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"Means Test Allowances"

Related Keywords: $200 clunker allowance . IRS standards . means test .

Case Law Topics

  • Local Standards: Vehicle Ownership/Lease expense allowance -- contingent on existence of loan or lease obligation? (i.e. if owned free and clear)

    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).

  • Local Standards: Does Allowance include IRS's additional $200 allowance for Operating Expense for Older/High Mileage Vehicles?

    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

  • Secured Debts: Expense allowances for collateral that is to be surrendered (see also 9A)

    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).

  • Expenses: "Other Necessary Expenses"

    Part __ of the means test forms allows for various kinds of "Other Necessary Expenses" within specifically defined categories. These classifications are based on the IRS collection standards.

    Case law in this area discusses various fact situations to determine whether they meet the criteria of an "Other necessary expense"


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