Means Test: Don’t Give Up, Even If You Think You’ve Flunked It, Part 5

01 Dec Means Test: Don’t Give Up, Even If You Think You’ve Flunked It, Part 5

If your bankruptcy lawyer tells you there is a problem with your “means test,” known as Form B22, make sure the correct amount has been claimed for your vehicle ownership allowance. This is a dollar figure from the IRS National Standards which attempts to estimate the average amount a person should be spending on car payments or lease payments each month (or spending on acquiring a vehicle somehow). The standard amount is $471.00 per month for the first vehicle in the household and $332.00 for the second vehicle (these amounts are scheduled to be recalculated effective January 1, 2008). The law says you are allowed an expense consisting of the standard amount, or the average car payment due over the next sixty months, whichever is greater.

Assume your car payment is $500.00 per month and you have sixty months left on the loan. The average monthly payment over the next sixty months is $500.00, so you are allowed $500.00 as an expense. Assume, however, you only have thirty months left on the car loan; now the average payment due over the next sixty months is $250.00; therefore you are allowed an expense of $471.00 per month. This is because you get either the standard amount or the sixty-month average payment, whichever is greater.

If you lease a vehicle, your expense is the standard amount, no matter how much the lease payment is, and no matter how many payments are left on the lease.

But what happens if you own a vehicle upon which you owe no more payments? There are numerous federal court rulings on this question. About two-thirds of the cases say you are entitled to the standard expense of $471.00, even if you own the car free and clear; this approach follows the literal language of the law. The rest of the cases say you get no ownership expense if there is no car loan. Be sure to ask your lawyer if the judges in your federal court district allow the standard expense even without a car loan, because if they do, you certainly can take the expense regardless of your circumstances. In fact, there is a good argument to be made that even if you own no motor vehicle, you still get the ownership expense. This is because the law simply says you get to take the “applicable” expense from the IRS standards, and many judges apparently feel that the standards “apply” equally to everyone, car loan or no car loan, and maybe even car or no car.

If you really need the ownership expense on your means test, but have either no car payment or a very small payment, you might start wondering whether you should buy a different vehicle with an average-sized payment, before your case is filed. You may also wonder about taking out a loan on a vehicle you own free and clear. This might result in a new, higher expense on your means test, possibly making a big difference in your bankruptcy. This is only a good idea if you undertake the new (or used) vehicle purchase for reasons which are not bankruptcy related. If your car is getting old or unreliable, and you decide to get a new one before filing bankruptcy, the U.S. Trustee should not be able to argue that you purchased the new one just to obtain an advantage on the means test.

Remember, the means test is not supposed to make any sense; it is only a formula applying fixed dollar amounts to persons with varying situations. The more you know about how to fill out the means test form, the less likely it will be that your means test harms your bankruptcy case.

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Craig Andresen is a Minnesota bankruptcy attorney who represents both consumers and small business owners in chapter 7 and chapter 13 cases. With thirty years experience, Mr. Andresen is a frequent speaker on the topics of stopping mortgage foreclosures, and stripping off second mortgages in chapter 13. His office is located in Bloomington just across the street from the Mall of America. Call his office at (952) 831-1995 for a free consultation about protecting your rights using bankruptcy.
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