The Judicial Conference has approved Official Forms 22A and 22C for use in making the means test calculation in chapter 7 (OF 22A) and determining disposable income in chapter 13 (OF 22C). Both forms utilize the same methodology in applying the transportation standards and the housing and utilities standards. In the transportation standards, the debtor is allowed the greater of the maximum ownership costs standard or the debtor's secured vehicle payments determined under §707(b)(2)(A)(iii). For housing and utilities expenses, the debtor is allowed the greater of the maximum standard for mortgage/rent or the debtor's house payment determined under §707(b)(2)(A)(iii). This begs the question: Is this the correct interpretation of §707(b)(2)(A)(ii)(I)? For the following reasons, it is this author's opinion it is not.
One, as always, starts with the language of the statute. "The debtor's monthly expenses shall be the debtor's applicable monthly expense amount specified under the National Standards and Local Standards . . . issued by the Internal Revenue Service for the area in which the debtor resides" [§707(b)(2)(A)(ii)(I)]. The official forms are predicated upon the assumption that the "amount specified" in the standards for transportation and housing and utilities is a set amount. It is true that in those standards, an amount is specified, but unlike the amounts specified in the National Standards for food, clothing, etc., it is not a set amount. The amount specified in the National and Local Standards for transportation and housing and utilities is a maximum, not-to-exceed amount. The Internal Revenue Manual Financial Analysis Handbook, of which the standards are an integral part, specifically provides that for the transportation and housing and utilities standards, a [debtor] is allowed the lesser of the [debtor's] actual expenses or the amount specified [IRM 5.15.1.7]. The official forms reverse this: The debtor is allowed the greater of the amounts specified or the debtor's actual expense.
The official forms allow as an expense deduction the amount specified for transportation ownership costs in the National Standards (currently $475/month for the first car and $338/month for the second). However, to avoid "double dipping," the debtor is required to reduce that amount by the amount of the secured debt payments determined under §707(b)(2)(A)(iii), but not below zero. With respect to housing and utilities, the debtor is allowed the amount specified in the standards for mortgage/rent. As with transportation ownership costs, the debtor is required to reduce that amount by the house payments determined under §707(b)(2)(A)(iii), but not below zero. The net result is that in both instances the debtor gets at least the amount specified, but if the secured debt monthly payment exceeds that amount, the debtor is allowed the amount of the secured debt payment.
Because §707(b)(2)(A)(iii) places no limit on the amount of secured debt that is allowed as an expense, the official forms correctly allow debtors to deduct the full amount of payments on secured debts coming due during the five-year period. What the official forms fail to take into account is the situation in which the debtor's secured payments are substantially less than the amount specified in the standards. For example, assume a debtor owns one car with payments of $500/month and 30 months left on the contract. The debtor's allowed monthly expense under §707(b)(2)(A)(iii) is $250 ($15,000/60). However, the debtor is allowed $475; the debtor gets to expense $28,500 ($475 x 60) while only repaying $15,000. The situation worsens if the debtor has a second car that is paid for. In that case, the debtor would be allowed a transportation ownership expense of $813/month. The debtor will essentially be paying $15,000 but getting "credit" for repaying $48,780 ($813 x 60), more than triple the amount actually paid!
The approach taken in the official forms does not present a significant problem when applying §707(b). While §707(b)(2) creates a presumption of abuse, it is not the sole vehicle for a finding of abuse under §707(b)(1). The totality of the circumstances . . . of the debtor's financial situation demonstrates "abuse" is available where the presumption of abuse does not arise [§707(b)(3)]. The foregoing example with respect to automobiles may very well fall within the scope of §707(b)(3).
The real problem is in chapter 13. Where a debtor's annualized income exceeds the applicable median income, in computing disposable income, allowable expenses "shall be determined in accordance with subparagraphs (A) and (B) of §707(b)(2)" [§1325(b)(3)]. The rules of statutory construction mandate that §707(b)(2)(A)(ii)(I) be construed as applied in §1325(b)(3) the same as it is for §707(b)(2). Indeed, OF 22C does just that. In the transportation example above, the result may be that the debtor retains $33,780 that should be actually available to pay unsecured creditors through the plan! This coupled with the lack of any limit on either the amount or the nature of secured debt under §707(b)(2)(A)(iii) could effectively result in §1325(a)(4) setting the amount that must be paid to unsecured creditors under the plan. A debtor might be required to pay unsecured creditors only the present value of excess equity in exempt property plus the present value of nonexempt assets. If the Judicial Conference's interpretation of §707(b)(2)(ii)(I) is correct, Congress may have created a system that could result in less recovery by unsecured creditors not more than they would under pre-BAPCPA law. Unsecured creditors may be lamenting, "say it ain't so, Joe!"
It may be difficult, if at all possible, to apply §1325(a)(7) to the situation where the debtor's actual transportation or housing expenses are less than those allowed. First, transportation and housing involve necessities, not luxuries. It is no more unfair, inequitable or a lack of good faith for a debtor to take full advantage of what Congress has specifically allowed for transportation or housing, notwithstanding the fact that it is more than the debtor actually expends, than it is has clearly and unequivocally done with respect to food, clothing, etc., which, under the IRM, are applied without regard to actual expenses. The issue here is more akin to exemptions, the taking of advantage of which has not been held to be indicative of a lack of good faith.
Second, in the absence of a lack-of-good-faith argument, under §1325(b)(1), if a creditor (or the trustee) objects, all disposable income must be paid to unsecured creditors. Disposable income for those whose annualized current monthly income exceeds the applicable median income must be determined using the expenses allowed by §707(b)(2)(A) and (B) [§1325(b)(2), (3)]. Congress has decreed that the remedy and the maxim of statutory construction, expressio unius est exclusio alterius, may exclude any other remedy.
The bottom line is that creditors are likely left with only the argument that the Judicial Conference's interpretation is incorrect. If it is correct, then chapter 13 debtors should be able to take full advantage of the maximum amounts allowed for transportation and housing expenses irrespective of actual expenses. But whether it is correct or not, the interpretation adopted by the official forms is likely to spawn a plethora of litigation in chapter 13 cases.