Allowable Expenses???

[BK Overwhelmed]

I have another question I am hoping someone could shed some light on. What happens if your rent or car payments simply are higher than what the IRS has determined as "allowable"? For example, in my county we are "allowed" $1200 in monthly rent...but we pay $2500 and are allowed $489 lease allowance but pay $600 for one of our cars. We are a family if 6. We live in AZ.

Using the real numbers...we seem to pass the means test for a chapter 7. But could the trustee say...you are paying too much and then reduce the amount..so then you no longer qualify for chapter 7?

Hope this makes sense. What is the worst case scenerio of this? What is typical?

[diviaruba]

I have another question I am hoping someone could shed some light on. What happens if your rent or car payments simply are higher than what the IRS has determined as "allowable"? For example, in my county we are "allowed" $1200 in monthly rent...but we pay $2500 and are allowed $489 lease allowance but pay $600 for one of our cars. We are a family if 6. We live in AZ.

Using the real numbers...we seem to pass the means test for a chapter 7. But could the trustee say...you are paying too much and then reduce the amount..so then you no longer qualify for chapter 7?

Hope this makes sense. What is the worst case scenerio of this? What is typical?

Unfortunately, for your case, they are in fact limits. Anything above those amounts indicated is considered "excessive" and is disallowed under the means test. You can be made to move to less expensive rental, although most people find the dollars from somewhere else. You've got a pretty big spread between "allowed" and "actual".

But $1200 for a family of six? That sounds awfully low, no matter where you are in the country.

[Cali]

They can make you move? I didn't know that.

My rent is more than they allow for housing and utilities. I don't know what part of this city they were using to make their decision, because there is no way you can find a 3 bedroom house for what they are using.

[jenopher]

If it is rent, then they use the IRS amount. You can count a higher mortgage amount if you intend to keep the home.

[CindyLou]

They won't make you move, you just a can't use the higher amount in your calculations. If it was a mortgage then you could use the higher amount, but not with rent.

[Poppie]

Is this true even for the Schedule J?

[HHM]

There are 2 issues.

Means test and actual disposable income (schedule I and J)

For the means test, you are limited to the IRS standards. For Schedule J, you list what you actually spend. All you need to do is rebutt the presumption that your filing is abusive. You CAN have expenses above the national standards and still file chapter 7, you just need to prove that the expenses you incur are normal for your area (the BK system does NOT make you move). For the most part, in districts that are expensive, the trustees don't make an issue of it and simply accept the higher amount.

[diviaruba]

There are 2 issues.

Means test and actual disposable income (schedule I and J)

For the means test, you are limited to the IRS standards. For Schedule J, you list what you actually spend. All you need to do is rebutt the presumption that your filing is abusive. You CAN have expenses above the national standards and still file chapter 7, you just need to prove that the expenses you incur are normal for your area (the BK system does NOT make youmove). For the most part, in districts that are expensive, the trustees don't make an issue of it and simply accept the higher amount.

While the bankruptcy system cannot force you to move, per se, they can disallow expenses that are unreasonable (see In re Zaya "They can substantially reduce their expenses, especially their housing expenses, without being deprived of adequate housing, food, clothing, or other necessities. Their financial condition is not primarily the result of unforeseen circumstances. Under the totality of the circumstances, the granting of relief would be an abuse of the provisions of Chapter 7").

Or the court may deny confirmation of a Chapter 13 plan (see In re Loper,


Either way, it would effectively force you to seek housing wih costs more in line with the standards.

[HHM]

While the bankruptcy system cannot force you to move, per se, they can disallow expenses that are unreasonable (see In re Zaya "They can substantially reduce their expenses, especially their housing expenses, without being deprived of adequate housing, food, clothing, or other necessities. Their financial condition is not primarily the result of unforeseen circumstances. Under the totality of the circumstances, the granting of relief would be an abuse of the provisions of Chapter 7").

Or the court may deny confirmation of a Chapter 13 plan (see In re Loper, "However, in cases such as the one at bar, a low percentage of payments to unsecured creditors, coupled with excessively high mortgage payments and an insufficient showing of necessity for such large payments, forces this Court to deny plan confirmation in favor of increasing the monies available to pay creditors. Where debtors choose to retain expensive housing, “it is they that should bear the cost of the unusual and improvident expenses which unfairly discriminate against unsecured creditors.”


Either way, it would effectively force you to seek housing wih costs more in line with the standards.

True enough, but by the same token, in areas where the average expenses routinly exceed the standards, trustees rarely force the issue. Granted, you cannot be outragously over the standards, but if there is no "real", less costly alternative, the trustees don't care. Think of areas like San Francisco, New York, etc, average housing costs far exceed the standards, and people file BK 7 all the time with housing expenses over the standards and have no problem. The cases you point out deal with the situation where there is a reasonable alternative and a reasonable way to lower expenses, so long as you can prove, or the trustees already accept, the fact that your area has certain expenses above the standards, the debtor should have no problems.

In the OP's case, we are talking about $141 difference. He still lists the $600 rent on schedule J. Whether it will be allowed in his area depends on what court accepts.

[Cali]

For my county they have housing/utilities at 2560$ or something like that for a family of 4. There is no way you can find a safe area house and pay utilities for that amount. My rent alone is more than that.

[Pizza]

You can be made to move to less expensive rental, although most people find the dollars from somewhere else.

So what if you live in a dump and can't sell for what you owe?
I'd love for someone to tell me I 'had to move', personally.

[keepmine]

If you have negative equity in your home, you need to surrender it in bk and move without someone having to tell you. Take full advantage of your fresh start.

[Pizza]

If you have negative equity in your home, you need to surrender it in bk and move without someone having to tell you. Take full advantage of your fresh start.

I didn't think that was allowed...

[Cali]

If the house is holding you down, then you need to let it go.

I didn't think that was allowed...

[Pizza]

If the house is holding you down, then you need to let it go.

Okay question (I'm not very educated but hear lots of rumors)

If you file Ch.7 are you allowed to give up your house outright if it's messing you up? I've heard the quick & simple 'you can't file against a house, car, or student loan' rule from others, leading me to believe you can have your unsecured debts discharged but if you don't want to keep secured ones, tough, there's no easy way to let one go.

So I never considered the possibility of dropping our old, foundation-damaged, wood-rotted, mouse-filled, roach-infested, water-damaged, energy-guzzling, electricity-failing, roof-leaking, crooked, rotten dang ol' house

Granted I have repaired some of the above in the cheapest, most half-assed manner possible... but I'm still paying on at least $20k above my closest estimated market value (and feel like no one in their right mind would buy it - we were young & uneducated and are basically stuck in it).