§ 94.2     Netting Issues, Including Exclusion of Payments for Debts
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 94.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

For a Chapter 13 debtor with CMI greater than applicable median family income,1 “amounts reasonably necessary to be expended—” are determined in accordance with § 707(b)(2)(A) and (B).2 For many reasons, the test for presumption of abuse in Chapter 7 cases in § 707(b)(2)(A) and (B) is ill-suited to the task of determining “amounts reasonably necessary to be expended—” in a Chapter 13 case. Not the least of the problems is that the many clauses and subclauses in § 707(b)(2)(A) and (B) overlap and redundantly allow reductions from CMI that are separately addressed, in whole or in part, by more than one clause or subclause.

[2]

There are two kinds of overlaps in § 707(b)(2)(A) and (B)—overlaps within clause (ii) and overlaps across clauses (ii), (iii) and (iv). Within clause (ii), there are 10 classes of monthly expenses that must be determined as reductions of CMI.3 The first three of these classes of monthly expenses are the National Standards, Local Standards and actual monthly expenses for the categories specified as Other Necessary Expenses issued by the IRS. Within these three sets of IRS Standards are expenses for almost every kind of family or household expense, including food, apparel, housing, utilities, transportation, child care, health care, insurance, secured debts, unsecured debts, taxes and student loans.4

[3]

Still in clause (ii) of § 707(b)(2)(A), Congress chose to include other monthly expense deductions for seven classes of monthly expenses, all of which overlap to some degree a monthly expense amount specified by the IRS in one or more of the three standards referenced in § 707(b)(2)(A)(ii)(I).5 With respect to some of these seven other allowed monthly expenses, clause (ii) of § 707(b)(2)(A) tells us what portion of the additional expense is allowed notwithstanding the overlap with the National Standards, Local Standards or Other Necessary Expenses allowed by the IRS. With respect to others of the additional monthly expenses allowed by clause (ii), the statute is silent whether the additional amounts allowed in a specific class are in addition to an amount already included in an IRS Standard.

[4]

For example, to determine “amounts reasonably necessary to be expended—” for a Chapter 13 debtor with CMI greater than applicable median family income, CMI is reduced by the monthly expense amounts specified under the National Standards issued by the IRS for the area in which the debtor resides in effect on the date of the petition, for the debtor, the dependents of the debtor and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent.6 The National Standards used by the IRS for evaluating offers of compromise include expenses for apparel, food, housekeeping supplies, personal care products and services and “miscellaneous.”7 The applicable National Standards for a Chapter 13 debtor will be pulled from a chart based on the debtor’s “gross monthly income” and the number of persons for whom the statute permits the debtor to claim monthly expenses.8

[5]

Elsewhere in clause (ii) of § 707(b)(2)(A), the statute allows the debtor’s monthly expenses to include an “additional allowance for food and clothing of up to 5 percent of the food and clothing categories as specified by the National Standards issued by the Internal Revenue Service.”9 The words “in addition” and the cross-reference to the food and clothing categories specified by the National Standards telegraphs clearly that this 5 percent additional allowance for food and clothing is over and above whatever amount is specified by the National Standard for food and clothing for the debtor and the debtor’s dependents. Although these two parts of clause (ii) deal with the same monthly expense item, the two amounts are clearly cumulative under the wording of § 707(b)(2)(A)(ii)(I).

[6]

The same can be said for the additional allowance in subclause (V) of clause (ii) which allows the debtor’s monthly expenses to include an allowance for housing and utilities “in excess” of the allowance specified by the Local Standards for Housing and Utilities issued by the IRS based on “actual expenses for home energy costs.”10 If documented by the debtor, the actual expenses for home energy costs will be added to the Local Standard for Housing and Utilities notwithstanding that some energy costs are already included in the Local Standard allowance.

[7]

This relatively careful attention to the treatment of some overlaps between monthly expense allowances in clause (ii) is further demonstrated in subclause (IV), which allows the debtor’s monthly expenses to include the actual expenses for each dependent child not to exceed $1,500 per year “to attend a private or public elementary or secondary school.”11 The debtor must provide documentation of the expenses and prove the reasonableness and necessity, and the statute requires a “detailed explanation” of why the expenses “are not already accounted for in the National Standards, Local Standards, or Other Necessary Expenses referred to in subclause (I).”12 In no uncertain terms, if the debtor claims monthly expenses for a dependent for actual expenses to attend a private or public elementary or secondary school, the debtor must prove that cost is not already included in an allowance within the National Standards issued by the IRS.

[8]

“Netting” issues arise because several of the additional monthly expense allowances in clause (ii) do not contain instructions for dealing with overlaps with other monthly expenses contained in clause (ii). For example, under § 707(b)(2)(A)(ii)(II), the debtor is allowed monthly expenses for the continuation of actual expenses paid by the debtor for the reasonable and necessary care and support of an elderly, chronically ill or disabled household member or member of the debtor’s immediate family.13 For purposes of this additional monthly expense allowance, the debtor’s “immediate family” is broadly defined to include the “dependents of the debtor” and to include the spouse of the debtor in a joint case.14

[9]

It is easy to imagine a debtor with an elderly, chronically ill or disabled “dependent” who will have actual expenses for the care and support of that dependent that overlap monthly expenses specified under the National Standards, Local Standards and Other Necessary Expenses issued by the IRS. For example, special foods for a diabetic spouse or child would probably fall within the additional monthly expense allowance under subclause (II) and will overlap the food allowance contained in the National Standards allowed by subclause (I). There is no instruction in subclause (II) to deduct or net the actual expenses for the chronically ill family member against any portion of the National Standards allowed under subclause (I). In fact, subclause (II) begins with “in addition”—signaling that the actual expenses are in addition to an allowance under any other subclause.

[10]

If a member of the debtor’s immediate family is institutionalized, there is nothing in § 707(b)(2)(A)(ii)(II) to suggest that the actual expenses of that institutionalization are not allowable or that the applicable housing allowance under the Local Standards issued by the IRS would be reduced by any amount to reflect the actual expenses of institutionalization. In other words, the family size of the debtor for purposes of the Local Standards for Housing and Utilities would not change, nor would the amount of the housing allowance be reduced by any amount to reflect payment of an actual expense for a nursing home or the like.15

[11]

The problems of overlap within the subclauses of clause (ii) become more dense because of a sentence in the middle of § 707(b)(2)(A)(ii): “Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.”16 This enigmatic sentence will be the source of endless litigation.

[12]

The first thing to notice about the “notwithstanding” sentence is that the prohibition on including “payments for debts” does not apply to allowances or actual expenses that are not debts of the debtor. For example, imagine a debtor who is paying an elderly or disabled parent’s home mortgage for which the debtor is not personally liable. That parent’s home mortgage is not a “debt” in the traditional bankruptcy sense because there is no personal liability of the debtor. Yet § 707(b)(2)(A)(ii)(I) allows an additional monthly expense for the continuation of actual expenses paid by a debtor that are reasonable and necessary for the care and support of an elderly or disabled household or family member.17 The debtor’s payment of the disabled parent’s mortgage would be an additional allowable monthly expense that is not a “payment for debts” of the debtor.

[13]

More importantly, the “notwithstanding” sentence only applies to the provisions of “this clause.” This clause can only mean clause (ii) of § 707(b)(2)(A). This means that the notwithstanding sentence does not apply to the provisions of other clauses of § 707(b)(2)(A). In particular, clause (iii) permits a Chapter 13 debtor with CMI over applicable median family income to reduce CMI by “average monthly payments on account of secured debts.”18 Clause (iii) has no restriction or limitation like the notwithstanding sentence in clause (ii), and the exclusion of payments for debts in clause (ii) is confined to the provisions of that clause. Clause (iii) could have said that the monthly expenses allowed by clause (ii) are reduced or shall not include any average monthly payment on account of a secured debt calculated under clause (iii)—but it doesn’t say so.

[14]

This confinement of the notwithstanding sentence to clause (ii) is critical to understanding the defects in Official Form B22C. Detailed elsewhere,19 the drafters of Official Form B22C mistakenly concluded that the notwithstanding sentence in clause (ii) required reduction of all of the monthly expenses allowed under the National Standards, Local Standards and Other Necessary Expenses specified by the IRS by any payment on account of a secured debt allowed as a separate reduction of CMI by clause (iii) in § 707(b)(2)(A). The statute does not read that way. The resulting corruption of the calculations in Official Form B22C is significant and can be avoided only by substantial modifications to the form.

[15]

For example, Official Form B22C requires a Chapter 13 debtor with CMI over median family income to subtract contractually due payments on account of a home mortgage from the housing and utilities allowance in the Local Standards issued by the IRS. The average monthly payment on account of a home mortgage is an allowed reduction in CMI under § 707(b)(2)(A)(iii) that is separate from and independent of any monthly expense amount specified under the Local Standards issued by the IRS. The statute does not support the conclusion that reductions in CMI allowed by clause (iii) are netted or subtracted from monthly expenses specified under a standard issued by the IRS under clause (ii).

[16]

Similar issues arise with respect to transportation costs. The Local Standards issued by the IRS include the vehicle ownership and operating costs. Official Form B22C is drafted to require Chapter 13 debtors to subtract from the ownership portion of the Local Standards for transportation any car payment owed to a creditor with a lien on the car. Section 707(b)(2)(A)(ii)(I) allows a debtor the applicable monthly expense amount specified under the Local Standards for transportation issued by the IRS; § 707(b)(2)(A)(iii) separately allows a reduction of CMI for the average monthly payment on account of secured debt. These reductions of CMI are allowed under separate clauses of § 707(b)(2)(A), and the statute nowhere specifies that these amounts are netted against each other in the calculation.

[17]

Similar issues arise with respect to the payment of all priority claims allowed as a reduction of CMI in clause (iv). Priority claims will include, for example, taxes. Property taxes are a component of the housing expense included in the Local Standards for Housing and Utilities issued by the IRS.20 Nowhere does § 707(b)(2)(A)(iv) indicate that a priority claim for property taxes is netted or subtracted to reduce the Local Standards for Housing and Utilities issued by the IRS and allowed as a reduction of CMI under § 707(b)(2)(A)(ii)(I). Yet the drafters of Official Form B22C repeatedly instruct debtors not to include real estate taxes in any amount claimed as a monthly expense under an IRS Standard.21 There is no statutory support for this exclusion or netting of priority claims against amounts included in a monthly expense standard issued by the IRS.

[18]

Priority claims in clause (iv) include priority child support and alimony claims. Court-ordered payments are a category of Other Necessary Expenses specifically allowed by the IRS that is included in clause (ii). If court-ordered payments in clause (ii) are a payment for debt, it should not be included in the allowed expenses in the category—even though Official Form B22C says to include it. On the other hand, those court-ordered payments will be included in the priority debt calculation in clause (iv). In other words, the exclusion of court-ordered payments from a category of Other Necessary Expenses allowed by the IRS results because of the exclusion of “payments for debts” in the notwithstanding paragraph in subclause (I)—not because court-ordered payments are otherwise deductible from CMI under § 707(b)(2)(A)(iv). The notwithstanding sentence functions internally to clause (ii); that sentence does not function across clauses in the manner contemplated by the drafters of Official Form B22C.

[19]

The notwithstanding sentence in clause (ii) has a definite, different purpose: there are several categories of Other Necessary Expenses allowed by the IRS that intentionally capture payments for debts by a taxpayer. For example, within the categories specified as Other Necessary Expenses issued by the IRS are court-ordered payments, secured or legally perfected debts, unsecured debts, student loans and repayment of loans made for payment of federal taxes.22 But for the notwithstanding sentence, Chapter 13 debtors with CMI greater than applicable median family income would be allowed to reduce CMI under § 707(b)(2)(A)(ii) by, for example, secured debts that would also be deductions under § 707(b)(2)(A)(iii). In other words, the specific provisions of several categories of Other Necessary Expenses issued by the IRS include “payments for debts” that are excluded by the notwithstanding sentence in clause (ii).

[20]

There is support for this reading of the notwithstanding sentence in clause (ii) in the legislative history of BAPCPA. In the Bankruptcy Reform Act of 1998,23 the provision of the abuse test that became § 707(b)(2)(A)(ii) in BAPCPA read as follows:

The debtor’s monthly expenses shall be the applicable monthly expenses under National Standards, Local Standards, and Other Necessary Expenses allowance (excluding payments for debts) issued by the Internal Revenue Service for the area in which the debtor resides, as an affect on the date of the entry of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the debtor is not otherwise a dependent.24
[21]

In this 1998 precursor of BAPCPA, the “excluding payments for debts” provision was attached to the “Other Necessary Expenses allowance” issued by the IRS. This makes a lot of sense because it is within the Other Necessary Expenses categories allowed by the IRS that the several debt repayment categories appear. In the years between the Bankruptcy Reform Act of 1998 and the passage of BAPCPA in 2005, the “excluding payments for debts” morphed into the notwithstanding sentence in § 707(b)(2)(A)(ii)(I) and drifted to a position that ambiguously applies the exclusion of payments for debts to all of clause (ii).

[22]

Clause (ii) of § 707(b)(2)(A) and the notwithstanding sentence in subclause (I) make sense if “payments for debts” refers to actual monthly expenses for debts in the categories specified as Other Necessary Expenses issued by the IRS. The statute says that the monthly expenses of the debtor “shall be” the applicable monthly expense amounts specified under the National Standards and Local Standards because those amounts do not include payments for debts. Actual monthly expenses for the categories specified as Other Necessary Expenses issued by the IRS may not include payments for debts because of the notwithstanding sentence in subclause (I). No netting or subtracting is required across clauses (ii), (iii) and (iv) because none is required by the statute.

[23]

Even within clause (ii), there will be problems of interpretation and application of the exclusion of payments for debts. Read literally this exclusion leads to absurd results. Taxes are “debts” that are included in various of the monthly expenses allowed under the standards issued by the IRS. Utility bills are “debts.” Maintenance charges for the debtor’s furnace included in a monthly utility bill would be a “debt” buried in the Local Standards for Housing and Utilities. A yearly homeowner’s insurance bill is a debt payment concealed in the debtor’s monthly mortgage payment. If a debtor used a credit card to buy a new electric razor, that credit card debt is accounted for by the IRS as a component of the National Standards for Personal Care Products and Services.

[24]

If a debtor uses a credit card to buy groceries, there will be a “debt” (unsecured) for those groceries. Groceries are a component of the National Standards issued by the IRS that includes food. Does the notwithstanding sentence require the debtor to subtract from the National Standard amount for food the amount of food that was paid for with debt? Of course, this doesn’t make any sense. Instead, payment of the credit card debt would not be included as an Other Necessary Expense within the category of “unsecured debts” allowed by the IRS based on the notwithstanding sentence in § 707(b)(2)(A)(ii)(I).

[25]

The monthly expense amounts specified under the National Standards and the Local Standards “shall be the debtor’s applicable monthly expense amounts” under the wording of § 707(b)(2)(A)(ii)(I). With respect to the categories specified as Other Necessary Expenses issued by the IRS, only the debtor’s “actual monthly expenses” are eligible to be included under § 707(b)(2)(A)(ii)(I). “Payments for debts” could be part of a debtor’s “actual monthly expenses” for the categories specified by the IRS as Other Necessary Expenses, and thus the notwithstanding sentence has direct application to those actual monthly expenses. The direct allowances of the amounts specified under the National and Local Standards are not so easily accommodated with the notwithstanding sentence because they are simply amounts specified by the IRS without regard to debt repayment dealt with in other clauses of § 707(b)(2)(A).

[26]

There is a fundamental difference between the amounts specified as deductible in the National and Local Standards and the “actual” monthly expenses of the debtor in the categories of Other Necessary Expenses issued by the IRS. You get a reduction in CMI for the amount specified in the National and Local Standards even if the debtor doesn’t actually spend that amount for the items or services involved. In contrast, you get only the actual amounts expended in the categories of Other Necessary Expenses and, to the extent those actual amounts include payments for debt, subclause (I) requires netting or a reduction of the actual amount by the amount of debt repayment.

[27]

There will be some really tough cases as a result of the notwithstanding sentence. For example, imagine a debtor with family violence expenses that include a burglar alarm financed before the Chapter 13 petition. Under § 707(b)(2)(A)(ii)(I), the debtor’s monthly expenses include reasonable and necessary expenses incurred to maintain the safety of the debtor and the debtor’s family from family violence. If the notwithstanding clause is interpreted to apply to that provision, it would prohibit the inclusion of any “payments for debts.” Does the notwithstanding sentence preclude a reasonable and necessary expense for a financed burglar alarm? If the burglar alarm debt is an amount scheduled as contractually due to a secured creditor, it is an allowable reduction of CMI under § 707(b)(2)(A)(iii) without regard to whether it is included or excluded from the debtor’s monthly expenses under § 707(b)(2)(A)(ii)(I).

[28]

The additional monthly expense allowed by subclause (IV) for actual education expenses for a dependent child not to exceed $1,500 per year per child could be reduced by the plain language of the statute in several directions. First, Congress demonstrated its ability to explicitly require consideration of an IRS Standard in determining a separate monthly expense amount by stating in subclause (IV) that additional educational expenses are allowed only if not already accounted for in the National Standards, Local Standards or Other Necessary Expenses “referred to in subclause (I).”25 A Chapter 13 debtor that claims $100 per month for “band uniforms” must demonstrate that band uniforms are not included in the apparel allowance that is part of the National Standards issued by the IRS. In addition, if the debtor claims a $500-per-month additional expense for private school tuition, it may be argued that is “payment for debt” excluded by the notwithstanding sentence in subclause (I).

[29]

This netting issue comes into focus and takes an almost comical Washington, D.C., twist with respect to the Local Standards for Housing and Utilities issued by the IRS. The Local Standards issued by the IRS combine housing expenses and utilities.26 A single amount is provided based on family size for each county. The utility expense includes gas, electricity, water, fuel oil, bottled gas and the like. The housing expenses include mortgage or rent, property taxes, interest, homeowner’s insurance and necessary maintenance and repair. From the charts issued by the IRS, there is no way to tell what portion of the monthly housing and utilities allowance is attributable to which component.

[30]

Section 707(b)(2)(A)(ii)(I) states that the debtor’s monthly expenses “shall be the debtor’s applicable monthly expense amount specified under the Local Standards.” The forms drafters struggled to break out the mortgage and non-mortgage components of the Local Standards issued by the IRS in an apparent effort to then exclude any “payments for debts” included in the Local Standards. This undertaking was misguided at every level.

[31]

The amount specified under the Local Standards for Housing and Utilities is an amount that the IRS uses as a cap in its negotiation of offers in compromise with a taxpayer. For § 707(b)(2)(A)(ii) purposes, the amounts specified under the Local Standards “shall be the debtor’s applicable monthly expense amount.” There is no “payment for debt” included in the Local Standards; it is an average of housing expenses and utilities expenses gathered from data and sources the IRS chooses to use. Section 707(b)(2)(A)(ii) does not require that a Chapter 13 debtor even have a home mortgage to be entitled to deduct the monthly expense amount specified in the Local Standards for Housing and Utilities. Nor does the section state that a debtor forfeits any portion of the applicable monthly expense amount specified in the Local Standards if the debtor does have a home mortgage.

[32]

Notwithstanding a fundamental failure of logic, the Executive Office for U.S. Trustees apparently tried to convince the IRS to break down the Local Standards for Housing and Utilities into mortgage and non-mortgage components. The IRS refused; the Executive Office for U.S. Trustees went ahead and generated its own local housing and utilities standards broken down by mortgage and non-mortgage amounts.27

[33]

The local housing and utilities standards promulgated by the Executive Office for U.S. Trustees are not “issued by the IRS” and have no application to the calculation of monthly expenses under § 707(b)(2)(A)(ii). Nonetheless, the Judicial Conference forms drafters published a version of Official Form B22C that instructs Chapter 13 debtors to subtract any debt secured by the debtor’s home from the mortgage or rent component of the local housing and utilities standards issued by the Executive Office for U.S. Trustees. This (perhaps unintended) conspiracy between the forms drafters and the Executive Office for U.S. Trustees is inconsistent with § 707(b)(2)(A)(ii). The statute does not require a Chapter 13 debtor with CMI greater than applicable median family income to net or subtract a mortgage payment from the monthly amount specified in the applicable Local Standard issued by the IRS. Sleight of hand by the Executive Office for U.S. Trustees cannot change the plain language of the statute.

[34]

Netting or subtracting amounts allowed as reductions of CMI by clauses (iii) or (iv) is not required by § 707(b)(2)(A). The only netting or subtracting required within clause (ii) is when a monthly expense allowed by a provision of clause (ii) includes a “payment for debt.” This will only be true with respect to some categories of Other Necessary Expenses issued by the IRS with respect to which the debtor claims actual monthly expenses under § 707(b)(2)(A)(ii)(I). The expansive notion of netting or subtracting of overlapping reductions in CMI contained in Official Form B22C and encouraged by the Executive Office for U.S. Trustees reads intent into § 707(b)(2)(A) and (B) that is not evident in the statute itself.

[35]

It has occurred to Chapter 13 trustees and to U.S. trustees across the country that § 707(b)(2)(A) and (B) permit Chapter 13 debtors to “double” deduct some expenses unless an interpretation is imposed to require subtracting or netting of the overlapping reductions in CMI. The absence of any language in § 707(b)(2)(A) or (B) that precludes overlapping deductions from CMI will lead some to argue that Congress “couldn’t have intended” that result. Putting aside the obvious point that the statute plainly does allow Chapter 13 debtors with CMI in excess of median family income to deduct some expenses more than once, there are several logical arguments in support of this result.

[36]

One fundamental point is the impossibility of crafting a statute that would mathematically allow the deduction of dozens of expenses in categories that inevitably overlap without duplications. The National Standards, Local Standards and categories of Other Necessary Expenses issued by the IRS cover just about everything that a taxpayer can claim is reasonable or necessary to sustain a family that owes money to the Treasury. Congress chose to hang many additional monthly expenses—including all of a debtor’s average monthly payments on account of secured debts and the payment of all priority claims—onto the framework already described by the IRS in its standards. It is inevitable that there will be overlaps and duplications. Congress proved in subclause (IV) that it knew exactly how to avoid double accounting for an expense item among the many classes and categories of expenses allowed by the various clauses and subclauses in § 707(b)(2)(A). Congress could have forbidden double counting with respect to all expense amounts, payments on secured debts and payments of priority claims. It didn’t do so. It’s not up to the forms drafters, the Executive Office for U.S. Trustees or the bankruptcy courts to rewrite § 707(b)(2)(A).

[37]

Perhaps the overlaps and duplications are intentional. To the extent the allowance of monthly payments on account of secured debts in § 707(b)(2)(A)(iii) overlaps or duplicates an amount specified under the Local Standards for Housing or Transportation, perhaps Congress wanted to ensure the protection of home mortgages and the payment of car notes. The cushion in the finances of some Chapter 13 debtors that may result from the overlap could well be an intended protection for mortgage lenders and car lenders.

[38]

As a policy matter, perhaps it is the notwithstanding sentence that has wandered to a position where it threatens intended expense deductions. For example, Congress clearly intended to protect the reasonably necessary expenses incurred to maintain the safety of a debtor and the family of the debtor from family violence. And yet, arguably, any “payment for debt” that a debtor seeks to deduct from CMI as an expense for maintaining the safety of the debtor and the family of the debtor from family violence may be precluded by the notwithstanding sentence immediately preceding the additional family violence expense deduction in § 707(b)(2)(A)(ii)(I).

[39]

Section 707(b)(2)(A) and (B) are in no sense the calculation of a monthly budget for a Chapter 13 debtor with CMI greater than applicable median family income. The section is worded like a budget with phrases such as “monthly expenses”; but nothing faintly resembling a budget emerges from the mathematical calculation. Because it is not a real budget, the sorts of overlaps and redundancies that might be inconsistent with a budget are appropriately tolerated as just part of the political compromises that lead to this formula.

[40]

The monthly expenses allowed by § 707(b)(2)(A)(ii) are not monthly. Section 707(b)(2)(A)(ii) allows a Chapter 13 debtor to add to monthly expenses amounts that may or may not have been actually incurred by the debtor and amounts that may or may not be likely to reoccur over any period of time that bears any obvious relationship to the proposed Chapter 13 plan.

[41]

For example, Chapter 13 debtors with CMI greater than applicable median family income are allowed to include in monthly expenses the actual education expenses for each dependent child younger than 18 years old up to $1,500 per year per child.28 A debtor with a 17-year-old child is entitled to add to monthly expenses up to $125 per month of education expenses if the debtor can provide documentation of the expenses and a detailed explanation of the reasonableness and necessity.29 Section 707(b)(2)(A)(ii)(IV) does not require the debtor to divide the anticipated “actual” educational expenses for the next year by 60 to reflect the reality that the 17-year-old will cease to be eligible for this additional monthly expense in the second year of the plan. In other words, the debtor gets an additional monthly expense allowance of up to $125 per month in the mathematical calculation required by § 707(b)(2)(A) without regard to whether that monthly expense will extend throughout the life of any real Chapter 13 plan.

[42]

This is not true with respect to the debtor’s average monthly payments on account of secured debts30 and the debtor’s expenses for payment of all priority claims.31 With respect to secured debts and priority debts, the Code requires the total of such debts to be divided by 60 and then allocated to each month of the anticipated plan. This is a closer approximation of the financial reality of Chapter 13 debtors, but similar conditions are not imposed with respect to the 10 classes of expenses included in the debtor’s “monthly expenses” by § 707(b)(2)(A)(ii).32

[43]

This is all very strange but inevitable given that BAPCPA substituted a mathematical test for the actual determination of “amounts reasonably necessary to be expended—” with respect to Chapter 13 debtors with CMI greater than applicable median family income. This mathematical test requires an approximation of monthly expenses in many categories that will not relate in any obvious way to the reality of the debtor’s financial circumstances during the years of the Chapter 13 plan. Overlaps and duplications were not all removed or neutralized because there is no imperative to do so in a formula that is not a budget.

[44]

This disconnect from reality could cut severely against debtors as well as to the benefit of debtors. Imagine the Chapter 13 debtor with an elderly, chronically ill or disabled household member or family member who must predict the “continuation of actual expenses” for purposes of the additional monthly expense allowed by § 707(b)(2)(A)(ii)(II). If “actual” expenses in the past have been modest compared to anticipated or actual expenses during the five years after the Chapter 13 petition, the calculation of “amounts reasonably necessary to be expended—” will bear no relationship to the actual financial demands on the debtor to care for or support an elderly, chronically ill or disabled household or family member.

[45]

This point is relevant to the many arguments that will be made with respect to the netting of expenses that are duplicated or overlapping in the various clauses, subclauses and sentences of § 707(b)(2)(A)(ii). If § 707(b)(2)(A) and (B) were the calculation of an actual budget for Chapter 13 debtors with CMI greater than applicable median family income based on statutory items and calculations, then it would be worrisome that the statutory language of some of the monthly expense amounts seems to overlap the statutory descriptions of other allowances and expenses. It would not make sense in the design of a budget to allow debtors to deduct the IRS Local Standard for Housing and Utilities and to also deduct 1/60th of the amount of the debtor’s home mortgage that will become payable during a five-year Chapter 13 plan.33 But in a statute that substitutes mathematical constructs for the actual budget of a debtor, the ordinary logic and judgments made in determining a budget are not reliable guides to interpretation of this new math.


 

1  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).

 

2  11 U.S.C. § 1325(b)(3), discussed beginning at § 94.1  Big Picture: Too Many Issues.

 

3  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

4  See §§ 475.1 [ National Standards ] § 95.2  National Standards, 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

5  See discussion beginning at § 95.21  Health and Disability Insurance.

 

6  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 475.1 [ National Standards ] § 95.2  National Standards.

 

7  See I.R.M. 5.15.1.8 (May 1, 2004), discussed in § 475.1 [ National Standards ] § 95.2  National Standards.

 

8  See § 475.1 [ National Standards ] § 95.2  National Standards.

 

9  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.

 

10  11 U.S.C. § 707(b)(2)(A)(ii)(V), discussed in § 484.1 [ Home Energy Costs ] § 95.27  Home Energy Costs.

 

11  11 U.S.C. § 707(b)(2)(A)(ii)(IV), discussed in § 483.1 [ Education Expenses ] § 95.26  Education Expenses.

 

12  Id.

 

13  11 U.S.C. § 707(b)(2)(A)(ii)(II), discussed in § 481.1 [ Elderly, Ill or Disabled ] § 95.24  Elderly, Ill or Disabled.

 

14  See § 481.1 [ Elderly, Ill or Disabled ] § 95.24  Elderly, Ill or Disabled.

 

15  See § 481.1 [ Elderly, Ill or Disabled ] § 95.24  Elderly, Ill or Disabled.

 

16  11 U.S.C. § 707(b)(2)(A)(ii)(I).

 

17  See 11 U.S.C. § 707(b)(2)(A)(ii)(II), discussed in § 481.1 [ Elderly, Ill or Disabled ] § 95.24  Elderly, Ill or Disabled.

 

18  11 U.S.C. § 707(b)(2)(A)(iii), discussed in § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

19  See § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

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

 

21  Id.

 

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

 

23  See H.R. 3150, 105th Cong. (1998); H.R. Rep. No. 105-794 (1998).

 

24  H.R. 3150, 105th Cong., § 101(4) (1998) (emphasis added).

 

25  11 U.S.C. § 707(b)(2)(A)(ii)(IV), discussed in § 483.1 [ Education Expenses ] § 95.26  Education Expenses.

 

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

 

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

 

28  See 11 U.S.C. § 707(b)(2)(A)(ii)(IV), discussed in § 483.1 [ Education Expenses ] § 95.26  Education Expenses.

 

29  Id.

 

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

 

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

 

32  See the list in § 94.1  Big Picture: Too Many Issues, and see discussion beginning at § 95.1  In General.

 

33  See 11 U.S.C. § 707(b)(2)(A)(ii)(I) and (iii), discussed in §§ 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation and 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.