New IRS allowances don’t go into effect for bankruptcy until 1/1/08…or are they already in effect?
By Peter Orville, Attorney at Law on Oct 30, 2007 in Bankruptcy Practice and Procedure, General Bankruptcy Information
A “Means Test” is required of all over-the-median-income debtors since the passage of BAPCPA two years ago. In the means test, debtors start with their average income from the previous 6 months and then subtract not their actual expenses, but the expenses allowed by the “IRS Standards”, set by the Internal Revenue Service.
On October 1, the IRS updated their standards effective for IRS purposes only. According to the IRS, they will not become effective for bankruptcy filings until January 1, 2008. At least that is what we are being told. As Jed Berliner, from Springfield, Massachusetts pointed out in his October 4 blog “Bankruptcy Means Test and The New IRS Allowances”, BAPCPA, the new bankruptcy law states that the IRS standards “in effect” are to be used in all bankruptcy cases filed.
In an appearance at the Northern District of New York Bankruptcy Seminar held this past weekend in Cooperstown, NY, Mark Redmiles, the Deputy Director of the Executive Office for United States Trustees indicated that if the new IRS standards would tip the balance between a petition that raised the presumption of abuse and one that avoided the presumption of abuse, he believed that the new standards could be used.
Some of the changes made by the IRS add some items to the general allowances that debtors used to add as “other” expenses in addition to the allowed standards. Examples include out of pocket health care expenses and cell phones. Under the old standards, debtors could choose which was car #1 and which was car #2, much to the US Trustees dismay (and over their objection). Now, the allowed ownership expense for debtors owning two vehicles are exactly the same. Another significant change was to eliminate income ranges to determine certain expenses such as household food and clothing.
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