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Car Deduction And 401(k) Loan Payment Deduction Not Allowed By Bankruptcy Trustee

Posted By admin || 12-Jun-2009

In the bankruptcy case of R. Barraza, the bankruptcy trustee dismissed the debtor's Chapter 7 bankruptcy because he ruled that it was abusive under the means test in section 707(b)(2)(A) of the bankruptcy code.

The bankruptcy case said:

"The debtor attempts to avoid the presumption of abuse by (a) taking a standard $475 ownership allowance for a truck that is neither financed nor leased, and (b) deducting $915 per month from his current income to account for loan repayments on two loans from the debtor's 401(k) plans. The court reiterates its holding in In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006), that the Local Standards do not permit a debtor to take a standard ownership allowance for a vehicle that is neither financed nor leased."

The debtor also claimed that his 401(k) loan repayments were a mandatory expense, but the court disagreed.  The court ruled that according to the bankruptcy law, 401(k) loan repayments are not considered mandatory and thus should not be deducted from the debtor's current income on the means test form.

Furthermore, despite the fact that 401(k) loan repayments are exempt from the automatic stay, the bankruptcy court still refused to allow the deduction on the means test form. The debtor's counsel emphasized that the debtor was a financially responsible person who had no history of abusing debt.

The bankruptcy court agreed that the debtor had demonstrated that he lived a modest lifestyle and was a conscientious worker; but that they could not make their decision based on those qualities.  The court's decision was solely based on whether the debtor's actions were within what is permitted by the bankruptcy laws.  They ruled that the debtor's actions were abusive and upheld the bankruptcy trustee's denial of his bankruptcy discharge.

Categories: Bankruptcy
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