Means Test Question

[laurannm]

Not that I am an expert by any means, but I think YankeeGirl is 100% correct on this one....I have yet to see any cases filed since the means test was implemented (i.e. 10/05 when the new laws went into effect) that disallowed the debtor from using their mortgage payment (if you are reaffirming the house) based soley on the fact that it was above standards. I have though seen a few that were decided before the means test existed.

If there are cases out there that were decided since the means test was born, my guess is that it is very rare for a UST to not allow an above-standard mortgage expense for a house you are not surrendering.

Any of the cases I came across were all based on whether or not a deduction is allowed on secured collateral that is being surrendered, which is most definitely a gray area and varies widely across the country.

[Help!]

It may be rare elsewhere, but holding the housing expense to the standard is common practice for the UST here. There is no right of wrong answer here... the only real answer is "it depends". I tend to take the conservative view having been put in a position where I had to defend expenses in excess of the standard. Others who have not had that experience may feel more optimistic about expenses like these. The truth is that you are not "entitled" to more than the IRS standards, but you may be "allowed" to exceed them.

[Yankeegirl]

Help!

Respectfully, I think you're still missing my point. There is a distinct difference between the housing expense and being able to deduct a mtg payment for a house you're surrendering.

I completely agree that you cannot and should not try to exceed the IRS standard housing deduction. You are only "entitled" to the standard amount for your region.

However, in many, many districts, you are ALSO entitled to deduct the mtg payment of a house you are surrendering. This is NOT exceeding the IRS housing standards. In the means test calculation you are still taking the standard deduction (see my example), but also get to include the mtg payment. In this scenario, you end up deducting ZERO for the IRS standard and then $xxxx.xx for the secured debt payment (mtg).

This may seem like splitting hairs, but it is a distinct difference. When an opinion is issued, it's not about whether or not you can increase the housing expense it's about whether or not you can include a debt for a house you are surrendering. The whole reason to argue the point is that they all know that it will net the debtor a higher deduction in the means test.

Whether or not the mtg payment is too high or unreasonable it another issue entirely and not really related to the IRS standard deduction.

[Help!]

No, I did get your point. I just don't agree with it.

I would encourage others to meet the means test with flying colors rather than having to go several rounds with the UST.

[Yankeegirl]

If your district allows the deduction, the UST can't question it.

If your district is silent on the topic, then the UST will most likely oppose it. Then you will have to get an opinion from the court.

[Help!]

The UST can question anything they want, and with far better attorneys than the average debtor can afford.

[hrh25]

I talked to a few lawyers and all have said that you can deduct the full amount of your mortgage unless the IRS standard is higher. Some times they might question the size of the mortgage but thats only if it is really high. Ie. you are living in an area where the average house is $150,000 but you have a house mortgage worth over $700,000.

My mortgage was $4,500 a month and i was able to work it down to $3,500 a month thru loan modifcation, but the average house price in this area is above $450,000 so even at $4,500 no one said it would be questioned.

I would consult with a few lawyers in your district to see if they allow you to deduct your mortgage even if you are surrendering your house. I know a few people on this forum were able to do and of course some were not. The BK law is not clear cut as you would like it to be.

Regards

HRH

[Yankeegirl]

Yes, the UST can question anything they want. But if a judge has issued an opinion, they have no legal basis for the challenge. That's why people pay for the opinion.

I respect your opinion on the topic, however, I don't think it's fair to advise people against utilizing perfectly legal and acceptable (in their district) deductions on the means test.

[Yankeegirl]

It's not that you can't deduct the Mtg payment if the IRS standard is higher, it's just that you don't really gain anything from it. You just net back to the IRS standard.

[Help!]

I respect your opinion on the topic, however, I don't think it's fair to advise people against utilizing perfectly legal and acceptable (in their district) deductions on the means test.

I respect your opinion also, but I think it's unfair to advise others that they can use such deductions without warning them that the UST may reduce them.

[Yankeegirl]

I've only advised using them if there is an opinion in their district that allows it. The debtors attorney will be able to advise if that is case.

Otherwise, they will encounter a fight with the UST.

[Help!]

At least we agree that a fight with the UST is not something we would want anyone to have to go through.

[Yankeegirl]

Agreed. However, while my fight did not turn out as I would have hoped, my UST was actually pretty easy to work with.

[Help!]

Same here... the attorney for the UST in our case was just doing their job, and was also pretty reasonable. The problem was that our attorney had no sense of the types of things that would/would not fly in our district and gave us the impression that we were home free since we "passed" the means test.

I know that I go a little (okay... a lot) overboard in questioning expenses, but I would hate for anyone to go into the process thinking they've got it in the bag only to be put through the wringer. I also wouldn't want anyone to take what a lawyer tells them to be the gospel, since there are far too many lawyers "winging it" (guessing, really) and telling their clients they're going to be just fine.

The fact that there are so many opposing viewpoints in this forum and in the courts illustrates (at least to me) how flawed the means test is. For something that was meant to standardize the process, it's really made it complicated and unfairly discriminated against those who aren't well represented or don't understand how to leverage the system in their favor.

Debate in this forum is a good thing... I usually take the "What if the UST disagrees?" side of things, but I hope it's clear that my intent is not to be argumentative. Yankeegirl I hope you win the next round.

[Yankeegirl]

Luckily(?) our attorney was very upfront about everything, nothing truly came as a surprise for us.

The court actually decided two points for us; one in our favor (deduction of ownership expense for car without a loan) and one against us (mtg deduction for home surrendered). We were given the option of continuing the fight, using the "totality of circumstances" (high student loan payment) but the UST wanted new schedules completed because it had been 15 months since we filed. Our income went up dramatically in that time and our attorney advised us that we didn't really have a case anymore. Our options were to convert to a 13 or dismiss and re-file at a later date.

We took the dismissal (without prejudice) and my husband is about to quit his job. We will wait out the 6 months and then re-file with a lower income. If nothing else, the entire process helped me really learn the ropes. I know what will work and won't. So I'm going to use it to my advantage when we re-file next year!