Phantom Expenses on Means Test

Posted on 08/29/2009 at 12:00 am by Viewed 2,287 times

The First Circuit Court of Appeals, in In re Rudler,  recently ruled that above median income Chapter 7 debtors may take Means Test deductions for payments on debts secured by property that they intend to surrender.  This issue has been hotly contested around the country with the United States Trustee taking the position that the Means Test should only include "forward looking" expenses that would actually be made after the bankruptcy filing.

The First Circuit concluded that the Means Test was intended to be a "snapshot" of the debtors' financial situation at the time of filing.  The First Circuit's decision included the following analysis in response to the United States Trustee's argument that a "snapshot" picture created an absurd result.  "A test that relies on a shapshot of the debtors' circumstances at the time of the bankruptcy filing is not an 'absurd' alternative.  To the contrary, a fixed approach to the secured debt deduction makes sense because the actual amount the debtor will pay on secured debts in the relevant sixty-month period is subject to a number of variables."  The First Circuit decsion will enable above median income households to either file Chapter 7 or utilize Chapter 13 while paying a reasonable dividend to unsecured creditors.

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