§ 36.21     Form 122C-2: Disposable Income Calculation
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 36.21, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

The Report of Income and Calculation of Commitment Period are Parts I and II of Official Form B22C.1 Part III is supposed to produce the Statement of Current Monthly Income (CMI) required by Interim Rule 1007(b)(6),2 and to sort debtors into those with CMI over, and those with CMI under, applicable median family income.3 Debtors with CMI over applicable median family income are instructed to complete Parts IV, V and VI of Form B22C—the calculation of disposable income for purposes of § 1325(b). Debtors with CMI less than applicable median family income will skip Parts IV, V and VI of Form B22C. There is no form that calculates the disposable income for debtors with CMI less than applicable median family income.4

[2]

Interim Bankruptcy Rule 1007(b)(6) requires the Statement of Current Monthly Income discussed above,5 and then requires “if the debtor has current monthly income greater than the median family income for the applicable state and family size, a calculation of disposable income in accordance with section 1325(b)(3),” prepared “as prescribed by the appropriate Official Form.”6 Official Form B22C, in Parts IV, V and VI, walks the debtor through a calculation of disposable income as required by Interim Rule 1007(b)(7) but only for debtors with CMI greater than applicable median family income. Be careful to use the most recent version of Form B22C: at this writing, the Advisory Committee on Bankruptcy Rules has just released its third major revision of Form B22C for use beginning December 2007.

[3]

Between October 2005 and October 2006, Official Form B22C instructed all debtors to complete Parts I and II, but only debtors with CMI greater than applicable median family income were instructed to complete Parts III–VI. The result of this instruction was that not all debtors—especially married debtors filing a not-joint case—accurately generated a Statement of Current Monthly Income.7 The October 2006 revision of Form B22C instructs all debtors to complete Parts I–III.

[4]

Part I, discussed above,8 produces a Report of Income that is not necessarily the same as CMI. Line 15 of Part II of Official Form B22C annualizes the (modified) CMI generated in Part I as a step toward calculating the Commitment Period in § 1325(b)(4).9 This is a sidetrack on the road between CMI and disposable income that creates math problems in Form B22C for married debtors not filing jointly.10 The calculation of commitment period at Line 17 requires a “combined” form of CMI under § 1325(b)(4).11 Especially with respect to a married debtor not filing jointly, there is an uncertain relationship between “combined” CMI in § 1325(b)(4) and the calculation of CMI that is implicit in Parts I and II of Form B22C.12

[5]

Since 1984, the disposable income test in § 1325(b) has been one of the statutory gatekeepers to confirmation in Chapter 13 cases.13 In broad terms, on the objection of the trustee or the holder of an allowed unsecured claim, a Chapter 13 plan could not be confirmed unless the debtor committed all projected disposable income for a period of three years. At least that is how § 1325(b) worked before BAPCPA.14

[6]

Detailed elsewhere,15 BAPCPA rewrote the disposable income test in § 1325(b) in several remarkable ways. Many of these changes are reflected in Official Form B22C.

[7]

As amended by BAPCPA, the disposable income test in § 1325(b) now begins with the debtor’s current monthly income (CMI). Part I of Official Form B22C begins the calculation of CMI.16 With modifications recommended above,17 the Report of Income in Part I can be coaxed to produce a Statement of Current Monthly Income in Part III.

[8]

To get from CMI to disposable income under § 1325(b)(2), as amended by BAPCPA, CMI must be reduced by five amounts:18

 
income included in CMI by § 101(10A)(B) that was not “received” by the debtor;19
 

 

 
“amounts reasonably necessary to be expended—”;20
 

 

 
child support, foster care and disability payments received by the debtor to the extent reasonably necessary for a child;21
 

 

 
amounts necessary to repay a pension loan under §§ 1322(f) and 362(b)(19);22 and
 

 

 
contributions withheld and payments received by an employer for a retirement plan.23
 

 

[9]

Parts III–VI of Official Form B22C are a less than completely successful effort to translate and configure the calculation of CMI for all debtors and the deductions from CMI necessary to determine disposable income for debtors with CMI greater than applicable median family income. The most difficult component of this process is accounting for “amounts reasonably necessary to be expended—.” BAPCPA determines “amounts reasonably necessary to be expended—” under § 1325(b)(2)(A) and (B) for debtors with CMI less than applicable median family income.24 This calculation is not included on Form B22C. For debtors with CMI greater than applicable median family income, “amounts reasonably necessary to be expended—” are determined in accordance with § 707(b)(2)(A) and (B).25 This calculation is attempted on Form B22C in Parts IV–VI.

[10]

If the debtor’s CMI26 multiplied by 12 is less than the highest median family income in the applicable state for a family of the same or fewer persons than the debtor’s household, then “amounts reasonably necessary to be expended” are allowed:

(A)(i) for the maintenance or support of the debtor or a dependent of the debtor, or for a domestic support obligation, that first becomes payable after the date the petition is filed;
(ii) for charitable contributions (that meet the definition of “charitable contribution” under section 548(d)(3)[)] to a qualified religious or charitable entity or organization (as defined in section 548(d)(4)) in an amount not to exceed 15 percent of gross income of the debtor for the year in which the contributions are made; and
(B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business.27
[11]

For Chapter 13 debtors with CMI less than applicable median family income, amounts reasonably necessary to be expended that are deductible from CMI to determine disposable income must be reasonable and necessary for the maintenance or support of the debtor or a dependent of the debtor. Charitable contributions not to exceed 15 percent of gross income are included. Expenditures necessary for the continuation, preservation and operation of a business when the debtor is engaged in business are allowed. There is a deduction for any domestic support obligation that first becomes payable after the petition.28

[12]

If the debtor’s CMI multiplied by 12 is greater than the median family income for the applicable state and family size, then amounts reasonably necessary to be expended for purposes of the disposable income calculation “shall be determined in accordance with subparts (A) and (B) of section 707(b)(2).”29

[13]

The cross-reference to § 707(b)(2)(A) and (B) means that an over-median-income Chapter 13 debtor determines amounts reasonably necessary to be expended by applying the mathematical “abuse” test in § 707(b)(2)(A) and (B)—that is, the test for abuse of Chapter 7 added to the Bankruptcy Code by BAPCPA. For over-median-income Chapter 13 debtors the incorporation of § 707(b)(2)(A) and (B) requires a monumental new effort.30

[14]

Part III of Official Form B22C begins at Line 18 by carrying forward the approximation of CMI calculated at Line 11. This number is not necessarily CMI as defined in § 101(10A) because it excludes business expenses and includes all of a nonfiling spouse’s income.31 Part III now sorts Chapter 13 debtors into those with under-median-family-income CMI and those with over-median-family-income CMI. Prior to October 2006, Line 17 misdirected some Chapter 13 debtors to skip Part III of Official Form B22C based on the incorrect CMI calculation required by Parts I and II.32

[15]

It may be that some married debtors not filing jointly—who choose not to make the modifications recommended above33—will be in the pool of debtors with a five-year commitment period but true CMI less than applicable median family income. After October 2006, these debtors will reach Part III of Official Form B22C and be prompted by the “Marital Adjustment” in Line 19 to back out the portion of a nonfiling spouse’s income in Line 10, Column “B,” that should not have been included in CMI in the first place.34

[16]

Prior to October 2006, Line 19 of Official Form B22C inaccurately instructed married debtors to adjust CMI by subtracting “the amount of the income listed in Line 10, Column B that was NOT regularly contributed to the household expenses of you or your dependents.” A corrected marital adjustment appears in Line 19 in the October 2006 version of Form B22C: “Enter the amount of the income listed in Line 10, Column B that was NOT paid on a regular basis for the household expenses of you or your dependents.”

[17]

Line 20 becomes the Statement of Current Monthly Income required by Interim Rule 1007(b)(6).35 CMI is annualized at Line 21 and then compared to the same “applicable median family income” at Line 22 that was determined for applicable commitment period purposes at Line 16.36

[18]

Line 23 sorts debtors into those with CMI greater than applicable median family income and those with CMI less than applicable median family income. The under-median-income CMI group is instructed to skip Parts IV, V and VI, advancing to the end of Form B22C. Debtors with CMI greater than applicable median family income must complete Parts IV–VI.

[19]

It is in Part IV of Official Form B22C that things get really sticky. To limit access to Chapter 7 BAPCPA created an “abuse” test in § 707(b)(2) and (3) that measures a debtor’s available financial resources in part based on “standards” issued by the Internal Revenue Service.37 These standards are cross-referenced in § 707(b)(2)(A)(ii)(I) as the “National Standards and Local Standards and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides.”38 By cross-referencing § 707(b)(2)(A) and (B) in the disposable income test in § 1325(b), the incorporated IRS standards are applied to determine amounts reasonably necessary to be expended by a Chapter 13 debtor with CMI greater than applicable median family income.

[20]

But there is a really poor fit here. The National, Local and Other Necessary Expenses Standards issued by the IRS don’t translate into a recognizable mathematical statement of household expenses. These standards were created by the Treasury Department for use by IRS agents in the negotiation of offers of compromise with taxpayers. The National, Local and Other Necessary Expenses Standards were not enacted by Congress and have never been vetted by official promulgation or public comment the way real agency rules or regulations would be. They are found only in the Internal Revenue Manual. For many years, the Internal Revenue Manual was a “quasi-secret” document that was not readily available to the public. During the last decade, the Manual was released by the IRS for public consumption39 though it still has no force of law and can be changed at any moment by the IRS without engaging any formal process.

[21]

The standards are loosely constructed to approximate the expenses the IRS would consider reasonable for tax collection purposes, but there are many places in the Internal Revenue Manual where the standards are punctuated by statements of discretion that an IRS agent can exercise in individual cases. The injection of internal IRS taxpayer expense guidelines into bankruptcy law creates many layers of interpretive difficulties.40

[22]

The Advisory Committee on Bankruptcy Rules faced the impossible task of translating the National, Local and Other Necessary Expenses Standards from the IRS Manual onto a form that would permit precise calculation of “amounts reasonably necessary to be expended—” by an over-median-income Chapter 13 debtor. The results in Parts IV, V and VI of new Official Form B22C are not satisfying for many reasons.

[23]

Part IV of Official Form B22C begins the catalog of deductions from CMI allowed by § 707(b)(2)(A) and (B) to determine “amounts reasonably necessary to be expended—” for a debtor with CMI greater than applicable median family income. Line 24 is the “National Standards” that include a debtor’s allowable deductions for food, clothing, household supplies, personal care and miscellaneous. Debtors are instructed to enter the “total amount” from the IRS National Standards for the applicable family size and income level.

[24]

The heading for “clothing” in Line 24 is not accurate. The IRS National Standards uses the phrase “apparel and services.” Similarly, the heading for “household supplies” is probably meant to capture the “housekeeping supplies” included by the IRS in its National Standards.41

[25]

The parenthetical cross-reference at Line 24 to the U.S. Department of Justice Web site is troublesome. The Justice Department, of course, through its U.S. Trustee Program is a litigant in the bankruptcy courts. It is inappropriate for an Official Form issued by the Judicial Conference of the United States to embrace a presentation of evidence provided by the Department of Justice when the statute specifies that the National Standards issued by the IRS are the required reference point.42 The Department of Justice has already corrupted data produced by the IRS for use in bankruptcy cases,43 and nothing prevents the Justice Department from doing the same with respect to the National Standards referenced at Line 24.

[26]

The National Standards for allowable living expenses actually issued by the IRS are reported based on the number of persons in a taxpayer’s family broken out by various ranges of “gross monthly income.” For purposes of selecting the correct National Standards, family size is not the same as household size.44

[27]

It is not obvious where Chapter 13 debtors will get the “gross monthly income” number needed to select the correct range and amount from the IRS National Standards. Gross monthly income certainly isn’t “current monthly income” defined by the Bankruptcy Code and (mis)calculated in Parts I–III of Official Form B22C.45 Perhaps an approximation of gross monthly income can be pulled off of Schedule I to Official Form 6.46 One reported decision concludes that gross monthly income is the same as CMI for purposes of selecting an amount from the IRS National Standards because CMI is the basis for so many other bankruptcy calculations.47 The National Standards reflect tax policies, not bankruptcy. The use of CMI to select a range from the National Standards does not produce logic or congruence within the disposable income calculation.

[28]

Line 24 contemplates that a single number will be entered as the total amount allowed by the National Standards for the debtor’s family size and income level. The IRS Manual states that a taxpayer who claims more than the total allowed by the National Standards “must substantiate and justify each separate expense of the total National Standard amounts.”48 An example is given in the Manual: “A taxpayer may claim a higher food expense than allowed. Justification would be based on prescribed or required dietary needs.”49

[29]

Can a Chapter 13 debtor do the same in the answer to Line 24 on new Official Form B22C? Section 707(b)(2)(A)(ii)(I) states, “[I]f it is demonstrated that it is reasonable and necessary, the debtor’s monthly expenses may also include an additional allowance for food and clothing of up to five percent of the food and clothing categories as specified by the National Standards issued by the Internal Revenue Service.”50 Can a Chapter 13 debtor with unusual personal care needs or unusual miscellaneous expenses substantiate and justify higher expense amounts than those allowed by the National Standards? Or does § 707(b)(2)(A)(ii)(I) create a negative implication that additional allowances for nonfood items that might be allowed by the IRS are not allowed to Chapter 13 debtors? The additional food and clothing expense not to exceed 5 percent is allowed at Line 44 of new Official Form B22C with the proviso that the debtor must provide documentation demonstrating that any additional amount claimed is reasonable and necessary.

[30]

The IRS Local Standards allowed as expense deductions from CMI by § 707(b)(2)(A)(ii)(I) have two components: housing and transportation. The housing standard is established by the IRS for each county within a state. The Local Standards for housing include utilities, such as gas, electricity, water, fuel, oil, bottled gas, trash and garbage collection, wood and other fuels, septic cleaning and telephone. The housing expense amount includes mortgage or rent, property taxes, interest, parking, maintenance and repair, homeowner’s or renter’s insurance, dues and condominium fees.

[31]

Detailed elsewhere,51 the IRS has refused to issue Local Standards for Housing and Utilities that will easily incorporate into Official Form B22C for disposable income calculation purposes. Official Form B22C assumes at Lines 25A and 25B that the IRS has issued (new) Local Standards for Housing and Utilities that are divided into mortgage and non-mortgage amounts. At this writing, the Local Standards for Housing and Utilities issued by the IRS list a single amount for each family size that is not allocated among the expense items above. The forms drafters assumed the contrary with the apparent complicity of the Department of Justice.52

[32]

Line 25A of Official Form B22C instructs Chapter 13 debtors to enter “non-mortgage expenses” for the applicable county and family size from the “IRS Housing and Utilities Standards.” There is no such thing. As if confessing the point, debtors are directed to a Department of Justice/U.S. trustee Web page where the Executive Office for U.S. Trustees purports to have done what the IRS refused to do: recalculate the Local Standards to differentiate mortgage and non-mortgage components.

[33]

This is not benign sleight of hand. At Line 25B, debtors are instructed to retrieve—again from the U.S. trustee Web site, not from the IRS—the portion of the IRS Local Standards for Housing and Utilities that is allocated to “mortgage/rent” expenses. This made-up number is then netted against “any debts secured by your home.”53 The net amount (not less than zero) is the amount of the mortgage/rent portion of the Local Standards that is allowed by Official Form B22C as a deduction from CMI for disposable income purposes.

[34]

This calculation, and the web page references it uses, are fabrications by the forms drafters with help from the U.S. trustee. The choice by the forms drafters to require netting of debts secured by a home is a controversial interpretation of a sentence in § 707(b)(2)A)(ii)(I) that is sure to produce litigation in Chapter 13 cases.54 The creation of fake Local Standards for Housing and Utilities by the Department of Justice is at least disingenuous and will mislead Chapter 13 debtors with CMI greater than applicable median family income to miscalculate disposable income.

[35]

Debtors’ counsel have hard choices at Lines 25A and 25 B of Official Form B22C. To contest forfeiture of the debt or rent component of the Local Standards for Housing and Utilities, counsel should consider a departure from the instructions in Line 25B. Even if some netting of debt is appropriate,55 unless and until the IRS issues Local Standards for Housing and Utilities that reveal the portion that is mortgage or rent, the instructions to Lines 25A and 25B are based on a false premise that the Department of Justice determines the appropriate housing and utilities expenses for over-median-income Chapter 13 debtors.

[36]

Perhaps anticipating these problems with Lines 25A and 25B, Line 26 of Official Form B22C provides space for debtors to “contend” that the “process” in Lines 25A and 25B does not accurately compute the appropriate housing and utility allowances. This would also be a convenient place to assert any housing or utility expense in excess of the Local Standards actually issued by the IRS. The IRS Manual contemplates that housing and utility expenses in excess of the Local Standards can be allowed based on (a taxpayer’s) individual facts and circumstances.

[37]

The second component of the IRS Local Standards addresses transportation expenses and consists of nationwide figures for loan or lease payments referred to as “ownership costs,” and separate amounts for operating costs broken down by census region and metropolitan statistical area. Line 27 of Official Form B22C instructs the debtor to indicate the number of vehicles for which the debtor pays operating expenses and to then enter the IRS Local Standard for transportation operating costs for the number of vehicles claimed. If car expenses regularly paid by someone other than the debtor were included in income at Line 7,56 the instructions say that car should be counted for Line 27 purposes, whether owned by the debtor or not. If the debtor does not own a car, the debtor is entitled to an expense allowance equivalent to the operating costs, labeled as public transportation expense—without regard to whether the debtor actually uses public transportation. The “no car” amount is listed by region and by state within region in the allowable living expenses for transportation in the IRS Local Standards.

[38]

It is not obvious where the instructions at Line 27 came from. The Bankruptcy Code does not limit car ownership costs and operating expenses in the manner stated in the instructions. Debtors who own cars should consider claiming ownership costs and operating expenses consistent with the amounts specified by the IRS in the Local Standards without regard to whether there are actual expenses or who pays them.57

[39]

Lines 28 and 29 relate to the ownership component of the IRS Local Standards for transportation expenses. The debtor can claim ownership expenses for up to two vehicles. If the debtor does not own a car, the debtor gets no transportation ownership deduction at Lines 28 or 29 of Official Form B22C. There are separate “one car” and “two car” amounts indicated in the ownership cost portion of the IRS’s Local Standards for transportation. There is controversy whether a debtor is allowed an ownership deduction for a car that is not subject to debt or lease.58

[40]

Once again, the instructions to Lines 28 and 29 of Official Form B22C require the debtor to subtract from the IRS Local Standards for ownership of each car the “average monthly payment for any debts secured by [the car].” Unlike the housing and utilities portion of the Local Standards, the transportation portion of the Local Standards is broken out by the IRS into an ownership and an operating category. The instruction to net car debt against the Local Standards amount for car ownership implicitly adopts a controversial interpretation of § 707(b)(2)(A)(ii)(I).59 To contest this assumption, adjustments may be necessary in Lines 28 and 29 because there is no line like Line 26 at which the debtor can signal a disagreement with the form’s interpretation of the Local Standards for transportation. The average monthly payment for any debt secured by a car, even if netted out of the amounts indicated in Lines 28 and 29 of Official Form B22C, will be a deduction from current monthly income at Line 47 below.

[41]

Section 707(b)(2)(A)(ii)(I) allows deduction from CMI of the debtor’s “actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides.”60 There are 16 categories of expenses listed in the IRS Manual as Other Necessary Expenses. Curiously, in Lines 30–37, Official Form B22C lists eight categories of Other Necessary Expenses that are not co-extensive with the 16 categories listed by the IRS. Some categories are missing altogether and others are described in Official Form B22C differently than any similar category in the IRS Manual.

[42]

Line 30 instructs the debtor to enter the total average monthly expense actually incurred for all “federal, state and local taxes, other than real estate and sales taxes.” The corresponding category of Other Necessary Expenses is described by the IRS Manual as “current federal, FICA, medicare, state and local taxes.”61 There is no exclusion of real estate or sales taxes in the IRS Other Necessary Expenses. In fact, current real estate and current sales taxes are fully deductible under the IRS category. Section 707(b)(2)(A)(ii)(I) allows the debtor to deduct actual monthly expenses for the taxes specified by the IRS. The forms drafters have inappropriately excluded real estate and sales taxes from deductible Other Necessary Expenses notwithstanding the contrary statutory directive that actual expenses in the tax category are deductible.

[43]

Perhaps the forms drafters believe that the inclusion of property taxes in the Local Standards for Housing and Utilities precludes the actual expense deduction for real estate taxes allowed in the category of Other Necessary Expenses. The statute does not read that way. Section 707(b)(2)(A)(ii)(I) contains no directive that an overlapping component of the Local Standards must be netted against an actual expense allowed in a category of Other Necessary Expenses. Moreover, it is impossible to extract the real estate taxes component of the Local Standards for Housing and Utilities. Excluding actual real estate taxes from the Other Necessary Expenses category as instructed at Line 30 of Official Form B22C penalizes Chapter 13 debtors without statutory support.

[44]

There is further confusion in Official Form B22C with respect to real estate taxes. Form B22C allows a separate deduction for real estate taxes at Line 47 (discussed below) but only if required by a mortgage. Line 47 excludes real estate taxes not required by a mortgage, including real estate taxes paid by debtors who don’t have a mortgage. Those same real estate taxes are omitted at Line 30 except to the extent already included by the IRS in its Local Standards for Housing and Utilities at Line 25A or 25B.

[45]

The treatment of real estate taxes by Form B22C needs further attention. Perhaps most consistently with the statute, Line 30 should not exclude real estate taxes and no redundant expense deduction for some real estate taxes should be included at Line 47.

[46]

And why the exclusion of sales taxes from the taxes category of Other Necessary Expenses allowed by the IRS? Line 30 of Official Form B22C instructs the debtor not to include sales taxes though current state and local taxes are clearly within the taxes category of Other Necessary Expenses issued by the IRS. Once again, this exclusion in the form is not supported by the statute nor explained by any other category of deduction.

[47]

Early reported cases indicate some confusion at Line 30 with respect to income taxes. Line 30 describes a deduction for “total average monthly expense that you actually incur” for all federal and state income taxes. Of course, income taxes actually incurred may not be the same as income taxes withheld from a debtor’s paycheck. Reporting amounts withheld for income taxes at Line 30 will probably either overstate or understate the debtor’s actual tax liability. A debtor who generates a tax refund has proven that tax withholding is not the number that should be entered at Line 30.

[48]

It has been said that actual tax expense at Line 30 should be the debtor’s best estimate of taxes that will be incurred, not historical withholding.62 Put another way, a tax refund is income that should already be accounted for by the debtor in Part I of Official Form B22C; the income taxes deductible at Line 30 are supposed to reflect actual tax liability, not the amount withheld.

[49]

Line 31 of Official Form B22C instructs the debtor to enter the average monthly payroll deductions required for the debtor’s employment such as mandatory retirement contributions, union dues and uniform costs. The corresponding category of IRS Other Necessary Expenses is “involuntary deductions,” which includes out-of-pocket expenses for work shoes and other items that are a requirement for the debtor’s job. Nonmandatory deductions such as for a 401(k) plan are not included in this category.63

[50]

Don’t be distracted by the word “mandatory” at Line 31. The form renames this IRS category. The word “involuntary” in the actual category issued by the IRS could convey a different meaning than “mandatory.” For example, an employee who pays for uniforms can claim a deduction in this category according to the IRS even if the cost of uniforms is not first deducted from payroll.

[51]

At Line 32, debtors are allowed a deduction for “average monthly premiums that you actually pay for term life insurance for yourself.” There is a boldface instruction not to include “premiums for insurance on your dependents, for whole life or for any other form of insurance.” This description and instruction are more restrictive than the category “life insurance” requires. The text and instructions at Line 32 are an interpretation of the category, some of which is found in the IRS Manual.64 Given that the category is life insurance, it is not obvious that all courts will adopt the conclusion in the instruction that only term life insurance is allowed.

[52]

The boldface instruction not to include premiums for insurance on dependents will be confusing in joint Chapter 13 cases when there is insurance on both spouses. Nothing in the Bankruptcy Code prohibits a deduction for life insurance on a spouse who is a dependent. Given that there is only one column at Line 32—in contrast to all of Part I65—who is the “yourself” and the “your” in the instruction at Line 32 in a joint case? The instruction here should allow average monthly premiums actually paid for life insurance for the debtor and, in a joint case, for the debtor’s spouse.

[53]

Line 33 of Official Form B22C instructs the debtor to enter the total monthly amount the debtor is required to pay for “court-ordered payments” such as spousal or child support. The debtor is not to include “payments on past-due support,” which are accounted for at Line 49 below. The corresponding category of Other Necessary Expenses in the IRS Manual is described as court-ordered payments for alimony or child support if being paid, including support for natural or legally adopted dependents.66

[54]

The exclusion at Line 33 of past-due support included at Line 49 is confusing. Line 49 contains the total amount of “priority claims (including priority child support and alimony claims).”67 Total priority claims, divided by 60, are an allowable deduction for § 707(b) purposes and thus are fully deductible by an over-median-income Chapter 13 debtor as well.68 Priority claims include all domestic support obligations.69 As defined by BAPCPA, domestic support obligations include debt in the nature of alimony, maintenance or support “that accrues before, on or after the date of the order for relief in a case under this title, including interest that accrues on that debt.”70

[55]

There is an obvious overlap between the debtor’s actual expenses for a domestic support obligation—which would be a deduction under the court-ordered payments category of Other Necessary Expenses allowed by the IRS—and the separate statutory deduction for priority debts allowed by § 707(b)(2)(A)(iv). A priority claim for a domestic support obligation can and often will include both pre- and postpetition support obligations. It is not clear why only past-due support obligations included at Line 49 are excluded at Line 33. In other words, all “court-ordered payments” for alimony, maintenance or support are domestic support obligations that would constitute debts for purposes of the statutory deduction; the instruction to only exclude past-due support obligations is odd.

[56]

The forms drafters apparently chose to eliminate part but not all of the statutory overlap. This forces Chapter 13 debtors to mathematically divide support obligations into two deduction categories that are subject to different treatments by the form. The total monthly amount that the debtor is required to pay pursuant to a court order at Line 33 may not be the same number as the total of all priority debts divided by 60 that will be entered at Line 49. The arbitrary choice to put some of a debtor’s court-ordered payments in one category and some in another is a statutory interpretation that should best be left to the courts. Debtors’ counsel should study the issue with respect to any debtor who has significant support obligations to determine whether to put support at Line 33 or at Line 49.

[57]

Line 34 allows a deduction for the total monthly amount actually expended for education that is a condition of employment and for education required for a physically or mentally challenged dependent child for whom no public education providing similar services is available. An example given in the IRS Manual is an attorney required to accumulate education credits each year to keep a license to practice law.71

[58]

The instructions at Line 34 are a partial excerpt from the IRS Manual and are not fully inclusive of how the category “education” is described by the IRS. For example, the instruction describes “education that is a condition of employment,” but the IRS Manual includes education that would increase pay even if not a condition of employment.

[59]

The “education” category described by the IRS is only available for “the taxpayer”—exactly the words the IRS uses to describe the life insurance deduction discussed above at Line 32. Form B22C at Line 32 clearly limits the deduction for life insurance premiums to “yourself” and excludes insurance for “your dependents.” There is no similar restriction with respect to the deduction for “education” at Line 34.

[60]

What about education expenses for the debtor’s spouse or for a physically or mentally challenged child of the debtor’s spouse? Would it matter whether the spouse is also a debtor? Would it matter whether the child is also a dependent of the debtor? Once again, because there is only one column at Line 34 and because Part I is over-inclusive with respect to a spouse’s income, it is logical that Line 34 includes education expenses for a spouse and for a spouse’s physically or mentally challenged child without regard to whether the spouse is also a debtor and without regard to whether the child is also a dependent of the debtor. Otherwise, the expense deduction is under-inclusive of actual expenses within the education category of Other Necessary Expenses.

[61]

In the October 2005 version of Official Form B22C, Line 35 allowed a deduction for the average monthly amount actually expended on “childcare.” This category is more broadly described in the IRS Manual as child care, babysitting, day care, nursery and preschool.72 The October 2006 version of Form B22C expands the description at Line 35 to more nearly mimic the IRS category.

[62]

The instruction at Line 35 warns not to include payments made for children’s education. There is a separate deduction at Line 43 of Official Form B22C for certain actual education expenses, discussed below. This is another overlap in the statute that is excluded by the Official Form.

[63]

The average monthly amount that the debtor actually expends on health care that is not reimbursed by insurance or paid by a health savings account is deductible under Line 36 of Official Form B22C. Health insurance expenses are separately accounted for at Line 39 below. The corresponding health care category in the Other Necessary Expenses allowed by the IRS more expansively excludes elective surgery and elective dental expenses but says nothing about the use of a health savings account.73 The exclusion for health care “not reimbursed by insurance” is appropriate at Line 36 only if the debtor did not include at Line 7 of Part I any insurance reimbursement that may have been included in CMI by § 101(10A)(B).74

[64]

Notice Line 36 reflects that the statute limits the deduction for actual expenses for health care to expenses for the debtor or a dependent of the debtor. This is in contrast to Line 40, discussed below, which permits deduction of actual monthly expenses for the reasonable care and support of an elderly, chronically ill or disabled member of the debtor’s household or member of the debtor’s immediate family. As noted by the court in In re Haley,75 “Neither the instructions at Line 36 nor section 707 contain language extending permissible health care expenses beyond the Debtors or their dependents. . . . Congress could have made the Line 36 health care expenses applicable to the same persons included in Line 40 expenses, but it did not.”76

[65]

Line 37—the last category of Other Necessary Expenses listed on Official Form B22C—permits deduction of average monthly expenses the debtor actually pays for cell phones, pagers, call waiting, caller identification, long-distance or Internet services “necessary for the health and welfare” of the debtor or the debtor’s dependents. The instruction states the debtor is not to include any amount “previously deducted.”

[66]

Line 37 seems to be a combination of at least two categories of Other Necessary Expenses issued by the IRS, though it mirrors no existing category and contains confusing instructions. There is an IRS category for “optional telephones and telephone service” that allows expenses for cell phone, pager, call waiting, caller identification or long distance. There is an entirely separate IRS category for “Internet provider/e-mail.” The Bankruptcy Code conditions neither of these categories that the expenses must be “necessary for your health and welfare or that of your dependents”—a condition added to the instruction at Line 37. This condition comes from the IRS Manual and may or may not be the appropriate test for allowance under § 707(b)(2)(A)(ii)(I). It has been held that telecommunication expenses allowed at Line 37 include only expenses for the debtor or a dependent of the debtor and do not include, for example, cell phone service for the debtor’s father or for a non-dependent daughter.77

[67]

The boldface instruction “do not include any amount previously deducted” does not come from the statute and is problematic. Mentioned above, there is a “telephone” component to the Local Standards for Housing and Utilities that is separately allowed as an expense deduction at Line 25A. The Local Standards for Housing and Utilities as issued by the IRS do not allocate the dollar amount to telephone, mortgage or any of the other items included in the Local Standards. It is impossible for a debtor to determine the portion of the Local Standards for Housing and Utilities that is attributable to telephone expense. It is not obvious how a Chapter 13 debtor will determine the portion of telecommunication services already deducted as part of the Local Standards for Housing and Utilities to truthfully enter an amount at Line 37.

[68]

For reasons not explained anywhere on Official Form B22C or in the Committee Comments, several categories of Other Necessary Expenses allowed by the IRS are simply not listed in Official Form B22C. The IRS has the following categories of Other Necessary Expenses that are missing from Official Form B22C: (1) accounting and legal fees; (2) charitable contributions if the donation to a tax-exempt organization is a condition of employment or meets a necessary expense test; (3) for dependent care of an elderly, invalid or handicapped person; (4) secured or legally perfected debts (including debts for operation of a business); (5) unsecured debts; (6) student loans insured by the federal government and incurred for the debtor’s education; and (7) repayment of loans made for payment of federal taxes.78 There will certainly be controversy with respect to the content of these categories, but there is no controversy that these are categories of Other Necessary Expenses issued by the IRS that are omitted from Form B22C, notwithstanding that they are included by the statute.

[69]

By leaving them out of Official Form B22C, the rules drafters have materially interpreted the statute. Perhaps these missing categories will need limiting instructions, but the categories should be somewhere in Official Form B22C because they are required by the statute. Pro se debtors in particular will be unaware of these categories and unaware of their statutory rights to assert expense deductions in a category that is omitted from the form.

[70]

What should debtors’ counsel do to assert an expense deduction in an omitted category of Other Necessary Expenses? There is Line 59 of Official Form B22C, discussed below, which provides space for listing monthly expenses not already described on other lines. Unfortunately, Line 59 comes after the calculation of disposable income in the flow of Official Form B22C. Listing additional categories of expense at Line 59 won’t accomplish a reduction in CMI for disposable income purposes unless other adjustments are made to the form.

[71]

Several of the missing IRS categories of Other Necessary Expenses concern “debts”—for example, “secured or legally perfected debts,” “unsecured debts” and “repayment of loans made for payment of federal taxes.” These categories may have been omitted from Official Form B22C based on the forms drafters’ interpretation of the statutory exclusion in § 707(b)(2)(A)(ii)(I) that “the monthly expenses of the debtor shall not include any payments for debts.”79 This is a controversial interpretation that is sure to be challenged by some debtors, and Form B22C provides no convenient line at which debtors can assert expenses in omitted categories of Other Necessary Expenses. Some secured debts will come back into the calculation at Lines 47 and 48 below. Some unsecured debts will be deducted because they are also priority claims at Line 49 below. Some business expenses and rental property expenses were deducted (inappropriately) at Lines 3 or 4 in Part I of the form.80 Including some categories of Other Necessary Expenses and not others and aggressively interpreting some categories to exclude deductions that would otherwise be allowed by the IRS is hardly a neutral presentation of the statutory allowance for actual expenses in the categories of Other Necessary Expenses issued by the IRS.

[72]

Subpart B of Official Form B22C contains “Additional Expense Deductions under § 707(b).” These additional expense deductions appear in various subparagraphs and clauses of § 707(b)(2)(A), not all of which are subject to the same exclusions and limitations as the deductions discussed above under the National Standards, Local Standards and Other Necessary Expenses issued by the IRS. The instructions at the top of subpart B state “do not include any expense that you have listed in lines 24–37.” This instruction is difficult to apply and is not rooted in any provision of the statute.

[73]

In the October 2005 version of Official Form B22C, Line 39 allowed the debtor to deduct “the average monthly amounts that you actually expend” for health insurance, disability insurance and a health savings account. In contrast, § 707(b)(2)(A)(ii)(I) states that the debtor’s monthly expenses “shall include reasonably necessary health insurance, disability insurance and health savings account expenses for the debtor, the spouse of the debtor or the dependents of the debtor.”81 Line 39 was rewritten in the October 2006 version of Form B22C to state, “list and total the average monthly amounts that you actually pay for yourself, your spouse or your dependents” for health insurance, disability insurance and a health savings account. The “actually pay” condition in Line 39 of the form is not the same as the “reasonably necessary” condition in the statute. The October 2006 version expands the allowance at Line 39 to include spouses and dependents—an important improvement over the 2005 form. The deduction for a spouse’s health insurance, disability insurance or health savings account is allowed by the statute and appropriate at Line 39 without regard to whether the spouse is a joint debtor.

[74]

Line 40 of Official Form B22C is a deduction for the actual monthly expenses that the debtor will “continue to pay” for the reasonable and necessary care and support of an elderly, chronically ill or disabled member of the debtor’s household or member of the debtor’s immediate family who is unable to pay such expenses. This is a fair approximation of the deduction allowed by § 707(b)(2)(A)(ii)(II). But Line 40 then states “do not include payments listed in line 34.”

[75]

Line 34, discussed above, is the category of Other Necessary Expenses allowed by the IRS for education that is a condition of employment and education that is required for a physically or mentally challenged dependent or child. The deductions allowed by Lines 34 and 40 may overlap. Nowhere does § 707(b)(2) state that Congress intended Chapter 13 debtors to net these expenses against each other. To the contrary, § 707(b)(2)(A)(ii)(II) recites that the deduction described in Line 40 of Official Form B22C is “in addition” to the expense amounts specified under the National, Local and Other Necessary Expenses Standards categories listed above in § 707(b)(2)(A)(ii)(I).

[76]

It may seem strange to argue that Congress permitted double accounting for some expenses for the care of household or family members. As will be seen below, some of the identified additional expense deductions in § 707(b)(2)(A) contain explicit statutory instructions not to allow expenses already accounted for under the IRS standards referred to in § 707(b)(2)(A)(ii)(I). Continued contributions to the care of a household or family member are just not one of those.

[77]

Line 41 allows the deduction of average monthly expenses actually incurred to maintain the safety of the debtor’s family under the Family Violence Prevention and Services Act or other applicable law. Line 41 of Official Form B22C was modified in October 2006 to reflect that the statute requires family safety expenses “shall be kept confidential by the court.”82 It is not obvious how confidentiality will be maintained if the debtor answers Line 41 of the Official Form.

[78]

Home energy costs in excess of the allowance specified by the IRS Local Standards are allowed as an expense deduction at Line 42. The debtor must provide the Chapter 13 trustee with documentation that the additional amount claimed is reasonable and necessary.

[79]

Line 42 is strange. You already know from the discussion above that the IRS Local Standards for Housing and Utilities do not identify the amount of the allowance that is allocable to home energy costs. How would a Chapter 13 debtor calculate the amount by which actual monthly expenses for home energy costs exceed the energy allowance in the IRS Local Standards for Housing and Utilities? And how would a Chapter 13 debtor correctly calculate Line 42 and follow the introductory instruction not to include any expense listed in Lines 24–37? Perhaps more importantly, there is an alternative reading of § 707(b)(2)(A)(ii)(B) that the home energy costs documented as reasonable and necessary are allowed in addition to the amount specified by the IRS Local Standards for Housing and Utilities.83 Line 42 picks an unattractive interpretation of the statute and serves up an impossible set of instructions for debtors.

[80]

Line 43 contains the statutory deduction allowed by § 707(b)(2)(A)(ii)(IV) for actual monthly expenses for each dependent child under the age of 18, not to exceed $1,65084 per year, per child to attend public or private elementary or secondary school. This statutory deduction specifically requires the debtor to explain why such expenses “are not already accounted for in the National Standards, Local Standards or Other Necessary Expenses referred to in [§ 707(b)(2)(A)(ii)(I)].”85 This cross-reference demonstrates that Congress knew how to require the netting of an expense deduction in § 707(b)(2) against an IRS standard when it intended netting. The instructions to Official Form B22C do not respect that the statute requires netting only of certain specific expenses such as the education expenses described in Line 43 and in § 707(b)(2)(A)(ii)(IV).

[81]

Line 44 contains the statutory additional expense for food and clothing not to exceed 5 percent of the food and clothing categories specified by the National Standards issued by the IRS. The debtor must provide documentation demonstrating that the additional amount claimed is reasonable and necessary. The wording of Line 43 oddly allows the additional 5 percent with respect to “combined allowances for food and apparel in the IRS National Standards.” The National Standards for food and apparel are separately stated by the IRS in its published National Standards for Allowable Living Expenses. It is not obvious why the form wants Chapter 13 debtors to combine these expenses for purposes of the 5 percent excess calculation.

[82]

Line 45 of Official Form B22C instructs the debtor to enter the amount “that you will continue to contribute in the form of cash or financial instruments to a charitable organization.”86 The Committee Comments state that contributions to tax-exempt charities are allowed as a deduction from current monthly income up to 15 percent of gross income by § 1325(b)(2)(A)(ii) and that § 707(b)(1) provides, in considering whether a Chapter 7 filing is an abuse, the court may not take into consideration whether the debtor continues to make tax-exempt charitable contributions.87

[83]

Detailed elsewhere,88 between October 17, 2005, and December 20, 2006, the charitable deduction in § 1325(b)(2)(A)(ii) did not apply to a Chapter 13 debtor with CMI greater than applicable median family income89—the only debtor that would be answering question 45 on Official Form B22C. Section 707(b)(1) applies in a Chapter 7 case but has no application to determine amounts reasonably necessary to be expended by a Chapter 13 debtor with CMI greater than applicable median family income under § 1325(b)(3).90

[84]

There was no statutory foundation for the deduction of charitable contributions—“continued” or otherwise—provided at Line 45 of Official Form B22C until the Religious Liberty and Charitable Donation Clarification Act of 200691 became law on December 20, 2006. Ironically, the 2006 legislation validated Line 45 of Official Form B22C but not exactly in the form of Line 45.

[85]

Section 1325(b)(2)(A)(ii) describes an expense deduction for “charitable contributions . . . to a qualified religious or charitable entity or organization . . . in an amount not to exceed 15 percent of gross income of the debtor for the year in which the contributions are made.”92 This charitable deduction is allowed for Chapter 13 debtors with CMI greater than applicable median family income filing cases after December 20, 2006.93 This deduction was always allowed as part of “amounts reasonably necessary to be expended—” for a Chapter 13 debtor with CMI less than applicable median family income.94

[86]

There is no mention in § 1325(b)(2)(A)(ii) of “continued charitable contributions” that the debtor “will continue to contribute in the form of cash or financial instruments”—the wording at Line 45 of Official Form B22C. There is mention of “continued” charitable contributions in § 707(b)(1)—a section which has no application in any Chapter 13 case. It is not clear why Line 45 of Form B22C provided a charitable contribution for Chapter 13 debtors with CMI greater than applicable median family income prior to December 20, 2006; Line 45 does not accurately describe the charitable contribution that is now allowed Chapter 13 debtors with CMI greater than applicable median family income in cases filed after December 20, 2006. At Line 45, debtors should deduct charitable contributions not to exceed 15 percent of gross income without regard to whether those contributions are “continued,” so long as the other conditions in § 1325(b)(2)(A)(ii) are satisfied. The December 2007 version of Form B22C corrects the wording of Line 45.

[87]

Line 46 instructs the debtor to total the entries made in Lines 39–45, and this total will be carried to Line 52 below.

[88]

Subpart C of Official Form B22C is where secured debt payments come back into the disposable income calculation for a Chapter 13 debtor with CMI greater than applicable median family income. Section 707(b)(2)(A)(iii) states that the calculation of average monthly payments on account of secured debts shall be based on “all amounts scheduled as contractually due to secured creditors in each month or the 60 months following the date of the petition.”95 The instruction at Line 47 misstates the statute as “the total of all amounts contractually due to each secured creditor in the 60 months following the filing of the bankruptcy case, divided by 60.”

[89]

The important word “scheduled” is omitted from the instructions at Line 47. Interpreting that word could determine whether the secured debt expense amount is based on secured debts listed in the schedules or based on secured claims that will be paid through the plan. This difference is material, for example, when collateral is surrendered, sold or paid for by a third party through the Chapter 13 plan. This issue has already emerged in reported decisions, and the courts are split with respect to whether the appropriate deduction is based on “scheduled” debt at the petition or on secured debt that will actually be paid through the Chapter 13 plan.96

[90]

In contrast to the instruction at Line 30, debtors with mortgages are instructed at Line 47 to include taxes (and insurance) “required by the mortgage.” The limitation that only taxes and insurance required by a mortgage are deductible at Line 47 is not logical given the exclusion of real estate taxes from the category of Other Necessary Expenses for taxes at Line 30. Rural Chapter 13 debtors in particular pay their own real estate taxes directly to the taxing authority, and those taxes are not “included” in the amortization schedules that will be consulted by debtors to fill in the boxes at Line 47. A debtor with no mortgage who pays real estate taxes is denied a deduction altogether. This is just a glitch in the form that counsel should correct. The December 2007 version of Form B22C uses check boxes at Line 47 to indicate whether taxes and insurance are included.

[91]

There is no instruction at Line 47 to exclude taxes or insurance that is already included in the Local Standards for Housing and Utilities reported at Lines 25A, 25B and 26. In other words, despite the corruption of the IRS Local Standards elsewhere in Form B22C—for example, by breaking out “mortgage” and “non-mortgage” debt in a manner that is not issued by the IRS—there is no adjustment for taxes and insurance that Form B22C instructs debtors to separately deduct at Line 47 notwithstanding that those taxes and insurance are already included by the IRS in the Local Standard amount. Ironically, Line 47 is more neutral with respect to real estate taxes and insurance, but this neutrality at Line 47 is inconsistent with the lack of neutrality at Lines 25A and 25B.

[92]

The October 2005 version of Form B22C instructed at Line 48 that if any of the debts listed in Line 47 “are in default” and if the property securing that debt is “necessary for your support or for the support of your dependents,” the debtor could deduct 1/60th of the amount that must be paid to the creditor “as a result of the default” in order to maintain possession of the property. The statutory deduction that Line 48 was intended to implement reads as follows:

(iii) The debtor’s average monthly payments on account of secured debts shall [include]—
(II) any additional payments to secured creditors necessary for the debtor, in filing a plan under chapter 13 of this title, to maintain possession of the debtor’s primary residence, motor vehicle, or other property necessary for the support of the debtor and the debtor’s dependents, that serves as collateral as for secured debts; divided by 60.97
[93]

Line 48 was rewritten in October 2006 to eliminate the requirement that a secured debt be “in default” and the deduction now extends more broadly to any “cure amount”—reflecting better the statutory deduction allowed by § 707(b)(2)(A)(iii)(II). A “cure amount” that debtors sometimes forget to include at Line 48 is a creditor’s attorney’s fees, foreclosure expenses and the like. Without regard to whether a secured claim is in default, the expenses of litigating with a secured creditor before and during the Chapter 13 case are an allowable expense deduction at Line 48.

[94]

Line 49 instructs the debtor to enter the total amount of priority claims, “including priority child support and alimony claims,” divided by 60. As mentioned above, Line 33 overlaps Line 49 because the Other Necessary Expense category allowed by the IRS for court-ordered payments would include priority claims for domestic support obligations. “Past-due support obligations” are excluded by the instructions at Line 33. Domestic support obligations—whether past due or not—are priority claims under § 507(a)(1) that should be deductible at Line 49. Keep in mind that the new first priority for domestic support obligations is broader than just child support and alimony.98

[95]

There is another overlap between Line 49 and Line 30 that is not acknowledged in the instructions at either line. The category of Other Necessary Expenses issued by the IRS for “taxes” addressed at Line 30 includes taxes that would be priority claims for purposes of Line 49. The form is silent about this overlap.

[96]

Missing altogether at Line 49 is an instruction to include the debtor’s attorney’s fees. There is an unfortunate Comment by the forms drafters that “the Chapter 13 form does not provide a deduction from disposable income for the Chapter 13 debtor’s anticipated attorney fees. There is no specific statutory allowance for such a deduction and none appears necessary.”99 This is odd and not consistent with the statute. The statutory platform for Line 49 is § 707(b)(2)(A)(iv), which states that current monthly income is reduced by “the debtor’s expenses for payment of all priority claims . . . calculated as the total amount of debts entitled to priority, divided by 60.” A Chapter 13 debtor’s reasonable attorney fees are an expense of administration entitled to priority in a Chapter 13 case.100 Disposable income for an over-median-income Chapter 13 debtor should be reduced by priority attorney’s fees at Line 49.

[97]

Line 50 of Official Form B22C incompletely implements § 707(b)(2)(A)(ii)(III), which allows Chapter 13 debtors a monthly expense for the “actual administrative expenses for administering a chapter 13 plan for the district . . . up to an amount of 10 percent of the projected plan payments, as determined under schedules issued by the Executive Office for the United States Trustees.”101 The U.S. trustee has issued the necessary schedule on its Web site.102 The debtor must supply the projected average monthly Chapter 13 plan payment to be multiplied by the amount shown on the schedule. The average monthly administrative expenses are then entered as a deduction at Line 50.

[98]

Official Form B22C gives no clue how the debtor should determine “projected average monthly Chapter 13 plan payment” for purposes of Line 50. There may or may not be a plan filed at the time Official Form B22C is filed. That plan, if filed, is likely to contain contingencies that make the monthly plan payment a moving target. Line 50 will require some guesswork in many Chapter 13 cases.

[99]

Notice also that the concept of “administrative expenses” in Line 50 does not seem to include attorney fees or other amounts that might qualify as administrative expenses for purposes of § 503(b). Section 707(b)(2)(A)(ii)(III) should not be read as an implicit limitation on other administrative expenses, and debtors are well within the statute to more broadly deduct administrative expenses at Line 50, up to the 10 percent maximum.

[100]

Subpart D at Line 52 purports to total all deductions “allowed under § 707(b)(2).” This total comes prematurely and is not accurate. There is a fundamental deficiency here in Official Form B22C with respect to § 707(b)(2)(B). For a Chapter 13 debtor with CMI greater than applicable median family income, § 1325(b)(3) states that amounts “reasonably necessary to be expended—” shall be determined “in accordance with subparagraphs (A) and (B) of section 707(b)(2).”103 Subparagraph (B) of § 707(b)(2) provides:

In any proceeding brought under this subsection, the presumption of abuse may only be rebutted by demonstrating special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that [sic] justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative.104
[101]

A Chapter 13 debtor with CMI greater than applicable median family income can assert “special circumstances” that justify “additional expenses or adjustments of current monthly income for which there is no reasonable alternative.” Additional expenses arising from special circumstances should be deducted from CMI at or before Line 52. Unfortunately, there’s no room or designated place for any such deduction.

[102]

Discussed below, at Line 59 “additional expense claims” can be listed by the debtor. But the instructions at Line 59 do not reflect the “special circumstances” expense deduction allowed by § 707(b)(2)(B) and Line 59 comes too late in the flow of Form B22C to be used by the debtor to reduce CMI on the way to disposable income. A Chapter 13 debtor with “special circumstances” should consider altering Line 52 to describe additional expenses that are not adequately accounted for elsewhere in Form B22C. A special circumstances fix at Line 52 won’t address the question whether a special circumstances adjustment of CMI—consistent with § 707(b)(2)(B)—should occur in Part I of Form B22C, before CMI is used to calculate applicable commitment period.105

[103]

After totaling the expenses allowed above, Part V of Official Form B22C instructs the debtor to perform a calculation in Lines 53–58 intended to determine disposable income under § 1325(b)(2). The calculation begins in Line 53 with current monthly income from Line 20. Recall that CMI as calculated in Parts I–III of Official Form B22C requires adjustments to align with the definition in § 101(10A).106 Even if the modifications recommended above are made, the cross-reference at Line 53 to Line 20 picks up a calculation of CMI that will not be accurate for any debtor who has a special circumstances adjustment, unless that adjustment is made at or before Line 52.

[104]

Section 1325(b)(2) states that disposable income means CMI “other than child support payments, foster care payments, or disability payments for a dependent child . . . to the extent reasonably necessary to be expended for such child.”107 Line 54 of Official Form B22C adjusts CMI downward by the monthly average of support or disability payments that was included at Line 7. Line 7 of Official Form B22C includes in CMI “any amounts paid by another person or entity on a regular basis for the household expenses of the debtor or the debtor’s dependents, including child or spousal support.”108 The instructions at Line 7 link § 101(10A)(A) and (B) in a manner not required by the statute.109 The cross-reference to Line 7 at Line 54 would not allow the debtor to deduct support income that is excluded by § 1325(b)(2) but that does not fall within § 101(10A)(B). Examples would be child support that isn’t paid on a regular basis and support received by the debtor that is reasonably necessary to be expended for a child but not for a “household expense.” Debtors should consider filling out Line 54 as if there is no cross-reference to Line 7.

[105]

Line 55 adjusts CMI further downward for contributions withheld or payments received by qualified retirement plans and repayments of retirement loans excluded from disposable income by §§ 541(b)(7) and 1322(f).110 Contributions withheld or payments received by qualified retirement plans that are excluded from disposable income are technically described in § 541(b)(7). The amount must be “withheld” from wages or “received” by an employer, and the retirement plan must qualify under an appropriate section of the Internal Revenue Code.111

[106]

The retirement loans that qualify for the deduction in Line 55 are described as an exception to the automatic stay in § 362(b)(19).112 Qualified pension loans may not be materially altered by the terms of the Chapter 13 plan under § 1322(f).113

[107]

The instructions at Line 55 of the October 2006 version of Form B22C need some tweaking. Pension loan repayments specified in § 362(b)(19) may not be “materially altered” and do not constitute “disposable income” under § 1322(f).114 The instructions at Line 55 tell the debtor to “enter the monthly average” of all pension loan repayments. Requiring a “monthly average” at Line 55 distorts the disposable income calculation for any Chapter 13 debtor with CMI greater than applicable median family income who has a pension loan that will be repaid according to its terms in less than 60 months. A debtor with a pension loan repayment of $500 per month must be allowed a $500-per-month deduction from CMI to calculate disposable income without regard to whether a “monthly average” would produce a lesser amount over the life of the plan. Otherwise, Form B22C will require some debtors to “materially alter” the pension loan repayment terms in order to satisfy other conditions for confirmation. Courts have already recognized that Line 55 inappropriately prompts debtors to average the amounts required to repay a pension loan rather than to simply enter the actual amount.115 The December 2007 version of Form B22C eliminates the “monthly average” language at Line 55.

[108]

There is an exclusion from CMI missing at Lines 54 and 55 that some debtors will need to add. Detailed elsewhere,116 to get from CMI to disposable income under § 1325(b), there are five categories of exclusions and expenses that reduce CMI. One of these statutory exclusions is that only CMI “received” by the debtor is counted toward disposable income.117 CMI under § 101(10A)(A) includes all income received by the debtor (and the debtor’s spouse in a joint case); and, under § 101(10A)(B), CMI includes amounts paid by others on a regular basis for the household expenses of the debtor and the debtor’s dependents—without regard to whether those amounts are received by the debtor (or the debtor’s spouse in a joint case).118

[109]

At some point, all Chapter 13 debtors must adjust CMI downward by amounts captured by § 101(10A)(A) and (B) that are not received by the debtor or, in a joint case, not received by the debtor or by the debtor’s spouse.119 The “marital adjustment” at Lines 13 and 19—even if elected by all married debtors—won’t do the trick,120 and there is no line anywhere else in Official Form B22C that does. Adding this exclusion in Part V would be reasonable.

[110]

Lines 56–58 then instruct the debtor to total all of the deductions from current monthly income allowed above in Official Form B22C to produce monthly disposable income entered at Line 58. Don’t forget that Line 59 provides space for additional expenses required for the health and welfare of the debtor or the debtor’s family. As mentioned above, there are several categories of Other Necessary Expenses allowed by the IRS that are not covered by specific lines in Official Form B22C, and there are the “special circumstances” additional expenses or adjustments to current monthly income allowed by § 707(b)(2)(B). Line 59 is not a perfect place for these missing expense deductions because Line 59 falls after the actual calculation of monthly disposable income in Line 58. Listing additional expenses at Line 59 signals that the debtor claims additional deductions, but doing so does not accomplish an accurate mathematical computation of disposable income.

[111]

The “additional expense claims” or “other expenses” at Line 59 are curiously worded. The “health and welfare” condition stated in the instructions at Line 59 comes from the IRS Manual. There is no “health and welfare” condition in the Bankruptcy Code. Section 707(b)(2)(B) permits additional expenses based more broadly on “special circumstances.”

[112]

The debtor should sign the verification at Line 60. Declaring under penalty of perjury that all the information provided in Form B22C is true and correct is a tall undertaking given all of the uncertainties in this form. Not a signature to be taken lightly.

[113]

Official Form B22C is a work in progress that is destined to produce much controversy in Chapter 13 cases. Some of the controversy is understandable. Importing the abuse test from § 707(b) into the calculation of disposable income for over-median-income Chapter 13 debtors is a fundamentally flawed enterprise. The incorporation of IRS standards into § 707(b)(2)(A)(ii) with additional deductions hung like ornaments in subsections and subclauses won’t translate into a completely coherent form.

[114]

But some of the controversial aspects of Official Form B22C are the work of the forms drafters. The new form does not accurately implement BAPCPA, and it needs modification to serve its intended functions in Chapter 13 cases. This settles a difficult burden on debtors’ attorneys to vary from Official Form B22C when necessary to implement the statute more accurately.

[115]

Please be careful to find the most recent version of Form B22C. At this writing, the October 2006 version is in effect but a December 2007 version has just been published.

[116]

It deserves repeating that Chapter 13 debtors with CMI less than applicable median family income complete Parts I–III of Official Form B22C but do not use Form B22C to calculate disposable income. This has proven to be confusing for debtors and courts during the early implementation of BAPCPA. Although the statute is clear that CMI is the income side of the disposable income test for all Chapter 13 debtors, some courts have defaulted to the “Current Income” Statement on Schedule I to Official Form 6 and then used Schedules I and J to determine disposable income for Chapter 13 debtors with CMI less than applicable median family income.121 Because Chapter 13 debtors with CMI less than applicable median family income are instructed not to complete the expense deductions in Parts IV–VI of Official Form B22C, it makes some sense that debtors and courts will look to “current expenditures” in Schedule J to Official Form 6 to determine “amounts reasonably necessary to be expended—” for a Chapter 13 debtor with CMI less than applicable median family income.122 However, Schedule I is not a statement of current monthly income consistent with § 101(10A). Parts I–III of Official Form B22C (October 2006 version) are the only source for the CMI calculation for all Chapter 13 debtors. Schedule I has other purposes in a Chapter 13 case. For example, current income may be relevant to the feasibility test in § 1325(a)(6).123 But calculating disposable income after BAPCPA is not one of those uses. Schedule J remains relevant to the expense side of the disposable income calculation for a debtor with CMI less than applicable median family income, but neither Schedule I nor J is material to the disposable income test for a Chapter 13 debtor with CMI greater than applicable median family income.124

[117]

Even for Chapter 13 debtors with CMI greater than applicable median family income, it cannot be said that the early reported decisions have fully embraced Official Form B22C as the calculation of disposable income for § 1325(b) purposes. Although much fault has to be assigned to BAPCPA, and perhaps Form B22C is just the messenger, many courts have quickly concluded that Form B22C is only the “starting point” to calculate projected disposable income for a debtor with CMI greater than applicable median family income.125


 

1  Parts I and II of Official Form B22C are discussed in §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation.

 

2  See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

3  See below in this section, and see § 469.1 [ Comparison of CMI to Applicable Median Family Income: § 1325(b)(3) ] § 92.4  Household Size and Comparison of CMI to Median Family Income: § 1325(b)(3).

 

4  See below in this section, and see § 470.1 [ Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Applicable Median Family Income ] § 93.1  Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Median Family Income.

 

5  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

6  Interim Bankr. R. 1007(b)(6).

 

7  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

8  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

9  See 11 U.S.C. § 1325(b)(4), discussed in §§ 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation and 493.1 [ Applicable Commitment Period Calculation ] § 100.1  Applicable Commitment Period Calculation.

 

10  See § 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation.

 

11  See 11 U.S.C. § 1325(b)(4), discussed in §§ 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation and 493.1 [ Applicable Commitment Period Calculation ] § 100.1  Applicable Commitment Period Calculation.

 

12  See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income, 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation, 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline and 493.1 [ Applicable Commitment Period Calculation ] § 100.1  Applicable Commitment Period Calculation.

 

13  See §§ 163.1 [ In General ] § 91.1  In General168.1 [ Payment-in-Full Option ] § 91.7  Payment-in-Full Option.

 

14  See § 163.1 [ In General ] § 91.1  In General.

 

15  See §§ 466.1 [ In General ] § 92.1  In General494.1 [ Projected Disposable Income ] § 101.1  What Do Unsecured Creditors Get?.

 

16  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

17  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

18  These reductions and exclusions from CMI on the way to disposable income are discussed in detail in §§ 466.1 [ In General ] § 92.1  In General492.1 [ Employee Benefit Plan Contributions ] § 99.5  Employee Benefit Plan Contributions.

 

19  See § 489.1 [ Amounts Paid by Others under § 101(10A)(B) ] § 99.2  Amounts Paid by Others under § 101(10A)(B).

 

20  See below in this section and §§ 470.1 [ Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Applicable Median Family Income ] § 93.1  Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Median Family Income487.1 [ Additional Expenses or Adjustments to CMI ] § 98.1  Additional Expenses or Adjustments to CMI.

 

21  See 11 U.S.C. § 1325(b)(2), discussed in § 490.1 [ Child Support, Foster Care and Disability Payments ] § 99.3  Child Support, Foster Care and Disability Payments. See Line 54 of Official Form B22C, discussed below in this section.

 

22  See 11 U.S.C. §§ 1322(f) and 362(b)(19), discussed in §§ 433.1 [ When Does § 362(c)(4) Apply? ] § 61.1  When Does § 362(c)(4) Apply? and 491.1 [ Pension Loan Repayments ] § 99.4  Pension Loan Repayments.

 

23  See 11 U.S.C. § 541(b)(7), discussed in §§ 403.1 [ Property of the Chapter 13 Estate—New Ins and Outs ] § 46.2  Property of the Chapter 13 Estate—Changes by BAPCPA and 492.1 [ Employee Benefit Plan Contributions ] § 99.5  Employee Benefit Plan Contributions.

 

24  See 11 U.S.C. § 1325(b)(2)(A) and (B), discussed below in this section and in § 470.1 [ Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Applicable Median Family Income ] § 93.1  Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Median Family Income.

 

25  See 11 U.S.C. § 707(b)(2)(A) and (B), discussed below in this section and in §§ 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues487.1 [ Additional Expenses or Adjustments to CMI ] § 98.1  Additional Expenses or Adjustments to CMI.

 

26  See 11 U.S.C. § 101(10A), discussed in §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

27  11 U.S.C. § 1325(b)(2)(B), discussed in § 470.1 [ Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Applicable Median Family Income ] § 93.1  Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Median Family Income.

 

28  11 U.S.C. §§ 101(14A) and 1325(b)(2)(A)(i), discussed in § 470.1 [ Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Applicable Median Family Income ] § 93.1  Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Median Family Income.

 

29  11 U.S.C. § 1325(b)(3), discussed in § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

30  This effort is detailed below in this section and in §§ 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues492.1 [ Employee Benefit Plan Contributions ] § 99.5  Employee Benefit Plan Contributions.

 

31  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

32  See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation.

 

33  See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation.

 

34  See § 473.1 [ Accounting for Spouses ] § 94.3  Accounting for Spouses.

 

35  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

36  See § 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation for further discussion of how to select the correct median family income.

 

37  See 11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 474.1 [ In General ] § 95.1  In General.

 

38  11 U.S.C. § 707(b)(2)(A)(ii)(I).

 

39  See Announcement 95-37, 1997-35 I.R.B. 9 (1997).

 

40  See §§ 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues487.1 [ Additional Expenses or Adjustments to CMI ] § 98.1  Additional Expenses or Adjustments to CMI.

 

41  The December 2007 version of Form B22C changes the words in Line 24.

 

42  See 11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 475.1 [ National Standards ] § 95.2  National Standards.

 

43  See below in this section, and see § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

44  See § 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation.

 

45  See 11 U.S.C. § 101(10A), discussed in §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

46  See § 35.10 [ Schedules I and J—Income and Expenditures ] § 36.16  Schedules I and J—Income and Expenditures.

 

47  See In re Casey, 356 B.R. 519 (Bankr. E.D. Wash. 2006), discussed further in § 475.1 [ National Standards ] § 95.2  National Standards.

 

48  I.R.M. 5.15.1.8 (May 1, 2004); I.R.M. 5.19.1.4.3.1 (Dec. 15, 2002).

 

49  I.R.M. 5.15.1.8 (May 1, 2004); I.R.M. 5.19.1.4.3.1 (Dec. 15, 2002).

 

50  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 480.1 [ Five Percent More Food and Clothing ] § 95.23  Five Percent More Food and Clothing. See also discussion of Line 44 below in this section.

 

51  See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

52  See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

53  See Line 47, discussed below in this section.

 

54  See 11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

55  See § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

56  See Line 7 of Official Form B22C, discussed in § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

57  See further discussion in § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

58  See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

59  See § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

60  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

61  I.R.M. 5.15.1.10 (May 1, 2004).

 

62  In re Balcerowski, 353 B.R. 581 (Bankr. E.D. Wis. 2006). See Baxter v. Johnson (In re Johnson), 346 B.R. 256, 269 (Bankr. S.D. Ga. 2006) (Because tax refunds are treated as an expense in a category of Other Necessary Expenses for Chapter 13 debtors with CMI greater than applicable median family income, the CMI calculation in Form B22C must be based on gross income and a tax refund is not included. “Form B22C . . . requires that the Debtors enter their gross income. Form B22C (lines ##1–3) inputs gross receipts, without any deductions for taxes . . . . Were the previous year’s tax refunds included as gross income, then ‘disposable income’ would be inaccurately skewed. This is because gross income is itself taxed and refunded. Including both would create a double accounting problem . . . . Debtors must amend their B22C Forms and attach appropriate documentation demonstrating that their [Other Necessary Expense] deductions for taxes are actual, necessary and reasonable. Per the instructions on Form B22C (line #30), they must submit their actual (average monthly) expenses for all federal, state, and local income taxes, self-employment taxes, social security taxes, and Medicare taxes . . . . To the extent that the Debtors would be entitled to a state or federal refund of the income taxes budgeted, the deduction is not the actual monthly tax liability. It is not therefore actual, necessary, or reasonable.”); In re Risher, 344 B.R. 833, 836–37 (Bankr. W.D. Ky. 2006) (“[Q]uestion 30 on Form B22C . . . references a deduction for the federal, state and local taxes actually paid. . . . [T]axes actually paid are not equivalent to what is withheld from a debtor’s paycheck for taxes. Tax refunds represent amounts overwithheld and thus, constitute additional income. Debtors’ argument that the taxes are already captured in the disposable income calculations is misplaced.”).

 

63  Some retirement deductions are allowed at Line 55 of Official Form B22C, discussed below in this section. See also § 492.1 [ Employee Benefit Plan Contributions ] § 99.5  Employee Benefit Plan Contributions.

 

64  See I.R.M. 5.15.1.10 (May 1, 2004).

 

65  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

66  I.R.M. 5.15.1.10 (May 1, 2004).

 

67  See discussion of Line 49 below.

 

68  See 11 U.S.C. § 707(b)(2)(A)(iv), discussed more fully in § 486.1 [ Total Priority Debts and Divide by 60 ] § 97.1  Total Priority Debts and Divide by 60.

 

69  See 11 U.S.C. § 507(a)(1)(A), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA and 486.1 [ Total Priority Debts and Divide by 60 ] § 97.1  Total Priority Debts and Divide by 60.

 

70  11 U.S.C. § 101(14A), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA and 552.1 [ Domestic Support Obligations: § 523(a)(5) ] § 159.5  Domestic Support Obligations: § 523(a)(5).

 

71  I.R.M. 5.15.1.10 (May 1, 2004).

 

72  I.R.M. 5.15.1.10 (May 1, 2004).

 

73  I.R.M. 5.15.1.10 (May 1, 2004).

 

74  See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

75  354 B.R. 340 (Bankr. D.N.H. 2006).

 

76  354 B.R. at 344–45.

 

77  354 B.R. 340.

 

78  See I.R.M. 5.15.1.10 (May 1, 2004).

 

79  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

80  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

81  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 478.1 [ Health and Disability Insurance ] § 95.21  Health and Disability Insurance.

 

82  11 U.S.C. § 707(b)(2)(A)(ii)(I).

 

83  See 11 U.S.C. § 707(b)(2)(A)(ii)(V), discussed in § 484.1 [ Home Energy Costs ] § 95.27  Home Energy Costs.

 

84  Prior to adjustment on April 2007, this amount was $1,500 per year, per child.

 

85  11 U.S.C. § 707(b)(2)(A)(ii)(IV).

 

86  The wording of Line 45 will be changed by the December 2007 version of Form B22C.

 

87  Committee Notes, Official Form 22, at 4.

 

88  See § 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

89  See, e.g., In re Meyer, 355 B.R. 837, 843 n.6 (Bankr. D.N.M. 2006) (Line 45 of Form B22C incorrectly permits debtor with CMI greater than applicable median family income to take a charitable deduction. “That line 45 of Form B22C is labeled ‘Continued Charitable Deductions’ and is to be filled out by an above-median debtor cannot be used to change the language or the meaning of the statute. ‘The forms shall be construed to be consistent with these rules and the Code.’ F.R.B.P. 9009. . . . [O]ne looks to the statute to determine what the law is, and then interprets the form in light of the statute’s dictate.”); In re Diagostino, 347 B.R. 116 (Bankr. N.D.N.Y. 2006) (Charitable contributions are not allowable “Other Necessary Expense” for debtor with CMI greater than applicable median family income.).

 

90  See § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

91  Pub. L. No. 109-439, 120 Stat. 3285 (Dec. 20, 2006).

 

92  11 U.S.C. § 1325(b)(2)(A)(ii).

 

93  See § 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

94  See 11 U.S.C. § 1325(b)(2)(A)(ii), discussed in § 470.1 [ Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Applicable Median Family Income ] § 93.1  Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Median Family Income.

 

95  11 U.S.C. § 707(b)(2)(A)(iii) (emphasis added), discussed in § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

96  See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts. See, e.g., In re Crittendon, No. 06-10322 C-13G, 2006 WL 2547102 (Bankr. M.D.N.C. Sept. 1, 2006) (The negative disposable income showing at Line 58 of Form B22C is incorrect when debtors sell property subject to mortgages after the petition and plan surrenders a horse trailer and boat that are collateral for secured debts.); In re Oliver, No. 06-30076RLD13, 2006 WL 2086691 (Bankr. D. Or. June 29, 2006) (unpublished) (For purposes of line 47 of Official Form B22C, average payments on secured debts include payments that will not be made under the Chapter 13 plan because collateral will be surrendered or a lien will be avoided under § 522(f).); In re Gress, 344 B.R. 919, 921 (Bankr. W.D. Mo. 2006) (“[D]ebtors under the means test are also given a deduction for secured debt, in the average amount due on such debt in each of the sixty months after the case is filed. For purposes of Form B22C, because those expenses are based on the circumstances existing at the time the petition is filed, this deduction is allowed regardless of whether the debtor intends to retain such property.”).

 

97  11 U.S.C. § 707(b)(2)(A)(iii).

 

98  See 11 U.S.C. § 101(14A), discussed in § 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA.

 

99  Committee Comments, Official Form 22, at 7–8.

 

100  See 11 U.S.C. §§ 329, 330, 503(b)(2) and 507(a)(2), discussed in §§ 99.1 [ What Claims Are Priority Claims? ] § 73.2  What Claims Are Priority Claims?, 100.4 [ Special Provisions for Attorneys’ Fees ] § 73.8  Special Provisions for Attorneys’ Fees and 294.1 [ Debtors’ Attorneys’ Fees ] § 136.6  Debtors’ Attorneys’ Fees before BAPCPA.

 

101  11 U.S.C. § 707(b)(2)(A)(ii)(III).

 

102  www.usdoj.gov/ust/.

 

103  11 U.S.C. § 1325(b)(3) (emphasis added), discussed in §§ 469.1 [ Comparison of CMI to Applicable Median Family Income: § 1325(b)(3) ] § 92.4  Household Size and Comparison of CMI to Median Family Income: § 1325(b)(3) and 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

104  11 U.S.C. § 707(b)(2)(B)(i).

 

105  See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation.

 

106  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

107  11 U.S.C. § 1325(b)(2), discussed in § 490.1 [ Child Support, Foster Care and Disability Payments ] § 99.3  Child Support, Foster Care and Disability Payments.

 

108  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

109  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

110  11 U.S.C. § 541(b)(7) is discussed in § 492.1; 11 U.S.C. § 1322(f) is discussed in § 491.1 [ Pension Loan Repayments ] § 99.4  Pension Loan Repayments. See also 11 U.S.C. § 362(b)(19), discussed in § 433.1 [ When Does § 362(c)(4) Apply? ] § 61.1  When Does § 362(c)(4) Apply?.

 

111  See 11 U.S.C. § 541(b)(7)(A).

 

112  See 11 U.S.C. § 362(b)(19), discussed in § 433.1 [ When Does § 362(c)(4) Apply? ] § 61.1  When Does § 362(c)(4) Apply?.

 

113  11 U.S.C. § 1322(f), discussed in § 491.1 [ Pension Loan Repayments ] § 99.4  Pension Loan Repayments.

 

114  See 11 U.S.C. §§ 362(b)(19) and 1322(f), discussed in § 491.1 [ Pension Loan Repayments ] § 99.4  Pension Loan Repayments.

 

115  See In re Haley, 354 B.R. 340 (Bankr. D.N.H. 2006) (Line 55 incorrectly instructs debtors to “average” amounts required to repay a pension loan rather than enter actual amount.); In re Wiggs, No. 06 B 70203, 2006 WL 2246432, at *3 (Bankr. N.D. Ill. Aug. 4, 2006) (unpublished) (Although Line 55 of Official Form B22C instructs the debtor to enter the “monthly average” of contributions to or wage deductions from retirement plans and repayment of loans from retirement plans, BAPCPA allows debtor with CMI greater than applicable median family income to deduct actual monthly loan repayment to a pension plan. “Section 541(b)(7)(A) and (B) provides that contributions for employee benefit plans, deferred compensation plan and tax-deferred annuities ‘shall not constitute disposable income, as defined in section 1325(b)(2).’ In addition, § 1322(f) prohibits the material alteration of terms of a loan described in § 362(b)(19) . . . . These sections read together would prohibit the material alteration of the actual loan amount payment in the Chapter 13 plan. . . . This would seem to suggest, in most cases, the deduction of the actual monthly loan payment amount, rather than an average.”).

 

116  See above in this section, and see § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

117  See 11 U.S.C. § 1325(b)(2), discussed in § 489.1 [ Amounts Paid by Others under § 101(10A)(B) ] § 99.2  Amounts Paid by Others under § 101(10A)(B).

 

118  See 11 U.S.C. § 101(10A)(A) and (B), discussed in §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income, 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline and 489.1 [ Amounts Paid by Others under § 101(10A)(B) ] § 99.2  Amounts Paid by Others under § 101(10A)(B).

 

119  This assumes that in a joint case, “debtor” in 11 U.S.C. § 1325(b)(2) includes “debtor’s spouse” or that the debtor’s spouse is also a “debtor” in a joint case. See § 473.1 [ Accounting for Spouses ] § 94.3  Accounting for Spouses.

 

120  See above in this section, and see §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation.

 

121  See §§ 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors, 470.1 [ Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Applicable Median Family Income ] § 93.1  Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Median Family Income and 488.1 [ In General ] § 99.1  In General492.1 [ Employee Benefit Plan Contributions ] § 99.5  Employee Benefit Plan Contributions. See, e.g., In re Nevitt, Nos. 05-77798, 05-77943, 2006 WL 2433491, at *2–*3 (Bankr. N.D. Ill. Aug. 18, 2006) (For debtors with CMI less than applicable median family income, Form B22C cannot be used to determine projected disposable income. “Schedule I, instead of Form B22C, should be used to calculate projected disposable income. . . . Form B22C does not determine the ‘amounts reasonably necessary to be expended’ when a debtor’s income falls below the median family income. . . . Similarly, Schedule J, alone, cannot be used to determine projected disposable income. . . . The calculation of projected disposable income must take into account payment on account of secured claims and payment of the Trustee’s administrative expense.”); In re Dew, 344 B.R. 655, 658–61 (Bankr. N.D. Ala. 2006) (Chapter 13 debtors with CMI less than applicable median family income do not calculate disposable income by using Form B22C; instead, judicial discretion is preserved and most below median income debtors will calculate projected disposable income using Schedules I and J. “In Part II of their Forms B22C, all of the Debtors in these cases reported that their current monthly income was less than the median income for their applicable family size in Alabama. Nonetheless, contrary to the instruction in line 14, they each completed the entire Form B22C, including Parts III, IV and V. . . . [N]one of these Debtors has currently [sic] monthly income greater than the applicable median income. Thus, these Debtors’ disposable incomes are not to be determined under the Form B22C formula, which was taken from Code § 707(b)(2)(A) & (B). . . . [I]n determining whether a below median income debtor is offering all of his projected disposable income under a plan, the first step, and in most cases the last step, is to look at the debtor’s Schedules I and J.”).

 

122  See § 470.1 [ Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Applicable Median Family Income ] § 93.1  Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Median Family Income. See, e.g., In re Jackson, 353 B.R. 849 (Bankr. E.D.N.C. 2006) (Citing In re Alexander, 344 B.R. 742 (Bankr. E.D.N.C. 2006), disposable income for debtor with CMI less than applicable median family income is determined by subtracting Schedule J expenses from CMI; because Form B22C instructs debtors to deduct ordinary and necessary business expenses to determine business income for CMI purposes, it is not appropriate to also deduct regular expenses from operation of a business or profession to determine Schedule J deductions from CMI.).

 

123  See § 497.1 [ Feasibility Turned on Its Head ] § 111.2  Feasibility Turned on Its Head after BAPCPA.

 

124  This may be a controversial assessment of what BAPCPA has done to the disposable income test. See §§ 466.1 [ In General ] § 92.1  In General494.1 [ Projected Disposable Income ] § 101.1  What Do Unsecured Creditors Get?.

 

125  See §§ 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors, 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline and 494.1 [ Projected Disposable Income ] § 101.1  What Do Unsecured Creditors Get?. See, e.g., In re Bossie, No. A06-00432-DMD, 2006 WL 3703203, at *2 (Bankr. D. Alaska Dec. 12, 2006) (Citing In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006), “the debtors’ plan can be based on their anticipated, or projected, income during the term of the plan. The figure stated on Line 58 of Form 22C is not the sole factor to be utilized in determining their projected disposable income.”); In re Foster, No. 05-50448 HCD, 2006 WL 2621080, at *7–*8 (Bankr. N.D. Ind. Sept. 11, 2006) (CMI and Form B22C are just starting point for determining projected disposable income. “This court therefore treats the CMI analysis as the initial but not the ultimate measure of the debtors’ financial condition and ability to fund their plan. The numbers resulting from the calculations on Form B22C represent a starting point for the Court’s inquiry. It represents a floor, not a ceiling. Such a construction gives the Court the ability to evaluate the debtor’s past and current financial status to determine a debtor’s disposable income when a debtor’s circumstances change from the six months preceding the filing of the petition. . . . [A] proper calculation of ‘all of the debtor’s projected disposable income to be received in the applicable commitment period’ must include the debtors’ past and current financial status.”); In re Crittendon, No. 06-10322 C-13G, 2006 WL 2547102 (Bankr. M.D.N.C. Sept. 1, 2006) (Because “as of the effective date of the plan” in § 1325(b)(1) applies to both subparagraphs (A) and (B), disposable income calculation in Form B22C must be adjusted for circumstances that change between petition and effective date of plan; the negative disposable income showing at Line 58 of Form B22C is incorrect when debtors sell property subject to mortgages after the petition and plan surrenders a horse trailer and boat that are collateral for secured debts.); In re Fuller, 346 B.R. 472, 485 (Bankr. S.D. Ill. 2006) (“[T]o determine a debtor’s ‘projected disposable income’ for purposes of § 1325(b)(1)(B), the number on Form B22C does not end the inquiry for below- or above-median debtors. Whether a debtor is above or below the median income, parties must determine ‘projected disposable income’ by looking at Schedule I to determine the debtor’s income at the date the petition was filed. The parties should look to Form B22C to determine which expenses to deduct—reasonable Schedule J expenses for below-median debtors, standardized expenses for above-median debtors. But for income, parties must look to actual income at the time the debtor filed the petition, not the average historical income from the six months before. In short, parties in all cases must use Form B22C and Schedule I to calculate ‘projected disposable income.’”).