§ 95.21     Health and Disability Insurance
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 95.21, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

To determine “amounts reasonably necessary to be expended—”1 for a Chapter 13 debtor with current monthly income (CMI) greater than applicable median family income,2 § 707(b)(2)(A) and (B) contain many specific expense amounts allowed as reductions of CMI. In addition to the National Standards, Local Standards and categories of Other Necessary Expenses specified by the IRS, § 707(b)(2)(A)(ii)(I) includes in allowable monthly expenses “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.”3

[2]

This expense deduction is perhaps the least controversial and most straightforward of the 10 components of monthly expenses allowed by § 707(b)(2)(A)(ii).4 Health insurance, disability insurance and health savings account expenses are relatively easy to determine. Chapter 13 debtors understand what these items are and will know if they have health insurance, disability insurance or a health savings account. Often health insurance and health savings accounts are administered through an employer and the expense amounts will appear on pay stubs or other statements from the employer.

[3]

This expense is limited to “reasonably necessary” health insurance, disability insurance and health savings account expenses. The statute does not elaborate on the meaning of reasonable or necessary in this context. Courts will probably look for a monthly dollar amount. The explicit limitations on health insurance costs at modification after confirmation under § 1329(a)(4) are not repeated in § 707(b)(2)(A)(ii)(I).5

[4]

Importantly, the reasonable and necessary health insurance, disability insurance and health savings account expenses allowed to the debtor are “for the debtor, the spouse of the debtor or the dependents of the debtor.” This expansive statement of the allowable expenses deduction is not limited that the spouse must be a codebtor. Clearly the deduction includes health and disability expenses and health savings account expenses for a nonfiling spouse.

[5]

This comprehensive expense allowance for health and disability insurance presents some prefiling considerations for debtor’s counsel. Many Chapter 13 debtors do not have health insurance or disability insurance when they first consult counsel about bankruptcy. The monthly expense allowance for reasonably necessary health insurance and disability insurance does not say “debtor’s actual monthly expenses” as is the wording in § 707(b)(2)(A)(ii)(I) with respect to the categories of Other Necessary Expenses issued by the IRS.6 The statute invites the debtor to include health insurance, disability insurance and health savings account expenses in monthly expenses for § 707(b)(2)(A)(ii)(I) purposes even if the debtor does not have actual expenses for any of those items. The sentence allowing health insurance and disability insurance expenses in § 707(b)(2)(A)(ii) has no preconditions or requirements like those that limit other allowable expenses.

[6]

Claiming health insurance or disability insurance expenses when the debtor does not actually have health insurance or disability insurance may draw an objection from the Chapter 13 trustee. In anticipation, counsel might consider advising Chapter 13 debtors to get health insurance or disability insurance or to sign up for a health savings account if available before the case gets to a stage where the debtor might be called on to justify health or disability expenses. Advising a Chapter 13 debtor or potential debtor to incur debt for health or disability insurance could be a problem if the debtor is an “assisted person” for purposes of § 526.7

[7]

Official Form B22C addresses health insurance, disability insurance and health savings account expenses at Line 39.8 Curiously, the instructions at Line 39 tell debtors to list the average monthly amounts “that you actually expend” for health insurance, disability insurance and a health savings account. The statute does not impose an “actual expense” condition on health insurance, disability insurance or a health savings account. The phrase “actual monthly expenses” or a similar phrase appears repeatedly in other sentences and subclauses of § 707(b)(2)(A)—demonstrating that Congress knew well how to impose this condition on the allowance of a monthly expense when it intended to do so.

[8]

In addition to adding a nonstatutory condition that the debtor actually expend the amount listed for health insurance or disability insurance, the drafters of Official Form B22C also instruct that the debtor exclude at Line 39 any expenses listed in Lines 24–37. Within that range, at Line 36, debtors are instructed to list health care expenses within the category of Other Necessary Expenses specified by the IRS.9 There may be an overlap between the health care category of Other Necessary Expenses specified by the IRS and the separate statutory inclusion in monthly expenses of reasonably necessary health insurance, disability insurance and health savings account expenses. The forms drafters have unilaterally eliminated the duplication or overlap between these two statutory components of allowable monthly expense deductions. The statute does not support this instruction any more than the statute contains the “actually expend” condition added by the form drafters.


 

1  See 11 U.S.C. § 1325(b)(2) and (3), discussed in § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

2  See 11 U.S.C. § 1325(b)(3), 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).

 

3  11 U.S.C. § 707(b)(2)(A)(ii)(I).

 

4  See list in § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

5  See 11 U.S.C. § 1329(a)(4), discussed in § 506.1 [ Modification after Confirmation after BAPCPA ] § 126.6  Modification after Confirmation after BAPCPA.

 

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

 

7  See § 366.1 [ WARNING! You Are a Debt Relief Agency ] § 4.1  WARNING! You Are a Debt Relief Agency.

 

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

 

9  See §§ 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.