VIII. EXPENSES
Calculating the debtor's monthly expenses is a crucial aspect of the means test. 11 U.S.C. § 707(b)(2)(A)(ii) defines the allowable expenses which are to be claimed on Forms B 122A-2 and B 122C-2. See Bankruptcy Manual Form Nos. 25 and 28, "Chapter 7 Means Test Calculation (Form B 122A-2; Official Form 122A-2)," and "Chapter 13 Calculation of Your Disposable Income (Form B 122C-2; Official Form 122C-2)." The expenses include "the debtor's applicable monthly expenses amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides. . . ." The National Standards and Local Standards are found in the Internal Revenue Service Financial Analysis Handbook, a part of the Internal Revenue Manual.
The National Standards category covers food, clothing, household supplies, personal care and miscellaneous expenses, while the Local Standards category covers housing, utilities and transportation expenses. Both the National Standards and Local Standards allowances are fixed amounts, and so long as the debtor has an "applicable" expense under the category, the debtor may claim the full amount of the deduction, regardless of the debtor's actual expense. See In re Scott, 457 B.R 740 (Bankr. S.D. Ill. 2011) (IRS Standard is "applicable," and may be claimed in full by the debtors, despite the fact that their actual vehicle loan expenses are less).
The third category of expenses, "Other Necessary Expenses," covers a miscellany of deductions, including items such as dependent care, education expenses, charitable contributions, life and disability insurance, as well as secured debt payments. Unlike the allowances for National and Local Standards, the debtor may only deduct actual expenses under this category. The following analysis provides a line-by-line analysis of the various expenses under Section 707(b)(2)(A)(ii), as well as pertinent case law construing each item.
A. National Standards
1. Food, Clothing and Other Items (Forms B 122A-2 and B 122C-2, Line 6)
See In re Hammock, 436 B.R. 343 (Bankr. E.D.N.C. 2010) (debtor could not take the IRS standard deduction for household of two including spouse, and simultaneously deduct the spouse's food and clothing expenses at Line 17 as a "marital adjustment").
2. Out-of-Pocket Health Care Allowances (Forms B 122A-2 and B 122C-2, Line 7)
The debtor is entitled to the national health care standard amount, even if actual expenditures are less than the standard. See In re Melancon, 400 B.R. 522 (Bankr. M.D. La. 2009) (Chapter 13). If the debtor's health expenses exceed the standard amount, the debtor may claim her actual expense in excess of the standard at Line 22.
B. Local Standards
1. Housing and Utilities; Insurance and Operating Expenses (Forms B 122A-2 and B 122C-2, Line 8)
This expense is based on the county of residence and includes mortgage or rent, property taxes, interest, insurance, maintenance, repairs, gas, electric, water, heating oil, garbage collection, telephone, cell phone, Internet and cable. The few courts to address this line item have found that it includes basic home telephone service, and accordingly basic phone service may not be deducted elsewhere on the means test. See In re Carlton, 362 B.R. 402 (Bankr. C.D. Ill. 2007) (Chapter 13); In re Stimac, 366 B.R. 889, 892 (Bankr. E.D. Wis. 2007) (Chapter 13).
A debtor who has any housing expense may claim the full deduction, despite not having a mortgage debt or having expenses which are less than the standard. See Lynch v. Jackson, 853 F.3d 116 (4th Cir. 2017) (discussed further below). See also In re Currie, 537 B.R. 884 (Bankr. C.D. Ill. 2015); but see In re Fields, 534 B.R. 126 (Bankr. E.D.N.C. 2015) (expense limited to the debtor's actual expense or the local standard, whichever is less). (Important note: In light of the Lynch v. Jackson decision, this holding has very limited authority).
2. Housing and Utilities; Mortgage or Rent Expenses (Forms B 122A-2 and B 122C-2, Line 9)
This expense is based on the county of residence. This line item is not frequently in dispute, as most debtors have some form of rent or mortgage expense. However, some cases have addressed whether a debtor with no mortgage or rent expense may claim the deduction. Prior to the Supreme Court decision in Ransom v. FIA Card Services, NA, 562 U.S. 61 (2011), the case law favored debtors on this question. See In re Farrer-Johnson, 353 B.R. 224, 230-31 (Bankr. N.D. Ill. 2006) (Chapter 13) (debtors could deduct IRS Housing Local Standard allowance even though the debtors lived in military housing for which they paid no rent or mortgage installments). Post-Ransom, the first court to explicitly examine the issue is In re Wilson, 454 B.R. 155 (Bankr. D. Colo. 2011) (Chapter 7) (finding that a debtor with no actual mortgage or rent expense does not have an applicable expense under Section 707(b)(2)(A)(ii)(I) and may not take the standard deduction at line 20B). The Eastern District of North Carolina has ruled similarly. See In re Hector, 16-05602-5-SWH, 2017 Bankr. LEXIS 3255 (Bankr. E.D.N.C. Sept. 26, 2017) (Chapter 7) (Debtor's case was dismissed for abuse under 11 U.S.C.S. § 707(b)(1) upon disallowance of her claimed mortgage or rent expense because she remitted no funds directly to her partner in exchange for the right to reside at his property. Her contributions of groceries and cleaning supplies did not amount to a rental or mortgage expense.)
Similarly, courts have examined whether a debtor who has a housing expense on the date of the petition but who declares an intention to surrender the property may still claim the housing expense. The majority of courts have found that if the debtor has the expense on the petition filing date, he has an "applicable expense," and may claim the deduction. See In re Rudler, 576 F.3d 37 (1st Cir. 2009) for discussion of authority. The few opinions that have emerged since Ransom support the continued deduction for surrendered property. See In re Grinkmeyer, 456 B.R. 385 (Bankr. S.D. Ind. 2011) (Chapter 7) (Ransom distinguished; surrender of residence).
Is the allowance for mortgage expenses capped, which disallows the extra amount of a higher mortgage payment? No, according to In re Everhart, 607 B.R. 565 (Bankr. N.D. Tex. Sept. 17, 2019) and In re Cook, 638 B.R. 732 (Bankr. E.D.N.C. 2022) (Chapter 13 above-median income debtor's mortgage deduction is not "capped" at IRS local standard. Contractual mortgage payment could be deducted.) This is a split from In re Harris, 522 B.R. 804 (Bankr. E.D.N.C. 2014) where the home and vehicle allowances serve only to operate as a "cap" when secured home and vehicle payments exceed the standard amounts. In the Cook case, the 4th Circuit has granted the Trustee's petition for direct appeal. See Bledsoe v. Cook, Docket # 2022-1328; U.S. Court of Appeals for the 4th Circuit.
3. Housing and Utilities Adjustment (Forms B 122A-2 and B 122C-2, Line 10)
This is a seldom utilized deduction. Courts have generally discouraged its use for housing payments exceeding the allowances at Line 8. See In re Skaggs, 349 B.R. 594 (Bankr. E.D. Mo. 2006) (Chapter 7) (adjustment should not be used for excessive rent payment); In re Meek, 370 B.R. 294 (Bankr. D. Idaho 2007) (Chapter 13) (finding that Section 707(b)(2)(A)(ii)(I) does not include any amount for payment of debts).
However, if the debtor can show maintenance/repair expenses exceeding the allowance under Line 10, the enhanced housing expense may be allowed. See In re Turner, 376 B.R. 370 (Bankr. D.N.H. 2007) (Chapter 7) (pest control costs to kill carpenter ants). But see In re Barbutes, 436 B.R. 519 (Bankr. M.D. Tenn. 2010) (amount in excess of standard may be deducted as "special circumstance"; court finds $624.11 reasonable given age and condition of house, as well as the debtor's exhaustive documentation of the expense).
4. Transportation: Local Transportation Expenses and Vehicle Operation Expense (Forms B 122A-2 and B 122C-2, Lines 11 and 12)
The vehicle operating expense allowance is based on metro area or region where the debtor resides. Some sub-issues of this deduction include:
i. What Qualifies as a Vehicle?
The expense covers operating costs and may be claimed regardless of whether the debtor has a loan or lease payment. However, to claim...
