20 May Projected Disposable Income Held Ransom For $200?
If you’re filing for bankruptcy, do you still have to pay back creditors? Depending on how your local court looks at it, that old car may save you $200 a month.
When you file for bankruptcy, you’ve got to pay unsecured creditors an amount equal to the projected disposable income available to you during a three to five year period. The amount varies on a case by case basis, and can be as little as $0 up to 100 per cent of the total unsecured debt.
Theresult of themeans test is called your â€œprojected disposable incomeâ€. If it is less than $166.66 per month, you have overcome the presumption of abuse, and should be able to file aChapter 7. If you cannot overcome the presumption of abuse, you may be limited to aChapter 13 with a payment plan over a 5 year period.
To get through the means test, your lawyer’s going to compare your income and your expenses. Depending on your income level, that comparison takes different forms.
If your income during the 6 months immediately prior to filing for bankruptcy is below the state median income for a household of your size then we look atactual income and subtract reasonable expenses to determine the amount of disposable income available to pay creditors.
If, on the other hand, yourincome during the 6 months immediately prior to filing for bankruptcy is above the state median income for a household of your size then we look at your income and subtractexpense standards used by the Internal Revenue Service to determine ability to pay delinquent taxes (not that you owe any taxes, it’s just the standards the U.S. Bankruptcy Court uses for these sorts of calculations). Specifically, National Standards and Local Standards tables show allowed deductions and IRS collection guidelines explain how to apply the standards, though courts are unwilling to rely on the guidelines to interpret bankruptcy law. These standard deductions could be more or less favorable than actual expenses incurred by a debtor.
One of the expense categories had to do with automobiles. Car expenses are divided into two categories, one for ownership expenses associated with the vehicle, and one for operating expenses for the vehicle. If you owned or leased a car you got a standard expense associated with operating it, and a second one for ownership.
The Supreme Court decided a recent case that cleared up our ability to deduct certain car-related expenses in our calculation of projected disposable income. InRansom vs FIA Card Services N.A. the Court decided a debtor has to have a loan or lease payment to be able to also deduct an ownership expense under those IRS standards.
But what Ransom clarified, it also left murky.
The ownership segment was designed to cover the cost of a lease or car finance payment, but even if you didn’t owe money on the car you could still takean additional $200 for car expenses if the vehicle was either more than six years old or had at least 75,000 miles.
This special expense didn’t appear on the books, but the IRS allowed it as a way to account for the fact that people who were driving around older cars probably had some extra expenses associated with keeping it road-worthy.
But now even that extra $200 expense isn’t uniformly accepted.
The Central District Bankruptcy Court of Illinois case of In re VanDyke rejected the supplemental $200 old car expense on the basis that the expense is not specifically part of the National or Local Standards as required by the Ransom decision.
But the U.S. Bankruptcy Court Montana disagreed in the case of In re Baker, holding the deduction as valid. Noteworthy in the Illinois case is that the vehicle was inoperable, though the bankruptcy judge pointed out an allowance could be appropriate if debtor intended to repair the vehicle to running condition during the course of the bankruptcy case.
So will you be able to deduct that extra $200 for your old car? It depends on where you live – and it may be a fight your bankruptcy lawyer will need to take on for you.
Image credit:Bogdan Suditu/Flickr
Andy Miofsky, Esq.
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