Chapter Means Test Interpreted Liberally By Court To Permit Debtors&...

Car related expenses are important deductions in the means test analysis. A debtor’s car expenses, including car payments and car operation expenses, often determine whether a prospective bankruptcy debtor passes a means test analysis for bankruptcy eligibility.

Means test calculation are technical and complicated. I infrequently comment on details of means test computations. However, I read a case dealing with the means test that may interesting to future bankruptcy debtors as well as “means test geeks.”

The case involved a large family which owned and operated three cars. Two cars were paid for, and one car was owned free and clear. The husband filed bankruptcy. The husband’s means test included ownership expense for the two cars with payments and operation expenses for all three cars.

The bankruptcy trustee objected to the debtor’s ownership expense for the third car owned free and clear because IRS expense guidelines applicable to the means test refer to car expenses for only two cars. These expense guidelines are calculated and used by the IRS in calculating tax payment plans.

The court discussed two recent U.S. Supreme Court decisions which held that the means test is not a mechanical and inflexible test, and that  bankruptcy courts should apply the means tes in light of the debtor’s actual circumstances. The means test is designed to determine how much money debtors can afford to pay their creditors given their reasonable needs. The Court found that IRS standards are used to establish a uniform expense amount, but they should not determine what expenses should be allowed.

The bankruptcy court held that a bankruptcy debtor may be able to deduct from income automobile operation expenses for three cars if the third car is reasonably necessary for the care and support of the debtor and his dependents.