Chapter 13 Debtor May Deduct Full Amount Permitted By IRS Standards, Not Merely Actual Expenses
June 26, 2008
Can a Chapter 13 debtor deduct the full amount permitted by IRS standards on their means test, even if their actual expenses are lower? The U.S. Bankruptcy Court for the Southern District of New York, in the recent case of In re Osei, 2008 WL 2515875 (Bankr.S.D.N.Y. 2008), recently held that the debtor may do just that.
The case, involving an objection to confirmation by eCast Settlement Corporation, involved a debtor who proposed a Chapter 13 Plan proposing the pay approximately 20% of unsecured claims over 60 months. The debtor’s actual monthly rent of $1,150 was lower than the IRS standard deduction of $1,494 for a household of his size.
In a case of first impression in Southern District of New York, the court looked to Section 1325(b)(1) of the U.S. Bankruptcy Code to note that the Plan may be approved over objection if it provides that all of the debtor’s projected disposable income during the life of the Plan will be applied to make payments to unsecured creditors. Looking to Section 1325(b)(2) and 1325(b)(3), the Court reviewed how “disposable income” is to be defined.
The Court also reviewed three reported decisions by other Second Circuit bankruptcy judges, all concluding that a debtor may properly claim the full expense amounts allocated under the Local Standards even when the debtor actually spent less. See In re Schneider, 2008 WL 1885768, No. 07-32487, slip op. (Bankr.N.D.N.Y. Apr. 28, 2008) (overruling objections by creditor and trustee after finding that § 707(b)(2)(A)(ii)(I) is unambiguous, allowing a debtor to deduct the full expense amount under the Local Standards for transportation/ownership expenses); In re Roberts, 2008 WL 542503, No. 07- 210247, slip op. (Bankr.D.Conn. Feb. 28, 2008) (overruling objection by chapter 13 trustee and allowing debtor to deduct the full amount of a transportation ownership expense for a vehicle she owned free and clear of any lease or other encumbrance); In re Austin, 372 B.R. 668 (Bankr.D.Vt.2007) (holding that Congress’s intent in adopting the new § 1325(b)(3) was to allow courts to adopt a mechanical view in determining projected disposable income, looking to the deductions set out in § 707(b)(2) to determine the expense amount of the disposable income equation rather than actual expenses shown in a debtor’s schedule J).
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