§ 95.27 — Home Energy Costs

Revised: March 28, 2006

[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 § 707(b)(2)(A) and (B).3 There are 10 separate subclauses or sentences within § 707(b)(2)(A)(ii) that describe monthly expenses included in “amounts reasonably necessary to be expended—.”4 The 10th component of monthly expenses is described as follows:

In addition, the debtor’s monthly expenses may include an allowance for housing and utilities, in excess of the allowance specified by the Local Standards for housing and utilities issued by the Internal Revenue Service, based on the actual expenses for home energy costs if the debtor provides documentation of such actual expenses and demonstrates that such actual expenses are reasonable and necessary.5
[2]

To claim this additional allowance for housing and utilities, the debtor must demonstrate “actual” expenses for home energy costs. “Actual expenses” is not further defined by subclause (V). Presumably, it means expenses incurred or previously paid by the debtor, though no applicable time period or measurement methodology is provided. This actual expense could be for the previous month or two before the petition; it could be the average of a year or more before the petition—the statute gives no clue.

[3]

“Home energy costs” are also undefined. Reasonably, the phrase would include electricity and natural gas, fuel oil, coal, wood—anything that produces energy for use in the home.

[4]

The “allowance” specified by the Local Standards for Housing and Utilities issued by the IRS is discussed elsewhere.6 The IRS issues a Local Standards chart for housing and utilities for each county in each state.7 The IRS and the Department of Justice have agreed to disagree about whether the IRS will break down its Local Standards for Housing and Utilities into component parts to facilitate new provisions of the Bankruptcy Code enacted by BAPCPA.8 At this writing, the IRS has not done so.

[5]

Instead, the Department of Justice through its U.S. Trustee Program has published its own “Local Housing and Utilities Standards” charted by state and by county that is divided into “nonmortgage” and “mortgage/rent” components.9 Of course, the Local Housing and Utilities Standards issued by the Department of Justice through the U.S. Trustee Program are not Local Standards issued by the IRS. Section 707(b)(2)(A)(ii)(V) instructs Chapter 13 debtors to determine an additional allowance of actual expenses for home energy costs in excess of the allowance for housing and utilities “issued by the Internal Revenue Service.”

[6]

The Local Standards for Housing and Utilities issued by the IRS are charted based on family size. For purposes of the Local Standards allowance in § 707(b)(2)(A)(ii)(I), the Code is specific to reference the “area in which the debtor resides,” the “date of the order for relief” and “the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case.” There is no such specificity with respect to the additional allowance for home energy costs in § 707(b)(2)(A)(ii)(V).

[7]

The amount given by the IRS in the Local Standards for Housing and Utilities includes “gas, electricity, water, fuel, oil, bottled gas, trash and garbage collection, wood and other fuels, septic cleaning, telephone, mortgage or rent, property taxes, interest, parking, necessary maintenance and repair, homeowner’s or renter’s insurance, and homeowner’s dues and condominium fees.”10 It is not possible to determine from the Local Standards issued by the IRS what portion of the “maximum monthly allowance” for housing and utilities is properly allocated to “home energy costs.” If subclause (V) requires proof that home energy costs exceed the home energy components of the Local Standards issued by the IRS, then debtors will have to guess what portion of the Local Standards is properly allocated to home energy costs and then compare that to the actual expenses of the debtor for home energy costs.

[8]

But there is another reading of subclause (V) that avoids this guesswork. Read literally, the section says that debtors may include in monthly expenses an allowance “for housing and utilities” in excess of the allowance specified by the Local Standards “based on the actual expenses for home energy costs” if the debtor provides documentation of the actual expenses and demonstrates that those actual expenses are reasonable and necessary. These words say that a Chapter 13 debtor gets an additional allowance—above the Local Standards for Housing and Utilities—for actual expenses for home energy costs without regard to whether those actual expenses are included or not included in the Local Standards for Housing and Utilities. In other words, “in excess” in subclause (V) does not describe the relationship of the debtor’s actual home energy costs to the (nonexistent) home energy costs component of the Local Standards; rather, the debtor’s monthly expenses include an allowance for housing and utilities “in excess” of the allowance specified in the Local Standards for Housing and Utilities, and that additional allowance is equal to the “actual expenses for home energy costs” the debtor documents and demonstrates to be reasonable and necessary.

[9]

It is possible that Congress considered the home energy component of the Local Standards for Housing and Utilities issued by the IRS to be insufficient to protect Chapter 13 debtors from high energy costs that would disrupt Chapter 13 plans. Accordingly, actual expenses for home energy costs can be claimed as an additional allowance above the IRS allowance in its Local Standards for Housing and Utilities.

[10]

The forms drafters punted on the appropriate reading of § 707(b)(2)(A)(ii)(V). At Line 42 of Official Form B22C, debtors are instructed to “enter the average monthly amount by which your home energy costs exceed the allowance in the IRS Local Standards for Housing and Utilities.”11 Of course, this ambiguous instruction does not reveal whether home energy costs are compared to the home energy component of the IRS Local Standards for Housing and Utilities or whether they are simply allowed as an additional allowance. The instruction at Line 42 could be read to provide a third alternative: that the additional allowance for home energy costs is allowed only if home energy costs exceed the entire allowance for housing and utilities in the IRS Local Standards. This third interpretation has no foundation in the language of the statute. Notice also that the statutory requirement that the extra allowance be based on “actual” expenses for home energy costs is missing altogether from the instructions at Line 42.

[11]

Subclause (V) accurately refers to the “allowance” for housing and utilities in the Local Standards issued by the IRS. This use of words is consistent with the view that the applicable monthly expense amount specified under the National Standards and Local Standards that is included in a debtor’s monthly expenses by § 707(b)(2)(A)(ii)(I) is allowed to debtors without regard to overlaps or netting for the payment of debts or otherwise.12 The additional monthly expense allowed by subclause (V) is in excess of the “allowance” specified by the IRS in its Local Standards for Housing and Utilities without regard to any netting or subtraction of other debts or expenses. If Congress intended the addition in subclause (V) to be measured against some reduced amount specified for housing and utilities as part of the Local Standards, it would have said so in subclause (V).

[12]

Official Form B22C at Lines 25A, 25B and 26 inappropriately instructs Chapter 13 debtors to use the Department of Justice’s Local Standards rather than the IRS Standards—in direct contradiction to the statute—and debtors are then instructed to subtract from the Local Standards for Housing and Utilities the average monthly payment for any debts secured by a debtor’s home. This subtraction of secured debt has no foundation in the statute13 and has the result of substantially reducing the housing and utilities allowance specified by the IRS in its Local Standards for any Chapter 13 debtor with a home mortgage.

[13]

The mistaken construction of Official Form B22C could impact the additional allowance for actual expenses for home energy costs in subclause (V). If home energy costs are compared to the Local Standards for Housing and Utilities issued by the IRS, is it the actual allowance specified by the IRS or is it the reduced allowance concocted by the forms drafters in Official Form B22C?

[14]

All of these imponderables should be avoided. There is no statutory reduction of the allowance for housing and utilities specified by the IRS in its Local Standards in § 707(b)(2)(A) or (B). The additional allowance in § 707(b)(2)(A)(ii)(V) for actual expenses for home energy costs is granted to debtors without reference to charts invented by the Justice Department and without regard to Official Form B22C. If the debtor provides documentation of actual expenses and demonstrates the actual expenses are reasonable and necessary, the debtor gets the allowance as a reduction of CMI on the way to disposable 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  The list is found in § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

5  11 U.S.C. § 707(b)(2)(A)(ii)(V).

 

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

 

7  A link to the IRS Local Standards is available on the U.S. Trustee Program’s Web site at www.usdoj.gov/ust.

 

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

 

9  See www.usdoj.gov/ust/bapcpa.

 

10  I.R.M. 5.15.1.9 (May 1, 2004).

 

11  Line 42 of Official Form B22C, discussed in § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

12  See the discussion of netting issues in § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

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