I am catching up (again) from the latest news about Britney’s new baby, backdating, and the tragic Whitney and Bobby saga, to the exciting world of the BAPCPA.
Today’s lesson is how to beat the Means Test (in limited circumstances). It comes courtesy of the Credit Slips Blog, in an article entitled Chickens in the Pot, Cars in the Garage, and Turkeys in the Law by Professor Bob Lawless.
The highlights of how to save $ 140 and perhaps qualify for a Chapter 7 —
Currently, the IRS guidelines allow $471 in monthly payments for the ownership of "Vehicle 1" and $332 in monthly payments for the ownership of "vehicle 2." In our problem, the married couple owned two automobiles. On one auto they made a $610 monthly payment, and they were no longer making payments on the other auto. It matters not that they one vehicle free and clear. …. under the bankruptcy law but not the IRS guidelines, the debtors could deduct the full $610 monthly payment they were actually making.
"Vehicle 1" [on the BR form] means the newer, more expensive car, right? A student gently pointed out that definition was specified nowhere in the Bankruptcy Code or IRS guidelines. Indeed, the issue does not arise under the IRS guidelines because the amounts operate as caps, not minimums. If instead we designated the $610 payment to "vehicle 2," we get to use the statutory minimum of $471. Because one generally loses eligibility if there is $100/month left to pay creditors, the difference between a statutory minimum of $471 and $332 could be dispositive.
As Whitney would say… "That is Wack!"
Keep in mind that the US Trustees and Judges may not always agree with the analysis, and have the right to seek dismissal under the "substantial abuse" catch-all.
Update – In In re Fowler, the Delaware Bankruptcy Court analysed the statute, legislative history and policy considerations and held that a debtor could use the standard deductions even though she did not have a car payment. See 2006 Bankr. LEXIS 2117 (Bankr. D. Del. Sep. 11, 2006).