§ 98.1     Additional Expenses or Adjustments to CMI
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 98.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

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 subparagraph (A) and (B) of § 707(b)(2).”3 The 10 classes of monthly expenses,4 average monthly payments on account of secured debts5 and payment of all priority debts6 are included in “amounts reasonably necessary to be expended—” by subparagraph (A) of § 707(b)(2). To complete the determination of “amounts reasonably necessary to be expended—”, it is necessary to also consider subparagraph (B):

(B)(i) 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.

 

 (ii)
In order to establish special circumstances, the debtor shall be required to itemize each additional expense or adjustment of income and to provide—
 

 

 

(I) documentation for such expense or adjustment to income; and
(II) a detailed explanation of the special circumstances that make such expenses or adjustment to income necessary and reasonable.
(iii) The debtor shall attest under oath to the accuracy of any information provided to demonstrate that additional expenses or adjustments to income are required.
(iv) The presumption of abuse may only be rebutted if the additional expenses or adjustments to income referred to in clause (i) cause the product of the debtor’s current monthly income reduced by the amounts determined under clauses (ii), (iii), and (iv) of subparagraph (A) when multiplied by 60 to be less than the lesser of—
(I) 25 percent of the debtor’s nonpriority unsecured claims, or $6,000, whichever is greater; or
(II) $10,000.7
[2]

As with all of § 707(b)(2), the statutory directive in § 1325(b)(3) to determine “amounts reasonably necessary to be expended—” “in accordance with” subparagraph (B) requires the exercise of much judgment. Large parts of this section relate to the “abuse” test and the “presumption of abuse” applicable only in Chapter 7 cases. For example, the calculation in clause (iv) of § 707(b)(2)(B) has no application in the § 1325(b)(3) context.

[3]

What subparagraph (B) does contribute to the calculation of “amounts reasonably necessary to be expended—” is that the debtor can demonstrate “special circumstances” that “justify additional expenses or adjustments of current monthly income.”8 To justify additional expenses or adjustments of CMI, the debtor must “itemize each additional expense or adjustment of income” and provide documentation and a detailed explanation of reasonableness and necessity.9 The debtor must “attest under oath” to the accuracy of information provided to demonstrate the additional expenses or adjustments of income, and these must be additional expenses or adjustments of CMI for which “there is no reasonable alternative.”10

[4]

The examples of special circumstances in the statute are a serious medical condition or active duty in the armed forces. Other candidates for special circumstances are limited only by life itself. Debtors with lost jobs, domestic relations problems, children in trouble, natural disasters, car wrecks—it is likely that Chapter 13 practitioners will litigate the meaning of special circumstances for decades.

[5]

A few general thoughts might be tossed into this vacuum. “Special circumstances” is not as harshly worded as barriers and exceptions elsewhere in the Bankruptcy Code. For example, a debtor seeking to discharge a student loan under § 523(a)(8) must prove that excepting the debt from discharge would impose an “undue hardship” on the debtor and the debtor’s dependents.11 Special circumstances doesn’t sound as demanding or difficult as an undue hardship. For purposes of a hardship discharge before the completion of payments in a Chapter 13 plan, the debtor must prove “circumstances for which the debtor should not justly be held accountable.”12 Special circumstances seems not to require that sort of assessment of responsibility. Congress could have but didn’t choose a familiar standard to raise a bar to additional expenses or adjustments of CMI.

[6]

It is important to notice that special circumstances can justify either “additional expenses” or “adjustments of current monthly income.” Expenses included in “amounts reasonably necessary to be expended—” for a Chapter 13 debtor with CMI greater than applicable median family income are detailed in many classes and categories in § 707(b)(2)(A).13 CMI is defined separately in § 101(10A).14 The expenses described in § 707(b)(2)(A) are not actual expenses in the sense of a real-life budget for a Chapter 13 debtor and the debtor’s family. Rather, § 707(b)(2)(A) is a mathematical construct that contains numbers with no certain relationship to the actual expenses of a debtor in a Chapter 13 case. CMI is not the debtor’s actual income at the petition, at confirmation or at any important moment during the Chapter 13 case.15

[7]

This means there will be many Chapter 13 cases in which the debtor’s actual circumstances are badly represented by the numbers generated by the mathematical formula in § 707(b)(2)(A). As the divergence between reality and formula becomes greater, Chapter 13 debtors will assert special circumstances to justify adjustments of expenses or of CMI.

[8]

Examples are easy. CMI is based on a static historical average of the debtor’s income during the six months before the month in which the Chapter 13 case was filed.16 When the imperative of a foreclosure sale or other event pushes the debtor into a Chapter 13 case a month or two into a period of unemployment, the mathematical calculation in § 101(10A) will bear no useful relationship to the debtor’s actual income. Is it a special circumstance that there is no reality to the CMI calculation?

[9]

Some Chapter 13 debtors are religious and religiously contribute to their churches. Is it a special circumstance that Congress neglected to include an expense deduction for tithing for Chapter 13 debtors with CMI greater than applicable median family income?17

[10]

A married debtor with a spouse who has dependents by a former marriage may have substantial expenses that were neglected by the drafters of § 707(b)(2)(A).18 Is it a special circumstance that the debtor’s spouse has expenses for the care and support of the spouse’s separate dependents?

[11]

In a volunteer army, how is a call to active duty different from an employer’s choice to close a plant or to outsource the debtor’s job? This is not to belittle the serious financial consequences of a call to active duty in the military; it is simply to make the point that “special circumstances” have little to recommend as a standard for allowing additional expenses or adjustments of CMI.

[12]

The drafters of Official Form B22C treated special circumstances with a blind eye. The phrase “special circumstances” appears nowhere in the form or instructions. At Line 59 there is a blank space in which the debtor is instructed to “list and describe any monthly expenses not otherwise stated in this form . . . that you contend should be an additional deduction from your current monthly income under § 707(b)(2)(A)(ii)(I).”19 This space appears after the calculation of disposable income at Line 58 and does not cite subparagraph (B) of § 707(b)(2). There is no mention anywhere in Official Form B22C of adjustments to CMI justified by special circumstances under § 707(b)(2)(B).

[13]

Debtors with special circumstances are forced to modify Official Form B22C. Additional expenses might be listed at Line 59 consistent with the instructions, but the total of additional expenses would then need to be carried earlier in the form to be a deduction in Part IV. Adjustments to CMI justified by special circumstances must appear much earlier in Official Form B22C—somewhere in Part I—the “report of income.”20 Adjustments to CMI could change the determination whether the debtor has CMI over or under applicable median family income. This calculation must be made in Part I of Official Form B22C—long before the complicated expense calculations that are required only of debtors with CMI greater than applicable median family income.

[14]

Any debtor claiming special circumstances must jump through all the hoops with respect to documentation, a detailed explanation and a statement under oath of the accuracy of information provided to demonstrate additional expense or adjustments to CMI. Interim Rule 4002(b)(2)(C) states that “documentation of monthly expenses claimed by the debtor when required by § 707(b)(2)(A) or (B)” shall be brought to the meeting of creditors under § 341 and made available to the trustee.21 If a medical condition is the basis for the claim of special circumstances, the debtor should consider bringing written proof from a doctor, from hospitals and the like. A letter of termination from an employer would be a helpful start to document special circumstances involving job loss or loss of income.


 

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) and (3), discussed in § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

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

 

5  See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

6  See § 486.1 [ Total Priority Debts and Divide by 60 ] § 97.1  Total Priority Debts and Divide by 60.

 

7  11 U.S.C. § 707(b)(2)(B).

 

8  11 U.S.C. § 707(b)(2)(B)(i).

 

9  11 U.S.C. § 707(b)(2)(B)(ii).

 

10  11 U.S.C. § 707(b)(2)(B)(i), (iii).

 

11  11 U.S.C. § 523(a)(8), discussed in §§ 346.1 [ Student Loans ] § 158.2  Student Loans and 553.1 [ Student Loans: § 523(a)(8) ] § 159.6  Student Loans: § 523(a)(8).

 

12  11 U.S.C. § 1328(b)(1), discussed in § 353.1 [ Circumstances for Which the Debtor Should Not Justly Be Held Accountable ] § 160.3  Circumstances for Which the Debtor Should Not Justly Be Held Accountable.

 

13  See discussion beginning at § 95.1  In General.

 

14  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.

 

15  See 11 U.S.C. § 101(10A), discussed in § 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

16  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.

 

17  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. Compare 11 U.S.C. § 1325(b)(2)(A)(ii), which allows charitable contributions up to 15% of gross income for a debtor with CMI less than applicable median family income.

 

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

 

19  Line 59 of Official Form B22C, discussed further in § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

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

 

21  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.