By: Scott B. Riddle, Esq.

There is a school of thought that says that Chapter 7 debtors can still "pass" the Means Test if the expense that would otherwise cause them to "fail" is a house payment more than the allowable housing deduction.  It is unclear where that arose, or how often it worked, but the case of In re Delunas, 2007 Bankr. LEXIS 803 (Bankr. E.D. Mo., March 6, 2007), illustrates the fallacy of that argument.

Debtors’ annual income for a family of five raised the presumption of abuse.  However, on the Means Test they attempted to include an expense for "special circumstances" in the amount of $813 per month. In fact, this amount was the portion of their monthly mortgage payment over and above the allowable housing allowance of $1012 per month.  Debtors claimed this was an educational expense because they wanted each child (including an adult daughter) to have their own room, and it allowed the children to stay in the same school they had been attending.  The court noted that there was no evidence that the allowed housing expense priced them out of the district; it just priced them out of the relatively expensive home they wanted to keep at creditors’ expense.  Finally, the Court found that the Debtors could not provide their adult daughter, who was working and not in school, with free room and board on the backs of their creditors.  The Chapter 7 case was dismissed.  

The court also dismissed the debtors’ claim that one daughter’s depression was an excuse to stay in the house.  Finally, the Court noted that even if the additional mortgage expense could be classified as an educational expense, it would be subject to the ceiling of $1500/year in 707(b)(2)(A)(ii)(IV).