Am I Allowed to Include in my Means Test Calculation an Allocation for Payments to Secured Creditors When I am Surrendering the Collateral?

Thans to Judge Homer Drake, we have an answer to this question in the Northern District of Georgia.  In the Walker case (2006 Bankr. LEXIS 845, Case No. 05-15010 (Bankr. N.D. Ga. May 1, 2006), Judge Drake overruled an objection by the U.S. Trustee.  In this case, the debtor's Chapter 7 Statement of Intentions provided for the surrender of his house and vehicle.  The Means Test filed by the debtor had allocations for payments to both the mortgage and vehicle lenders.  The Trustee objected to the inclusion of these allocations when the debtor intended to surrender the collateral.

Judge Drake found that the Means Test was intended as a snapshot of the debtor's financial situation at the instant of filing and that at the time of filing, these payments were contractually due to the lenders.  Further, Judge Drake found that since the Means Test could potentially penalize the debtor by using a six month lookback as evidence of future income then the Means Test is by its nature is not intended to reflect the debtor's current reality.

Judge Drake also noted that the trustee can still object to discharge under Section 707(b)(3) which allows the Court to consider the totality of the circumstances.

You can read more about Judge Drake's decision at the blog post on Scott Riddle's Georgia Bankruptcy Law Blog.

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