Means Test vs. Actual Expenses

Decisions nationwide are all across the board on whether one should use the IRS-allowed expenses or actual expenses in calculating the Means Test.  A recent decision in Massachusetts made one ruling, on one test, in one set of circumstances, and expressly excluded application to other situations.

In a Chapter 13 case, a debtor meets Chapter 13’s “best interests” standard by using the IRS housing allowance even if the actual rent is lower.  In re Phillips, 382  B.R. 153 (Bankr. D. Mass. 2008).

The case leaves open (1) whether the debtor is acting in good faith by using the lower, actual rent expense, (2) whether the ruling would be the same if a Chapter 13 debtor was attempting to modify a plan already confirmed, or (3) whether a Chapter 7 debtor looking to avoid being forced into Chapter 13 may use a higher IRS housing allowance instead of lower actual rent.

Judge Joan N. Feeney ’s opinion provides valuable insight into (1) the great difficulties visited upon the judges who must make sense of , and (2) the serious criticisms being made against, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).