25 Nov Means Test: Don’t Give Up, Even If You Think You’ve Flunked It, Part 4
This is the fourth article in a series covering “means test” issues. By now, you’re probably aware that consumers are required to file Form B22 (the means test form) with their bankruptcy papers.
Form B22 establishes whether you are eligible to file chapter 7, and sometimes dictates the level of repayment in a chapter 13 plan. Obviously, then, you don’t want mistakes to creep into your entries contained in the various parts of Form B22, especially by failing to claim all the expenses you are entitled to claim. One important, but sometimes confusing, part of Form B22 is the line entry for your housing expense. This is usually a large part of your budget, so getting the answer right is important.
For renters, Form B22 instructs you to use the IRS Local Standard rental expense for a household of your size, for the county you live in, no matter how much your monthly rental payment really is. If your rent is less than the standard amount, you get the higher amount from the standards; if your rent is higher than the standard amount, you get the lower amount from the standards.
Not fair, you say? Correct; the means test is not concerned with fairness. The means test is a mathematical test applied rigidly to persons without any regard to fairness, not unlike the income tax tables, which also are applied rigidly to persons without regard to whether thay happen to have the funds available to pay.
Homeowners are treated differently than renters by Form B22; they get a big favor from Congress on the means test. The form allows an expense for your monthly mortgage payment, including principal, interest, property tax, insurance, and association fees; or it allows use of the IRS Local Standard amount, whichever is higher.
Additionally, if you are behind on mortgage payments on the day your case is filed, Form B22 allows an expense for one-sixtieth of the amount of your back mortgage payments. Even more oddly, there is a good legal argument that if your home mortgage has been foreclosed, but the period for redeeming the home has not yet expired, you are allowed an expense for one-sixtieth of the entire mortgage balance owed, which could be a monthly expense of several thousand dollars or more.
What if you have no monthly mortgage expense right now, because your home is in foreclosure and the lender won’t accept your payments? And what if this means you have decided to surrender the home eventually to the lender, because you know that catching up the payments is impossible for you? Guess what — it may not matter! That’s right, the majority of courts which have considered this question have decided that what’s important is the amount of the monthly mortgage payment which is contractually due, on the day the bankruptcy is filed. Whether you intend to make payments in the future is irrelevant, under this reasoning.
These important portions of means test “logic” may have an impact on your financial decisions taken before you file bankruptcy. For example, you probably shouldn’t move into your parents’ basement rent-free before you file bankruptcy. Instead, file the bankruptcy while you are still living in your house with the past-due mortgage payments, if at all possible. That way, the trustee is not likely to challenge your means test mortgage payment.
Similarly, don’t ask Uncle Fred or Aunt Martha for a giant loan to catch up past due house payments until after the bankruptcy is discharged (or at least until after the case is filed). That way, you will have a means test expense for one-sixtieth of the default amount existing on the date you file the bankruptcy. Using strategies such as these will ensure that you don’t needlessly fail to claim all the housing expense you can on the means test.
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