables.