Paola Chiarenza

Document Type

Research Memorandum

Publication Date




Under The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) (S. 256, Pub. L. No. 109–8, 119 Stat. 23), debtors are subjected to a test in order to ensure their creditors are repaid as much as possible. Chapter 13 requires debtors in bankruptcy to file a plan indicting a monthly amount they will repay to creditors over a given set of years. The amount to be repaid is a debtor’s entire “disposable income,” which is income minus expenses. See 11 U.S.C. § 1325 (2007). Deductable expenses are to be calculated the same as a chapter 7 filing. See 11 U.S.C. §§1325, 707. When subtracting expenses, Chapter 7 directs filers to use the “applicable” standard amounts, which are averages issued by the Internal Revenue Service. However, there is currently a split among circuits as to whether these standard averages are intended to be used in all circumstances or as a cap when debtor’s actual expenses are above average. As a cap, debtors who do not meet the “maximum” would use their actual amounts and creditors would be entitled to higher repayments.

The Second Circuit recently evaluated this issue when a debtor subtracted the applicable standard amount using the IRS’s data. A creditor wanted the court to direct the debtor to only subtract the lower, actual expense, thereby increasing the debtor’s disposable income allowing the creditor a larger return. At the time of that case, and still today, there is far from a clear majority on either side and courts continue to base their holdings on various rationale, such as the existence of other standards, statutory construction, legislative intent and policy concerns.


To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.