Cite as: Keith M. Lundin, Lundin On Chapter 13, § 95.23, at ¶ ____, LundinOnChapter13.com (last visited __________).
For Chapter 13 debtors with current monthly income (CMI) greater than applicable median family income,1 “amounts reasonably necessary to be expended—”2 are determined in accordance with § 707(b)(2)(A) and (B).3 Among the 10 classes of expenses that are included in a debtor’s monthly expenses by § 707(b)(2)(A)(ii),4 Chapter 13 debtors are permitted to claim the applicable monthly expense amounts specified under the National Standards issued by the IRS.5
The National Standards issued by the IRS include five kinds of expenses: apparel and services; food; housekeeping supplies; personal care products and services; and miscellaneous.6 The National Standards are issued by the IRS based on the number of persons and in ranges of gross monthly income.7
In addition to the monthly expense amount specified under the National Standards for the five items listed above, § 707(b)(2)(A)(ii)(I) contains this additional expense allowance:
In addition, if 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 5 percent of the food and clothing categories as specified by the National Standards issued by the Internal Revenue Service.8
Being careful to select the correct number of persons and the correct gross monthly income range, debtor’s counsel can easily calculate the maximum 5 percent additional monthly expense allowed for food and clothing. If the debtor can “demonstrate” that additional food or clothing is “reasonable and necessary,” then the additional amount, up to 5 percent, is added to the debtor’s monthly expenses for purposes of § 707(b)(2)(A)(ii)(I).
The U.S. Trustee Program has done the maximum 5 percent calculations on its Web page.9 This additional food and clothing expense is provided for at Line 44 of Official Form B22C.10 The instructions state that the debtor is to enter the “average monthly amount by which your food and clothing expenses exceed the combined allowances for food and apparel in the IRS National Standards, not to exceed 5 percent of those combined allowances.”11 The instructions do not reveal how “average monthly amount” should be determined. Over what period of time should the debtor calculate average food and clothing expenses? Can the debtor pick and choose the months to be included in this average—for example, to include clothing purchased before school starts in the fall? If this average monthly amount requires calculation for the entire year, gathering this information could be difficult or impossible for many debtors.
The instructions at Line 44 of Official Form B22C are more specific than the statute with respect to how the 5 percent is calculated. Line 44 tells the debtor to average the monthly amount by which food and clothing expenses exceed “the combined allowances for food and apparel.” The form has the debtor add together the food and apparel entries from the IRS National Standards chart and then compare actual average monthly amounts to the combined allowances. By this methodology, a debtor with food expenses below the National Standard but clothing expenses above the National Standard can exceed the clothing category amount by more than 5 percent so long as the additional amount for clothing is not greater than 5 percent of the combined allowances for food and clothing. This approach is favorable to debtors but not the only reading of the words of the statute.
The instructions at Line 44 of Official Form B22C boldly state that the debtor must “provide . . . documentation” to the trustee demonstrating that any additional clothing or food expense is reasonable and necessary. It is unlikely that Chapter 13 debtors will have “documentation,” but if there are receipts for food or clothing, credit card statements or the like, the debtor should gather those records before the meeting of creditors. Interim Rule 4002(b)(2)(C) states a new duty that the debtor “shall bring to the meeting of creditors under section 341 . . . documentation of monthly expenses claimed by the debtor when required by section 707(b)(2)(A) or (B).”12
Notwithstanding the Official Form and the new Interim Rule, the statute does not require “documentation” with respect to the additional food and clothing allowance. In contrast, the statute specifically requires documentation for additional home energy costs.13 Demonstrating that additional food or clothing expenses are reasonable and necessary might be accomplished by testimony from the debtor. For example, if the debtor or family member has to wear special uniforms at work or school, a written company or school policy to that effect would be useful but not necessary. If the debtor or family member has special dietary restrictions, some proof of the underlying medical condition could be provided by testimony or by documentation.
This additional allowance for food and clothing does not specify for whom the extra food and clothing must be reasonable and necessary. The statutory allowance for the amount specified under the National Standards is stated “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.”14 The additional allowance for food and clothing up to 5 percent makes no reference to dependents or spouses although there would be some logic to imposing the same conditions on the additional allowance as the statute imposes on the National Standards. The statute just doesn’t say so.
The additional allowance for clothing up to 5 percent of the clothing category specified by the National Standards issued by the IRS may overlap the debtor’s actual monthly expenses for categories of Other Necessary Expenses issued by the IRS and separately allowed as monthly expenses by § 707(b)(2)(A)(ii)(I). For example, the category “involuntary deductions” allowed as Other Necessary Expenses by the IRS includes such things as uniforms and work shoes—according to the Internal Revenue Manual.15 Section 707(b)(2)(A)(ii) does not state that expenses allowed by the IRS in a category of Other Necessary Expenses must be netted or subtracted from monthly expenses allowed by a separate subclause of § 707(b)(2)(A)(ii).16
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 See 11 U.S.C. § 1325(b)(2), (3).
3 See 11 U.S.C. § 1325(b)(3), discussed in § 471.1 [ Big Picture: Too Many Issues ] § 94.1 Big Picture: Too Many Issues.
4 See the list in § 471.1 [ Big Picture: Too Many Issues ] § 94.1 Big Picture: Too Many Issues.
5 The National Standards are discussed in § 475.1 [ National Standards ] § 95.2 National Standards.
6 See § 475.1 [ National Standards ] § 95.2 National Standards.
7 The National Standards issued by the IRS are available as a link at www.usdoj.gov/ust.
8 11 U.S.C. § 707(b)(2)(A)(ii).
9 See www.usdoj.gov/ust.
10 See § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21 Form 122C-2: Disposable Income Calculation.
11 Line 41, Official Form B22C.
12 Interim Bankr. R. 4002(b)(2)(C), discussed in § 400.1 [ New Debtor Duties at the Meeting of Creditors ] § 43.2 Debtor Duties at Meeting of Creditors after BAPCPA.
13 See 11 U.S.C. § 707(b)(2)(A)(ii)(V), discussed in § 484.1 [ Home Energy Costs ] § 95.27 Home Energy Costs.
14 11 U.S.C. § 707(b)(2)(A)(ii)(I).
15 See I.R.M. 220.127.116.11 (May 1, 2004), discussed in § 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4 Other [Necessary] Expenses—In General; All Categories.
16 The general subject of netting or subtracting allowed expense deductions is discussed in § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2 Netting Issues, Including Exclusion of Payments for Debts.