An employer’s reimbursement of a worker’s business expenses must be included in calculating whether the debtor has above-median income, according to Bankruptcy Judge Beth E. Hanan of Milwaukee.
The debtor, who was not self-employed, got about $1,000 a month in reimbursement from his employer for using his personal car on business and entertaining customers. If the $1,000 were included in calculating “currently monthly income,” he would have above-median income, requiring a five-year chapter 13 plan. If reimbursement were not included, he would have below-median income, making him eligible for a three-year plan.
Although there were no cases on point for a debtor not self-employed, Judge Hanan found the answer in the language of the Bankruptcy Code and by analogy to cases dealing with self-employed debtors.
Section 101(10A) defines current monthly income, or CMI, as average monthly income from all sources “without regard to whether such income is taxable income.” The statute also says that CMI includes regular payments from sources other than the debtor “for the household expenses of the debtor.” Social Security benefits and some other items are statutorily excluded from CMI.
While Section 1325(b)(2) defines “disposable income” as CMI less reasonable expenses, Judge Hanan said that the Code allows deductions of expenses only once, in the calculation of disposable income, “but not in the CMI calculation.”
In her Sept. 29 opinion, Judge Hanan was persuaded by “analogous” cases involving self-employed debtors where, she said, a majority of courts require inclusion of gross receipts in CMI but do not permit deduction for “necessary operating expenses.”
There is a “disconnect,” she said, between the Official Forms and the Code itself. Although Line 5 of Form 122C-1 allows for deducting operating expenses, she said the Code is controlling because Section 101(10A) does not provide for deductions.
Based on the “plain language” of the statute and the lack of an exclusion in Section 101(10A), Judge Hanan concluded that “employer-paid reimbursements are income that must be included in the CMI calculation.”
If he appeals, the debtor might argue that the statute does contain language in his favor. Under Section 101(10A)(B), CMI includes income from other sources if it is “for the household expenses of the debtor.” Arguably, reimbursement from the employer is income from another source that is excluded because it is not for “household expenses.”
As consolation for the debtor, Judge Hanan said that reimbursed expenses represent a deduction in determination of disposable income and the resulting payments, if any, to unsecured creditors.