October 19, 2006
Are Debtors Stuck With their Form B22 Means Test Budget?
Here is an issue about Chapter 13 calculations. I don't have the answer so I would appreciate any opinions, especially from any Chapter 13 trustee attorney who reads this blog.
The B22 Means Test looks to the debtor's average income calculated by looking at the debtor's income over the 6 month period preceding the month of filing. The B22 budget is a pro forma budget that uses IRS approved expense figures. We know that Judge Massey and Judge Mullins draw a distinction between the "projected disposable income" of a B22 form and actual disposable income that we see on the Schedule I & J budget. As I read their opinions, the actual budget as shown on Schedules I & J is the appropriate budget from which to evaluate whether a Chapter 13 should be confirmed.
Nevertheless, Chapter 13 trustees routinely file objections to confirmation on the grounds that the B22 showed X in disposable income and X x 60 months = Y which equals Z percentage dividend to unsecured creditors. If the plan as filed does not propose a payment of Z percent to unsecureds, the trustee objects.
In many of my Chapter 13 cases, the B22 does show disposable income, whereas the I & J schedules show none. Why? The allowable expenses per the IRS are incredibly stingy. For example, the IRS budget "allows" a Dekalb County family of 4 a whopping $1,176 for housing and utilities per month. If you assume that utilities are $250, that leaves $926 for a mortgage payment. That translates into roughly a $120,000 house.
Many honest, hardworking debtors live in $200,000 or $250,000 houses with mortgage payments - perhaps both a first and a second mortgage - of $1,800 to $2,000. Under the old law, this level of mortgage payment rarely if ever drew an objection.
Since the B22 Means Test in this example only recognizes the first $926 of our hypothetical $2,000 mortgage, the means test tells us that $1,074 is left over. At the same time, our debtors may have to stretch to find $200 or $250 in their Schedule I & J real life budget.
Nevertheless, the Chapter 13 trustees are using the $1,074 to determine what percentage the debtors need to be paying back to their unsecured creditors.
What is the basis of this objection? Does the Bankruptcy Code require a Chapter 13 debtor to pay a dividend to unsecureds equal to the B22 projected disposable income? If so, what the applicable Code section?
I have always taken the position that the B22 Means Test is a qualification - it tells you if you can file a Chapter 7 without a presumption of abuse, or a 36 month Chapter 13 or a 60 month Chapter 13. Beyond that, I don't see how any of the B22 numbers mean anything.
Is not Chapter 13 still controlled by the Kitchens criteria, where for years no one said "boo" abot a $2,000 mortgage obligation for a family of 4.
Thoughts? Comments?
Technorati Tags: means test, Schedule I & J, bankruptcy disposable income, projected disposable income
Filed under Chapter 13 issues, Georgia Bankruptcy, Means Test issues, Trustee objections in Chapter 13 by Jonathan
Comments on Are Debtors Stuck With their Form B22 Means Test Budget? »
Your example leaves out the fact that you get to deduct the entire mortgage payment under the secured debt part of B22 line 47. So you still get to deduct the first and second mortgages.
We too have cases where there is "disposable income" on B22 and not on I&J however it is usually because the debtor previously had a better paying job or was working overtime. So the B22 gross income is higher than the Schedual I income.
My experience has been that in a Chapter 7 case, the U.S. Trustee will object if the monthly mortgage obligation exceeds the IRS category numbers. In a Chapter 13, the Chapter 13 trustees will object to a low percentage plan if the mortgage payment obligation exceeds the IRS budget numbers.
I do not see a Chapter 7 working if a debtor has a monthly 1st and 2nd mortgage mortgage obligation of $3,000. I do not believe that you can deduct this entire amount at Line 47 of the B22.
I lost my job making 48k annually on June 28th( the office closed due to restructuring). I was unemployed for 7 weeks and went to a commission based job. I wasn't making the money I needed to pay all debts and just recently ran out of savings. My spouse makes 64k and I just landed a job making 32k. Yet I still do not have enough income to pay 1st and 2nd mortgage and all other debt.
I have been contemplating bankruptcy and just spoke to an attorney last friday. He told me that although I failed the income test for chapter 7 I passed the remaining means test. However, he informed me that the local judges in the western district of ky could not justify me living in a 300,000 home with a high mtg payment and permit me to take a chapter 7. I don't have much equity maybe 10% in the home at best and would sell if I thought I could sale quick enough. Homes in my neighborhood have gone 12 months before selling. Also, since may credit score is rapidly going lower may option for a lower cost home is out of the question since I won't be approved for a loan.
I was told I would have to let a vehicle go back to a lender so that I can afford to go bk13-although after doing the math I don't see how I can pay a bk13.
Is this attorney correct or is he not wanting to confront a court or represent me?
David - I think the attorney you spoke to has a realistic view of the current bankruptcy landscape. Here in Atlanta, one of the staff lawyers for the U.S. Trustee's office told me that her office had the explicit goal of keeping people out of Chapter 7.
I think that bankruptcy in general, and Chapter 7 in particular, is about pain. If you want to wipe out your debts, you are going to have to give something up. In your case, I suspect that the trustees and judges here would not allow a Ch. 7 discharge while you kept a $300,000 house.
I am at the point where I hesitate to even file a case where the debtor's income exceeds the median income. If I have to go to the means test, I generally look to file a 13.
All in all, it appears to me that the lawyer you spoke with gave you good advice.
–Jonathan
I am currently in a chapter 13, my income was beefed up due to a one time bonus from my full time job and a one time bonus from a part time job (which I won't get this year). Also once I received my w2s there was a $4,000 difference in my annual salary my belief is due to that my payments are inflated which I can't afford can anything be done about that?
Expenses were omitted from my house such as asssociations dues, home warranties, not enough food for one person $125 a month, as high as gas is $125 a month for gas. My attorney states you can't put everything in and she has told me that I have a problem. Please advise.