522 B.R. 804
Bankr. E.D.N.C.2014Background
- Debtors (Cydric and Pamela Harris) filed Chapter 13 on August 4, 2014; Trustee objected to confirmation alleging plan fails §1325(b) projected disposable income requirement.
- Debtors are above-median income under the B22C means test; B22C showed negative disposable income based on deductions including mortgage and car.
- Debtors claimed IRS Local Standard allowances and actual secured payments on Form B22C (housing: actual payment $1,357.67 vs. Local Standard $885.00; car: actual payment $162.38 vs. Local Standard $517.00).
- Trustee argued above-median debtors may deduct only the lesser of actual secured payments or IRS Local Standards, with any excess allowable only upon proof of special circumstances under §707(b)(2)(B).
- Court evaluated interplay of §707(b)(2)(A)(ii) (IRS standards) and §707(b)(2)(A)(iii) (average monthly secured payments), guided by Supreme Court precedent (Ransom and Hamilton) and IRS Internal Revenue Manual guidance.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Debtors) | Held |
|---|---|---|---|
| Whether above-median debtors calculating disposable income may deduct actual home/vehicle payments greater than IRS Local Standards | Deduction capped at the lesser of actual payment or IRS Local Standard; excess may be allowed only for special circumstances under §707(b)(2)(B) | Statutory text permits debtors to deduct the greater of the IRS Standard or actual secured payment under §707(b)(2)(A) clauses | Held: Deduction limited to the lesser of actual payment or IRS Local Standard; excess requires §707(b)(2)(B) proof |
| Whether IRS Local Standard may be claimed when actual expense is lower than the Standard | Trustee: claim only lesser (actual) where appropriate; avoid anomalous results | Debtors: Form B22C and statutory language allow taking the higher standard even if actual expense less | Held: Debtors may claim only applicable expense; if actual payment exists less than standard, claim the actual amount (i.e., lesser of actual or standard) |
| Whether secured payments should be deducted twice (as expense and as secured debt) on B22C (Lines 25/28 vs. 47/48) | Trustee: disallow duplication; housing/car should be accounted as expenses (Lines 25/28) not again as secured debt (Line 47) | Debtors implicitly relied on Form B22C entries | Held: Duplication impermissible; take housing/car as expense (lesser of actual or standard) and do not also deduct same amount on Line 47/48 |
| Use and weight of IRS Internal Revenue Manual (IRM) and Form B22C consistency with Code | Trustee: IRM guidance properly informs which IRS Standard amounts are "applicable"; Form B22C should conform to Code/IRM | Debtors: B22C and statutory language control; Trustee's IRM reliance improper | Held: Court endorses consulting IRM as guidance per Ransom; Form B22C must be read consistent with the Code and adjusted where inconsistent |
Key Cases Cited
- Ransom v. FIA Card Servs., 562 U.S. 61 (Sup. Ct. 2011) (expense allowances under IRS standards are claimable only if "applicable" to debtor; courts may consult IRS guidelines)
- Hamilton v. Lanning, 560 U.S. 505 (Sup. Ct. 2010) (projected disposable income is forward-looking and may account for known or virtually certain changes)
- Pliler v. Stearns, 747 F.3d 260 (4th Cir. 2014) (bankruptcy court may consider Schedules I and J and other evidence to capture known or virtually certain changes to disposable income)