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Debtors Allowed to Deduct Expenses for Property They Intend to Surrender

Posted By admin || 26-Aug-2009

Clear Debt Through Bankruptcy

In the Chapter 7 bankruptcy case of Rudler, Glen H.; In re (Morse, U.S. Trustee, v. Rudler) the bankruptcy court allowed the debtor to take a Means Test expense deduction for debt payments on a property he intended to surrender during bankruptcy.

The details of the bankruptcy case:

"The above-median income debtor filed for Chapter 7 relief in August 2006. He stated an intention to surrender his home, which was secured by two mort­gages with a combined monthly payment of approximately $4,000. Despite his stated intention, the debtor included the mortgage payments as deductions on Form 22A. That calculation produced a monthly disposable income of negative $2,376, thus avoiding the presumption of abuse. If he had taken the statutorily prescribed housing allowance of $1,439 instead of the $4,000, his disposable income would have been $1,461 and his case would have been presumptively abusive. The bankruptcy court denied the U.S. Trustee's motion to dismiss the debtor's case pursuant to Section 707(b), concluding that the mortgage payment deductions were permissible."

The bankruptcy court also said that the Means Test calculation was intended to give a "snap-shot" view of the debtor's financial situation at the time of the bankruptcy filing, not consider the debtors future circumstances.  Therefore even if a debtor had the intention of surrendering a property that had debt payments, the Means Test could not use that information, only the current facts could be included. This may be good news for debtors who are considering "giving back" to a creditor secured property such as a house or car during a bankruptcy.  Although the debtor might be considering a surrender of the property, he/she has not actually done so, which creates the possibility that the debtor may change his/her mind and not surrender the property. Also, if the debtor's intention was used in the Means Test it may cause more problems by created misrepresentation of the debtor's CURRENT financial circumstance.

Source: Consumer Bankruptcy News, Volume 19, Issue 18, page 8

Categories: Debt and Tax Relief
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