Can Chapter 13 Bankruptcy Debtors Who Are Recipients of Child Support Payments Deduct It as an Expense on the Chapter 13 Means Test found in Official Bankruptcy Form B22C?
I have previously discussed the chapter 7 means test here. Chapter 13 bankruptcy cases have a similar forumalic calculation. The Chapter 13 bankruptcy calculation is found in official form B22C; it preliminarly determines a chapter 13 bankruptcy debtor’s monthly disposable income based on historical income, similar to the chapter 7 bankruptcy means test. Accordingly, a chapter 13 Form B22C calculation initially determines how much disposable income a debtor has left to repay unsecured creditors for each month of the plan.
On line 54 of the Chapter 13 version of the means test, Form B22C directs debtors to deduct any payments received for child support as an expense. Line 54 incorporates 11 U.S.C. § 1325(b)(2) which states in relevant part that calculations of disposable income means:
[C]urrent monthly income received by the debtor (other than child support payments, foster care payments, or disability payments for a dependent child made in accordance with applicable nonbankruptcy law to the extent reasonably necessary to be expended for such child) less amounts reasonably necessary to be expended—
(A) (i) for the maintenance or support of the debtor or a dependent of the debtor . . .
Under the 2005 amendments to the Bankruptcy laws, Congress specifically added the parenthetical provision under § 1325(b)(2) that disposable income calculations were to exclude income received by the debtor in the form of child support payments, foster care payments, or disability payments for a dependent child reasonably necessary to be expended for such child. See House Report No. 109-31, Pt. 1, 109th Cong., 1st Sess. 79 (2005). Had Congress not intended this, line 54 would not have been added in Form B22C.
At least one chapter 13 bankruptcy trustee has previously indicated that line 54 of Form B22C allows a debtor to deduct support income. See Kevin R. Anderson, Disposable Income vs. Projected Disposable Income: Identical Twins or Distant Relatives?; NACTT Quarterly, July/August/September 2006 Vol. 18, No. 3 (noting in chart comparison format that Form B22C allows such deduction in calculating monthly disposable income while Schedule I does not for calculations of monthly average income).
However, Colliers on Bankruptcy, also known as the bankruptcy practitioner’s bible, gives further guidance on how line 54 and the adjustment to child support, foster care, and disability payments that are received by the debtor might be handled:
“Its main effect would probably occur when the payments exceeded the child’s pro-rata share of family expenses; it would prevent payments meant for the child from being diverted to pay debts or imputed to the expenses of other household members . . . ” 8 Colliers on Bankruptcy §1325.08[b] (Alan N. Resnick & Henry J Sommer eds., 16th ed.).
The above passage considers the inappropriateness of taking a household expense on Form B22C and then taking a second deduction on line 54 for what amounts in essence to a double counting of the same family expense. However, Colliers further adds:
“[C]ourts could not necessarily exclude expenses of the child if the debtor’s current monthly income is over median income, because expenses would be determined under the rigid means test, based on household size….”
Accordingly, the inference exists that in determining disposable income pursuant to § 1325(b)(2), the court may balance the effects between a debtor taking excessive expense calculations and the misappropriation of support funds that would otherwise benefit a debtor’s child due to the rigidity of Form B22C in calculating disposable income.
The conclusion is this: If a chapter 13 bankruptcy trustee objects to a deduction of child support payments on line 54 of the chapter 13 means test under form B22C, a debtor and debtor’s counsel had better be prepared for that objection. The trustee will want the debtor to demonstrate that the deduction for child support is not counted twice as an expense – once as a general household expense for that member of the household, and then secondly as an actual child support payment backout. A chapter 13 bankruptcy trustee will most likely object where the line 54 expense significnatly reduces the debtor’s monthly dispoable income payments. Where line 54 would have little or no effect on projected monthly plan payments to unsecured creditors, the chapter 13 trustee will lack an incentive to object to the debtor’s case. Ultimately the court decides the debtor’s fate should the chapter 13 bankrutpcy trustee object under this circumstance.
JCH Law Firm and bankruptcy attorney Jeffrey Hsu have experience dealing with chapter 13 bankruptcy form B22C matters. Contact us at 1-800-371-5523 or email us at email@example.com. We help everyone with bankruptcy assistance across all of Southern California including the counties of Los Angeles, Orange County, Riverside, Kern, and San Diego.