A Couple Cases Concerning Child Care and Confirmation

Posted by NCBRC - March 20, 2014

The expense of the debtor/father’s involvement in scout camp was found not deductible as a necessary expense for the support of the debtors’ dependents. In re Knorr, No. 12-3704, 2013 WL 5550209 (Bankr. M.D. Pa. 2013). There, the trustee objected to confirmation of debtors’ plan where the debtors deducted expenses related to the father/debtor’s volunteer time as chaperone at his children’s scout camps. Section 1325(b)(2) in conjunction with section 707(b)(2) and the Internal Revenue Manual, permits a debtor to deduct actual expenses that are “reasonably necessary” for the support of the debtor and his or her dependents. Specifically, section 707(b)(2)(A)(ii)(I) allows for deduction of actual expenses that “provide for the health and welfare of the taxpayer and/or his or her family or [are] for the production of income. This is determined based on the facts and circumstances of each case.” IRM

With respect to the deduction for expenses related to the father’s time at scout camp, as opposed to the father’s regular child care expenses as the primary child care provider, the court turned up its nose stating, “the expense required to allow the Debtor to devote his time to charitable work is reasonable in the context of a family that pays its bills when they are due, but not one seeking to reorganize their affairs in a Chapter 13 framework.” The court sustained the trustee’s objection but gave the debtor one year into the plan to eliminate the expense.

Knorr opinion

In another case dealing with child support, the parties disagreed as to how child support payments from the debtor’s ex-husband should be treated on Form 22C for purposes of calculating projected disposable income. In re Brooks, No. 12-82224 (Bankr. C.D. Ill. Sept. 12, 2013). The debtor included the $400 monthly child support payment from her ex-husband in her disposable income calculation then deducted that amount on line 54 of the means test. On line 60 the debtor deducted an additional $141 in day care expenses.

The trustee objected to confirmation of the debtor’s plan arguing that by excluding the full amount of the child support the debtor was availing herself of double deductions, as most of her child care expenses were factored into the standard deductions for living expenses allowed elsewhere on Form 22 C.

The bankruptcy court found that while the child support payments were properly included in the calculation of the debtor’s current monthly income, section 1325(b)(2) specifies that child support payments are not included in the further calculation of “disposable income.” It went on to find that a plain reading of that section permits a debtor to exclude child support from disposable income and, subsequently, deduct child care expenses from the calculation of projected disposable income that must be provided in the plan. The court explained: “It is also clear by its placement in section 1325(b)(2), not (b)(2)(A), that the parenthetical exclusion is intended to be applied as an exclusion from income rather than an expense adjustment as the TRUSTEE would apply it. In this Court’s view, the flaw in the TRUSTEE’S interpretation results from regarding the parenthetical exclusion as creating an additional, separate computation, prematurely calling into play the expense side of the disposable income equation. Nothing in the language of the statute calls for such a calculation.” The court noted, however, that while there is a presumption that the state ordered child support payments are “reasonably necessary” for the care of the child, as required for exclusion under the parenthetical of section 1325(b)(2), it could be argued under rare circumstances that that the child support payments do not meet the “reasonably necessary” component.

This case is currently on appeal to the District Court for the Central District of Illinois, No. 14-1031.

Brooks opinion


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