Means Test Question

[Faithfullymovin]

Could anyone tell me if you plan on surrendering your house in Chapter 7 BK can you still claim your mortgage payments on your means test?

We are also currently paying rent on an apartment as well, can we claim both?

Thanks,

[Help!]

No, you should use the IRS Standard.

[laurannm]

You may be able to use the mortgage payment even if you are surrendering, but it depends on case law in your district. In my district BK judges have recently ruled that debtors are allowed to use mortgage payments even if surrendering, but they may not apply to yours. I would consult with an attorney on what is allowed in your area

[Help!]

If you are surrendering the house and renting, I don't see how you could use the mortgage payment. I have not seen a case where the debtor was able to use a mortgage payment exceeding the IRS Standards when they were living elsewhere, paying rent and surrendering their home.

[laurannm]

You probably can't claim both, no...but the OP still may be able to deduct the mortgage payment. Here is the case I was referring to (also references a 2nd case reaching the same decision).

http://www.************************/...ting-decision/

Might also depend on how long the OP has been paying rent...if they have been rent for the last 6-month while their house forecloses, then that's a different story.

[Yankeegirl]

Both amounts are entered in the Means Test, but only one gets deducted. I went back and looked at mine, and here's how it works:

Line 20B - Local Standards housing and utilities; mtg/rent expense:
a. Enter the amount of the IRS Housing Standard
b. Enter the Average Monthly Payment for any debts secured by your home, if any, as stated in Line 42. (this would be your mtg payment)
c. Subtract b from a (if your mtg is more than rent, you get 0)

Line 42 - Future paymetns on secured claims
You enter your mtg payment again.

In the above scenario, your mtg is more than your rent, so you end up claiming 0 in line 20B and then the full amount of the mtg gets deducted in Line 42.

However, this only works if your district allows you to claim a deduction for a house you are surrendering (mine did not). The actual means test language for Line 42 states "...the total of all amounts contractualy due to each secured creditor in the 60 months following the filing of the bankruptcy case". Some courts have concluded that even if you plan on surrendering the home, the mortgage is contractually due until the house is actually foreclosed upon or sold. Therefore, allowing you to deduct the payment.

It really has nothing to do with how long you've not been living there and paying rent elsewhere. When we filed, we had been out of our home and renting another house (in another state) for 9 months. The issue that came up with the UST was whether or not, under the language of the Bankruptcy Law, we could deduct the payment for a house we were surrendering. We fought the UST and lost!

[Help!]

Ok - I'll add a disclaimer to my reply. In general, if you are renting a place and surrendering a home you are entitled only to the IRS Standards. If you want to exceed them, you will likely have to file an objection to the UST's motion to dismiss, pay your attorney his hourly rate to research case law and file a brief, and then cross your fingers that the judge sides with you (pretty unlikely in my opinion, but apparently at least one debtor succeeded). This is not something I would ever consider, but I am of the opinion that it's easier to go with the flow of the system rather than to oppose it.

There's no grey area on your second question, though. You can't use both the rent and the mortgage payment.

[Cali]

My attorney told us that you can't claim both rent and mortgage payment.

[Yankeegirl]

I think there is some confustion here.

Whether or not you can deduct the mtg payment on a home that will be surrendered IS a gray area. It is based soley on the opinions of the judges in your district. There are many districts in the country that do allow it. However, there are many that don't. You really need to speak with your attorney to determine what is the prevailing opinion in your district.

You are always entitled to the IRS standard housing deduction. If you have a mortgage that you can deduct, you can enter that as well. You don't end up with a double deduction, (again if your district allows it) you simply get the HIGHER deduction, which is usually your mtg payment. (You aren't double deducting - Line 20B becomes 0 and the full mtg payment is deducted on Line 42)

You get this not because you are arguing for a higher rent/mtg amount, but because it is a secured debt and you are able to deduct payment for a secured debt on Line 42.

[Help!]

But... if this expense makes or breaks your means test and you decide to try, here's an interesting blog with some references that would make a good start of an objection to the UST's motion to dismiss:

http://web.mac.com/coloatty/iWeb/bkr/blawg/8C97C14C-26A6-4385-910D-D8C467C9044B.html

[Yankeegirl]

Here's an opinion from Illinois that allowed the deduction. I believe there's another one in Georgia as well.

http://www.ilnb.uscourts.gov/opinions/JudgeDoyle/Randle.pdf

Again, it's all in the opinions of the local judges. Every district is different. If there is no clear cut opinion in your district, you can put it in your Means Test and see what the UST thinks. If they balk, you'll have to get an opinion in your district and that takes time and money!

We fought the UST on this in our district, and lost. There is now an official opinion in Southern Texas that states you CANNOT deduct the mtg payment for a house you are surrendering. It took us 15 months and $10,000 to get that opinion!!!

[Help!]

I think there is some confustion here.
You are always entitled to the IRS standard housing deduction. If you have a mortgage that you can deduct, you can enter that as well. You don't end up with a double deduction, (again if your district allows it) you simply get the HIGHER deduction, which is usually your mtg payment. (You aren't double deducting - Line 20B becomes 0 and the full mtg payment is deducted on Line 42)

I have to disagree. You are not necessarily entitled to the higher deduction. There are plenty of cases out there where the UST held the debtor to the IRS Standards even though the mortgage for the house they were not surrendering was higher. There are no guarantees that any expense beyond the IRS Standards will be allowed. They are only allowed if the UST decides not to dispute them.

[Yankeegirl]

There are two different issues here:

1. Can you deduct an amount that is higher than the IRS Standard?
2. Can you deduct a mtg payment for a house that will be surrendered?

********
Current Rent: $1850/month
IRS standard: $1304/month
Current mtg: $3000/month


1. You are correct, you can't arbitarily increase the amount in Line 20B (the IRS housting standard) to account for a rent payment that is more than the IRS standard. In the case above, you have to use $1304, not $1850.

2. If your district allows you to deduct the mtg payment, you ARE getting the higher deduction of the mtg payment. Here, the is key to follow the calculation in the Means Test itself:



Line 20B

a. IRS Standard Housing deduction - $1304.00
b. Average monthly mtg payment as stated in Line 42 - $3000.00
c. Subtract b from a - 0.00

$0.00 is the amount entered in Line 20B for the standard Housing deduction


Line 42 - Future payments on secured claims

The total of all contractually due payments....(this is your mtg payment) $3000.00

You then get to the $3000.00 deduction on Line 42 for your mtg. This is well above the IRS standard of $1304.00. You are getting this NOT because your rent is above $1304.00 but because your mtg payment is a secured debt that you are contractully obligated to pay and your district allows the deduction.

[Cali]

This isn't a true statement for everyone, it depends on the UST.

You are always entitled to the IRS standard housing deduction. If you have a mortgage that you can deduct, you can enter that as well. You don't end up with a double deduction, (again if your district allows it) you simply get the HIGHER deduction, which is usually your mtg payment. (You aren't double deducting - Line 20B becomes 0 and the full mtg payment is deducted on Line 42)

You get this not because you are arguing for a higher rent/mtg amount, but because it is a secured debt and you are able to deduct payment for a secured debt on Line 42.

[Yankeegirl]

Cali -

I'm not sure what you're disagreeing with?

1. Everyone is entitled to the IRS standard housing deduction.
2. It is district dependent whether or not you can deduct a mtg payment as for a house you will surrender.

You don't increase the housing deduction if you deduct the mtg payment, one simply negates the other. My example above should explain things.