National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

means test

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Changes to Bankruptcy Code Dollar Amounts

Certain dollar amounts in the U.S. Bankruptcy Code will increase effective April 1, 2022, pursuant to 11 U.S.C. §104.  On February 4, 2022, the Judicial Conference of the United States announced and detailed these changes in The Federal Register. See Adjustment of Certain Dollar Amounts in the Bankruptcy Code, 87 Fed. Reg. 6625 (February 4, 2022).

Changes relevant to consumer bankruptcy attorneys include:

  • 11 U.S.C. § 109(e) (debt limits for chapter 13):
    • The unsecured debt cap has increased from $419,275 to $465,275.
    • The secured debt cap has increased from $1,257,850 to $1,395,875.
  • 11 U.S.C. § 522(d) (federal exemptions):
    • Section 522(d)(1) (homestead exemption) has increased from $25,150 to $27,900.
    • Section 522(d)(2) (motor vehicle exemption) has increased from $4,000 to $4,450.
    • Section 522(d)(3) (household goods etc. exemption) has increased from $625 to $700 for value in any particular item and from $13,400 to $14,875 in aggregate value.
    • Section 522(d)(4) (jewelry) has increased from $1,700 to $1,875.
    • Section 522(d)(5) (unused amounts from 522(d)(1)) has increased from $1325 to $1,475 for value in any particular item and from $12,575 to $13,950 in aggregate value.
  • 11 U.S.C. § 522(n) (Exemption cap for certain individual retirement accounts) has increased from $1,362,800 to $1,512,350.
  • 11 U.S.C. § 707(b)(2)(A)(i)(Means Test) – CMI is not less than the lesser of –
    • Section 707(b)(2)(A)(i)(I) 25% of unsecured claims or $9,075 (up from $8,175) or
    • Section 707(b)(2)(A)(i)(II) $15,150 (up from $13650).
    • Section 707(b)(2)(A)(ii)(IV) (necessary dependent school expenses) has increased from $2,050 to $2,275.
    • Section 707(b)(6)(C) (to calculate median income for family greater than 4) the amount per additional family member has increased from $750 to $825.

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Local Standards Apply but Trustee Need Not Be a Sumpsimus

Despite higher actual vehicle operating costs, when calculating disposable income on the means test, above-median debtors must use the exact numerical values for expenses that are specified in the IRS’s National and Local Standards. Rodriguez v. Bronitsky (In re Rodriguez), No. 20-1085 (B.A.P. 9th Cir. Oct. 16, 2020). [Read more…] about Local Standards Apply but Trustee Need Not Be a Sumpsimus

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Nice Win for Debtors on Means Test Expense Issue

Section 707(b)(2) permits a debtor to take the full National and Local Standard amounts for expenses even though the debtor’s actual expenses are less. Lynch v. Jackson, No. 16-1358 (4th Cir. Jan. 4, 2017).

When above-median debtors, Gabriel and Monte Jackson, filed for chapter 7 bankruptcy they complied with Form 22A’s instructions to list their expenses using the IRS National and Local Standard amounts rather than their actual expenses which were less. The bankruptcy administrator moved to dismiss their case as abusive under section 707(b)(2)(A)(i). The bankruptcy court denied the motion to dismiss. In re Jackson, 537 B.R. 238 (Bankr. E.D. N.C. 2015), and the Fourth Circuit accepted direct appeal.

The administrator argued that Form 22A’s instructions are erroneous and that the expense deduction amounts listed in the IRS Standards represent a cap on how high an expense amount may be claimed for certain expenses, but that if the actual amount is less, the debtor must use the lesser amount.

In Ransom v. FIA Card Servs., 562 U.S. 61 (2011), the Court addressed application of the IRS Standard expense deductions in the context of abuse under section 707(b). That Court held that, in order to take the IRS Standard expense deduction, a debtor must actually incur the type of expense designated, i.e. the “vehicle ownership” expense requires that the debtor have lease or loan payments on the vehicle. But that Court left open the question of whether, once the expense is found to be “applicable,” the debtor may take the full IRS Standard amount regardless of actual expenses.

The Fourth Circuit found the answer in the plain language of the statute: “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards. 11 U.S.C. § 707(b)(2)(A)(ii)(I).” The fact that Congress used the word “actual” elsewhere in the same statute indicates that it made a distinction between applicable and actual. The court also recognized the absurdity of punishing a frugal debtor should the bankruptcy administrator’s interpretation of the statute be accepted.

As a procedural matter, the court held that the time to file a petition for direct appeal in section 158(d)(2)(A) is not a jurisdictional constraint and, therefore, the parties’ late filing did not deprive the court of jurisdiction over the appeal where other substantive factors favored direct appeal.

Congratulations to Lee Roland who represented the Jacksons, and to Erik Heath who authored NACBA’s amicus brief in support of the debtors.

Jackson 4th Cir. amended opinion Jan 2017

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Title Pawn Loan Not “Ownership Cost”

A debtor may not deduct “ownership costs” under the IRS National and Local Standards for a non-purchase-money security interest in his car. Feagan v. Townson (In re Feagan), No. 16-108 (N.D. Ga. Sept. 6, 2016).

When he filed for chapter 13 bankruptcy, Brian Keith Feagan, an above-median debtor, deducted “ownership costs” for his vehicle based on payments he made on a post-purchase loan secured by the vehicle. Mr. Feagan paid $51.43 per month on a “title pawn” secured by his vehicle which he deducted on the Means Test as “payments on a secured debt” under section 707(b(2)(A)(iii). He also deducted $517.00 from his income as a vehicle ownership expense under the IRS Local Standards based on that loan. His proposed plan did not pay unsecured creditors in full. In order to avoid duplicative deductions, the bankruptcy court required Mr. Feagan to reduce his ownership costs deduction by the amount of his average monthly payment on the secured debt for a total reduction of his projected disposable income by $465.57. The bankruptcy court then confirmed the plan over the trustee’s objection. [Read more…] about Title Pawn Loan Not “Ownership Cost”

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NCBRC Files Amicus in Vehicle Ownership Expense Case

NCBRC has filed an amicus brief in In re Scott, No. 10-33131 (Bankr. S.D. Ill), involving the calculation of projected disposable income for vehicle ownership expense where the debtor’s actual contractual payments were less than the deduction allowed under the IRS Local Standards. NCBRC’s brief relies on the plain language of section 707(b)(2)(A)(ii)(I) for the position that a chapter 13 plan need not calculate pdi based upon the lesser of the IRS allowed deduction or the debtor’s actual payments. This position is further supported by the statute’s legislative history and is not undermined by the decision in Ransom nor is it contrary to bankruptcy policy. NCBRC’s brief was written by Jim Haller. Click here for the brief.