Can anyone explain how the IRS allowable expense table works?

[LostOne0069]

OK, so maybe I'm stupid... but the IRS table of allowable expenses confuses me...

here's the link:

http://www.usdoj.gov/ust/eo/bapcpa/bci_data/national_expense_standards.htm

The numbers don't make a lot of sense to me... I mean, here's an example. If I'm reading the table right, then my family of 6, with my gross income of 7500/month... gets an allowance of $1300/month for FOOD... I mean, we like to eat, but $1300/month?

Can someone explain how these tables work and how they come into play in a bankruptcy? I mean, there's a lot of stuff that isn't included... like rent, insurance, gas etc. etc. etc.

thanks!

[StaciMM]

As I read, it a family of 4 w/ $5834+ gross monthly has an allowance of $868 on food & $302 on apparel & services. (Includes clothing, 'services' might apply to dry cleaning, etc.) For each extra person over 4, they can add $216 total, of which $163 is food & clothing. So a family of 6 would be $1496 for food & clothing.

It isn't an allotment, but a maximum.

[LostOne0069]

As I read, it a family of 4 w/ $5834+ gross monthly has an allowance of $868 on food & $302 on apparel & services. (Includes clothing, 'services' might apply to dry cleaning, etc.) For each extra person over 4, they can add $216 total, of which $163 is food & clothing. So a family of 6 would be $1496 for food & clothing.

It isn't an allotment, but a maximum.

ok, so I see that I mis-read at least part of it... how to add for more than 4 people.

I guess I still don't understand the "allotment" vs "maximum" bit... Does the trustee get to decide what's reasonable... meaning he can say that you get $300/month for food and $50/month for clothes because that's all his family spent when he had 4 kids in 1963? Where does this "maximum" come into play in bankruptcy... do they even look at this chart?

[StaciMM]

You go by your actual expenses. But, if you actually spend more than the IRS standards you could have an issue. If the norm is to spend $800 on food for your family size, and you really spend $1200 without having something to justify that, it could be argued that you are living frivolously, and if you're in financial trouble you need to adjust your living/spending habits.

If your real #'s are below the maximums, and you still have no money left to pay creditors, you really shouldn't have any issues with the income/expense portion. ON the other hand, if you have no money available for creditors because you put alot of money into things that aren't considered necessary, or are spending beyond the norm for things, you could have issues. I think part of the theory behind the new law is that if someone, its a time when they should cut out extras.

[SinkingFast]

Also, that chart contains the numbers you would enter on the Means Test on Line 19. You won't progress that far. When you get to Lines 13 and 14, your actual income is compared with the Census Bureau Median. Since you're below the CB Median, you don't have to go farther on the Means Test. At least that's what I've seen in several people's files on PACER. When they are below the Median, the Means Test ends at Line 15.

[StaciMM]

If you're below the median, I think you're less likely to get grief about your expenses-as long as there is nothing unusual or overly 'frivolous'. Of course, if you have no rent/car payment/etc. and list that you spend 75% of your take home pay on beer & cigarettes, PROBLEM.

[LostOne0069]

The biggest problem on my expenses is probably going to be my car payment... $690... the original loan was about $48k, we still owe about $38k and, according to NADA, it's worth $30k.

We have a big family (4 kids) and needed a big vehicle to haul them around... Not to mention I didn't plan on having financial problems when I bought it 2 years ago.

Anyone think we could keep this and still get a chapter 7? Or would we be better off to let it go in the bk and find som POS to drive and make sure our expenses still add up to our income?

[StaciMM]

That is hard to answer without knowing more... If you can find a vehicle that will handle your needs for less-I can't imagine a reason not to.

[LostOne0069]

That is hard to answer without knowing more... If you can find a vehicle that will handle your needs for less-I can't imagine a reason not to.

Finding one isn't THAT hard... but how am I going to get a loan for it? It's not like I can trade in my existing vehicle... not owing $10k more than it's worth.

We don't own any other vehicles either and this is my only transportation back and forth to work, a 40 mile one-way trip.

[FoolAndHisMoney]

For the purposes of the means test only you can list the IRS amounts and with the confusing formula they use if you have less then $100 at the end of the month then you may file a chapter 7.

You must still list your actual income and actual expenses on schedule I & J and as bkfiler keeps mentioning "list ALL reasonable expenses". The US Trustee can still dispute your actual expenses if they aren't reasonable, but these IRS collection standards are what they wanted for years so it remains to be seen if they file motions to dismiss or convert to a 13.

This was put in place because there were rare situations where for example a 2 income couple wants to keep the luxury cars and luxury apartment and discharge their unsecured debts. This test will prevent that. This same couple would only be allowed to expense no more then these collection standards for their region.

[StaciMM]

If you file ch. 7 and surrender the current vehicle, you would be able to discharge the deficiency balance.

Finding one isn't THAT hard... but how am I going to get a loan for it? It's not like I can trade in my existing vehicle... not owing $10k more than it's worth.

We don't own any other vehicles either and this is my only transportation back and forth to work, a 40 mile one-way trip.

[SinkingFast]

If you take your vehicle into a Ch 13, the payments to the auto loan lender won't be as high. That's a new provision too. Something about "Cram Down" which I didn't follow the written explanation, but they did give an example.

Say you owe $10000 on a vehicle really only worth $5000. The difference, or the amount you are upside down is $5000. The auto loan lender, under the new law, is only entitled to the true loan value plus 20%. In this case, instead of repaying $10000, you would repay $6000 in a Ch 13 payment plan.

10000 - $5000 = $5000
$5000 x 0.20 = $1000
$5000 + $1000 = $6000

I don't know if that will help you or not, in your situation.

Keep in mind too that you won't be entering the full $690 payment as an expense for the BK. You said you've had the car 2 years. You will have to annualize the remaning balance owed over 60 months. That's part of the new law as well. People on the front end of a long term note don't get hit too hard as far as expenses go. But if you only have 8 or 10 payments left out of a 60 month loan, you'll have a huge difference in the monthly payment.

[LostOne0069]

If you take your vehicle into a Ch 13, the payments to the auto loan lender won't be as high. That's a new provision too. Something about "Cram Down" which I didn't follow the written explanation, but they did give an example.

Say you owe $10000 on a vehicle really only worth $5000. The difference, or the amount you are upside down is $5000. The auto loan lender, under the new law, is only entitled to the true loan value plus 20%. In this case, instead of repaying $10000, you would repay $6000 in a Ch 13 payment plan.

10000 - $5000 = $5000
$5000 x 0.20 = $1000
$5000 + $1000 = $6000

I don't know if that will help you or not, in your situation.

Keep in mind too that you won't be entering the full $690 payment as an expense for the BK. You said you've had the car 2 years. You will have to annualize the remaning balance owed over 60 months. That's part of the new law as well. People on the front end of a long term note don't get hit too hard as far as expenses go. But if you only have 8 or 10 payments left out of a 60 month loan, you'll have a huge difference in the monthly payment.

Unfortunately in my case, none of this helps. I owe $38k on a vehicle worth $30k... so 30K x 1.2 = 36K so not much help there.

As for stretching out the $690 payment over 5 years... well, we bought the car in April of 2004... so I guess we've had it just a bit less than 2 years... and it's a 7 year loan, so we have just over 5 years left on it. $38k over 60 months is still $630... not counting interest.

I really wouldn't mind much on giving it back... I just really worry about being able to get another decent vehicle again any time soon... With as many miles as I drive and the fact that it's our whole families only transportation, I really can't have something that isn't going to be extremely reliable.

I have nightmares about giving up our Yukon that is reliable, comfortable and under warranty with a 5.4% interest rate on the loan and ending up with some high-milage, high-maintenance, highly UNreliable piece of junk at 22% interest.

[SinkingFast]

I know how you feel. We have 6 in our family also. Even tho we have 4 cars, 3 are old, high mileage vehicles. The 2 oldest ones really belong to our kids. Just in our names to keep insurance rates down. Doesn't count now, tho. As far as the Court is concerned for BK purposes, the cars are ours. The new one is the only one the whole family will fit in, and it's under warranty.

The other 3 are in need of repairs. Both cosmetic and mechanical. We are getting all that documented to dink the values for the BK paperwork. Body repairs alone have nearly eaten up the value of one of the older ones. It has some serious rust issues in the under carriage. It needs a new floor pan. Parts aren't all that much, but the labor is outrageous. And they said the final price will depend on what they find when they actually get into it. The guy said, if this were an insurance repair, at this point, he'd have to call the company. More than likely, they'd salvage the vehicle due to repair costs.

I kinda guessed what type of vehicle you were talking about by the amount of the payments. We paid $500/mo for 5 years for a Dodge Durango so I fig'd you had a Yukon or Expedition or something similar.

[Jenny]

Maybe it would be cheaper to buy two used cars to replace the one larger one. A small car would get you to work and back while costing much less on just gas alone. Then you could get a used minivan or something similar to take the family out in.

Seven years is a long time to pay on a car. If you drive that many miles just to and from work, it'll need to be replaced before it's paid off.