Court Allows Mileage Reimbursement in Bankruptcy Budget

28 Apr Court Allows Mileage Reimbursement in Bankruptcy Budget

Bankruptcy debtors who receive substantial mileage reimbursement checksfrom their employers often puzzle over how to account for this “income” on their bankruptcy statements or in the means test.

Because these schedules form the basis for qualifying for chapter 7, or for calculating the proper amount of a chapter 13 payment, large mileage reimbursement checks can unfairly skew the debtor’s income upwards if sufficient thought is not devoted to how to lists such checks. The bankruptcy debtor’s attorney might even wonder if such checks should be listed at all.

This same vexing question presents itself on Form B22, the “means test.” Should mileage reimbursement be included as income on the means test? If so, how can the bankruptcy debtor account for the accompanying gasoline and related expenses which gave rise to the reimbursement in the first place, within the narrow confines of Form B22?

Little case law existsaddressing the mileage reimbursement question, but a recent Virginia bankruptcy court decision provides important guidance. In re Tinsley, 2010 WL 1140854 (W.D.Va. March 25, 2010), held that mileage reimbursementmust be included as income on Schedule I. However, the court sensibly allowed an accompanying deduction on Schedule J, cancelling the effect of adding the reimbursement checksto the debtor’sincome.

The court in Tinsley disapproved of the bankruptcy debtor’s having entirely omitted the mileage reimbursement checks from his schedules. It held that the bankruptcy schedules were to be amended to include the average monthly income received from the employer for mileage reimbursements.

Importantly, the court also held that the employer’s rate of reimbursement, which was 55 cents per mile traveled in the debtor’s personal vehicle (the IRS standard rate), was a reasonable rate considering all the debtor’s expenses in this regard. The court therefore held that the debtor’s Schedule J should include an identical, offsettingexpense for work related travel expenses. This meant that the debtor’s chapter 13 plan as originally filed did indeed commit all his disposable income to the plan, and the court ordered that the plan be confirmed.

As noted above, this begs the question of how to account for mileage reimbursements on the means test. The best approach is probably to list the income, and to list also the debtor’s actual expenses incurred in the employment related travel. This conforms to the Tinsley case’s emphasis on disclosure (always a good idea), but differs in that only actual expenses should be claimed. This approach may be necessary due the special language of the means testing bankruptcy code section. However, it may be valid under Tinsley to simply list the same expense amount as was listed on the means test as mileage reimbursement income.

The best place to list the mileage income and expenses on the means test is probably under the category heading, “Income from the operation of a business, profession, or farm.” The average monthly mileage reimbursement check can then be listed under “Gross receipts,” and the average monthly travel related expenses can be listed under “Ordinary and necessary business expenses.” The difference, which might be zero or a figure close to zero, then would appear as “business income” to be included as income on the means test.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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