Deduction for Involuntary Liens Disallowed on Means Test

26 Mar Deduction for Involuntary Liens Disallowed on Means Test

Massachusetts Bankruptcy Judge Hillman recently held in the case of In re Kucera, 2009 WL 691000 (Bankr.D.Mass., Mar 12, 2009) (NO. 08-17304-WCH) that a Chapter 13 debtor could not deduct a payment for an involuntary lien on his means test. The lien in the case had arisen from a pre-petition writ of attachment issued by a state court, but had been avoided by the debtor in his bankruptcy case. In general, a debtor is allowed to deduct secured debt payments on his means test, even if the debt is not being paid. (There is some controversy on this point, but this is better view. See Morse v. Rudler, 388 B.R. 433 (B.A.P. 1st Cir.2008)). However, the Court stated:

The expense deduction under § 707(b)(2)(A)(iii)(I) [the means test deduction], however, is not for all amounts that a debtor is required to pay under the contract. Rather, the deduction is limited to those amounts that are “scheduled as contractually due to secured creditors. Section 707(b)(2)(A)(iii)(I), therefore, differentiates between voluntary secured debts, such as mortgage and security agreements, and involuntary secured debts, such as judgment liens and statutory liens. Under the statute, voluntary liens can be deducted but involuntary liens cannot [….] Here, the Lien was not created by contract, but by judicial decree, so it is an involuntary lien that the Debtor improperly deducted under § 707(b)(2)(A)(iii)(I).

It remains a live issue–and one of the more contentious ones in Chapter 13 practice–as to whether a debtor can take a deduction from his means test for a consensual lien–such as a car or house payment–when he is not actually making the payments. It is my opinion that, under these circumstances, the Chapter 13 Trustee will only be left with the option of a bad faith objection.

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