The Fourth Circuit answered a question the Supreme Court left open in Ransom by holding that chapter 7 debtors can pass the means test by using the National and Local Standards even if their actual expenses are less than the standard amounts.
In computing the means test, the husband and wife debtors filled out Form 122A-2 using the National and Local Standards for their mortgage and auto expenses rather than their actual expenses, which were substantially less.
The bankruptcy administrator filed a motion to dismiss for presumptive abuse, contending that the debtors would fail the means test if their actual expenses were used. Bankruptcy Judge Stephani W. Humrickhouse of Raleigh, N.C., denied the motion to dismiss.
The Fourth Circuit granted the parties’ motion for a direct appeal because the bankruptcy courts in North Carolina have been divided on this issue.
In a Jan. 4 opinion, the appeals court affirmed the bankruptcy court and held that the plain language of Section 707(b) allows the debtors “to deduct the full National and Local Standard amounts even if they have actual expenses below the standard amounts.”
The opinion by Circuit Judge Stephanie D. Thacker said that requiring a debtor to use the lower of the two amounts “would create an absurd result: punishing frugal debtors.”
In Ransom, the Supreme Court held in 2011 that an expense is “applicable” under Section 707(b)(2)(A)(ii)(I) only if the debtor will incur “that kind of expense” during the life of the plan. Judge Thacker said that the high court expressly declined to decide the proper deduction for a debtor with expenses lower than the Local Standards.
In deciding the issue left open by the Supreme Court, Judge Thacker said that the statutory language is “quite clear,” because the subsection says that the amount “shall be the debtor’s applicable monthly expense amounts specified under the National and Local Standards,” so long as that type of expense has been incurred.
Judge Thacker noted how the statute uses the words “applicable” and “actual.” She said that the “words must mean something different” because “Congress chose to use the two different words in the same sentence.” She therefore concluded that “applicable monthly expenses” allows a debtor to take the full standard amounts while “actual monthly expenses” only permits using “expenses incurred.”
The opinion contains a second holding of note.
The parties missed the deadlines for applying to certify an appeal directly to the circuit court under Bankruptcy Rule 8006. Judge Thacker held that the deadlines were procedural, not jurisdictional. She therefore allowed the direct appeal because the delay “resulted from the complexity and confusing nature of the Bankruptcy Code and not an act of bad faith by the parties.”