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.