May Include Installment Payment in Means Test Even When Property to be Surrendered

ND Ga - Debtors May Include Installment Payments to Secured Creditors in Means Test Calculations Even If Property Will Be Surrendered
11 U.S.C. § 707; Means Test; Abuse

In re Walker, 2006 Bankr. LEXIS 845, Case No. 05-15010 (Bankr. N.D. Ga. May 1, 2006)(Drake)

Debtors filed a Chapter 7 Petition, with their means test reflecting no presumption of abuse. The Statement of Intention indicated that debtors would surrender their residence and one vehicle, each of which were subject to secured claims. The US Trustee, after reviewing the petition, filed a motion to dismiss for abuse pursuant to § 707(b)(1). The trustee’s motion was based upon the fact that the debtors included in their means test calculations the installment payments for the secured property they intended on surrendering.

The court held that the installment payments to secured creditors may be included in the means test calculations. Section 707(b)(2)(A)(iii) provides that a debtor may deduct amounts that are “scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition.” The purpose of the means test is to provide a snapshot of the debtors’ financial condition as of the filing date, and as of that date, based upon the plain meaning of the statute, the payments at issue were “contractually due to secured creditors.” Therefore, it was appropriate to include them in the means test calculations, even if they stated an intent to surrender the secured property. Had Congress wanted to add a requirement that the secured debts be reaffirmed in order to be included in the calculations, they would have done so.



The court noted other examples of the BAPCPA’s lack of precision in examining a debtor’s true financial condition. Debtors are required to use an average of six months’ income even though they may have been unemployed for a significant portion of that time. The applicable expenses are established by IRS national and local standards, rather than the debtor’s actual expenses. Additionally, under the US Trustee’s reasoning, the means test could not be accurately completed or examined until after the secured property was surrendered. Debtors also may be persuaded to retain property they cannot afford or do not need for the sole purpose of satisfying the means test, contrary to Congressional intent of protecting debtors from unwise reaffirmation agreements.

Finally, the court noted that even if a debtor satisfies the means test, the US Trustee still has the right to seek a dismissal under §707(b)(3), which provides that the court may consider the totality of circumstances of a debtor’s financial situation in determining abuse.

http://www.georgiabankruptcyblog.com/archives/northern-district-cases-130-nd-ga-debtors-may-include-installment-payments-to-secured-creditors-in-means-test-calculations-even-if-property-will-be-surrendered.html

I know this is from a GA court, but do you think that this will hold true in most regions. I have a car that I plan on turning in if we decide to file, but without that debt payment our Means test only shows us with ($438) of disposable income instead of ($1224) after I take out payment, insurance and operating costs.

Thanks for any insight.

Most probably.

With this being a New Law, all BK Court Officials and attnys are watching for Opinions to be rendered on a variety of subject areas.

Plus, it's just good common sense. If you don't intend on keeping a house or car, you shouldn't be able to include those expenses for figuring disposable income. Personal opinion speaking there.

And a rather unscientific poll of attnys,.......... We Consulted with a dozen attnys. All but one said the expenses for our house could not be included as we intended to surrender the house. Only one attny was gonna argue that he could annualize those expenses out 5 years. So that's 11 to 1 on attnys saying NO you cannot include expenses for things you intend to surrender.

But you still should be able to count some kind of rent, even if you give up the house/mortgage--you still need somewhere to live. I think that's part of where some of the reasoning is coming from.

I guess I can see both sides of this.

On one hand you are planning to surrender the item thus freeing up income that could be used to pay other debts.

But, if you leave the debt out and this pushes one to say a Chapter 13 filing, then you would in essence be putting the expense right back into your calculations, thus defeating the purpose. At least this would be the case in our situation because we are tremendously upside down in the vehicle we intend to surrender so we would end up having to roll the negative equity in a restructuring.

Based on my many Means Test calculations we come out with negative income in every scenario: conservative estimates, realistic estimates, keeping vehicle, surrendering vehicle. So it's not a huge issue, but I'd like that negative number to be as large as possible to eliminate any doubt by the Trustee.

But you still should be able to count some kind of rent, even if you give up the house/mortgage--you still need somewhere to live. I think that's part of where some of the reasoning is coming from.

That's what all the attnys said to us, Anon. We could use our rent. But not rent and house as we intended to surrender the house. It's like not including CC debts that you'll discharge in BK.