Bankruptcy – Debtors May Use ‘Standard’ Amounts for Expenses

Lynch, Bankruptcy Adm’r v. Jackson (Lawyers Weekly No. 001-005-17, 12 pp.) (Thacker, J.) No. 16-1358, Jan. 4, 2017; USBC at Raleigh, N.C. (Humrickhouse, J.) 4th Cir.

Holding: Debtors may take the full National and Local Standard amounts for expenses in their chapter 7 bankruptcy proceeding even though their actual expenses are less than the Standard amounts; the 4th Circuit upholds a bankruptcy court’s refusal to dismiss the case as an abusive filing.

Means Test

Because debtors earn more than the median income for a family of four in North Carolina, they had to complete a means test. The means test is a standard mathematical formula used to determine the amount of a debtor’s disposable income. If the means test reveals disposable income above a certain level, then the chapter 7 petition will be presumed to be an abuse of the bankruptcy code and the debtor may not proceed.

In their filings, debtors included the Local Standard mortgage expense of $1,548, even though their actual expense was $878. They used the Local Standard expense of $488 for each of their two cars – a 2003 Chevrolet Tahoe and a 2008 Dodge Magnum, although their actual payments for the two vehicles totaled $201.50.

The bankruptcy administrator moved to dismiss the petition as abusive, arguing that debtors had to use their actual expenses. The bankruptcy court denied the motion, holding that debtors’ use of the IRS Local Standard allowance for their housing and vehicle expenses comported with the plain language of 11 U.S.C. § 707(b)(2).

No Time Bar

We have jurisdiction to hear this appeal by the bankruptcy administrator. We conclude that 28 U.S.C. § 158(d)(2)(A) does not create a jurisdictional time bar and the parties’ delay in filing did not deprive this court of its jurisdiction. The parties certified that there is a split between bankruptcy courts within the Eastern District of North Carolina.

This court must now address the issue that the Supreme Court declined to reach in Ransom v. FIA Card Servs., 562 U.S. 61 (2011). Based on the plain language of the statute, we hold that a debtor is entitled to deduct the full National and Local Standard amounts even if they have actual expenses below the standard amounts.

The language is quite clear. Once an expense is incurred, then the debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards. A debtor is entitled to take the full amount of the National and Local Standards if they incur an expense in that category.

This interpretation gives full effect to Congress’ decision to use different words in the statute. As used in § 707(b)(20(A)(ii)(I), “applicable monthly expenses” entitles a debtor to the full National and Local Standard amounts, and “actual monthly expenses” only entitles a debtor to expenses incurred. Moreover, interpreting “applicable” to mean “actual,” as the bankruptcy administrator urges, would create an absurd result: punishing frugal debtors.

We hold a debtor is entitled to the full National and Local Standard amounts for any category of expense in which they incur a cost.