The case of In re Shahan, 367 B.R. 732 (Bankr.D.Kansas April 23, 2007)(Nugent, C.J.) held that an above-median income Chapter 13 debtor was not entitled to deduct as future payments to be made on secured debts for which only his nondebtor wife was liable, but that these payments by the nonfiling wife were deductible as a "marital adjustment" as they were not in fact amounts paid on a regular basis for household expenses. The court also held that the nonfiling spouses non-household or non-necessary expenses were not deductible on line 59 (now 60), but were deductible as part of the "marital adjustment."
At issue in this case was how the means test that is applicable to the above-median income chapter 13 debtor treats the income of a non-filing spouse. The line items in questions were line 19 of Form 22BC "marital adjustment", line 47 "future payments on secured claims", and line 59 (now line 60) "other expenses." The nonfiling spouse was solely liable for the debt in question which was secured by a vehicle and real property solely owned by the nonfiling spouse. The debtor claimed a line 19 marital adjustment for the withholdings from the nonfiling spouse's paycheck, on line 47 deducted the nonfiling spouse's future payments on her vehicle and real property secured debt, and on line 59 claimed additional deductions for the nonfiling spouse's recreation, personal expenses, unsecured loan repayments, and assistance to her daughter.
The court noted that CMI includes "any amount paid by any entity other than the debtor..on a regular basis for the household expenses of the debtor or the debtor's dependents." 11 U.S.C. section 101(10A)(A)(B). The court stated that the portion of the spouse's income not dedicated to paying household expenses is deducted from CMI and that this is effectuated by the line 19 "marital adjustment".
The court held that the martial adjustment for withholding from the wife's payroll check was proper on line 19 as these funds were not dedicated to household expenses. See In re Quarterman, 342 B.R. 647, 650 (Bankr.M.D.Fla.2006).
The court held that the future secured debt payments by the nonfiling spouse as to the vehicle and real property for which the debtor was not liable were not properly deductible on line 47. The court further held that the debtor was not entitled to a line 29 vehicle ownership allowance as to her vehicle. The court reasoned that this deduction is available under section 707(b)(2)(A)(iii) only for the debtor's payments on his secured debt. But the court instead held that the nonfiling spouse's payments on her secured debt are deductible on linen 19 as a martial adjustment as these amount were not in fact amounts paid on a regular basis for the household expenses of the debtor. The court remarked that this holding might seem ludicrous as the debtor lives in the house and probably drives the car and both assets are part of his "household". Nevertheless, the court held that this might be the only way to implement the plain language of BAPCPA.
The court further held that the wife's expenses for her recreation (including lunch with friends, health club dues, movies and the like), personal expenses, unsecured loan repayments, and assistance to her daughter were not properly deductible on line 59 (now 60) of Part IV "Additional Expense Claims" as "other expenses" as they were not household expenses necessary to the health and welfare of the debtor or his family. The court did hold though that the tax preparation expense was deductible on line 59 as a necessary and beneficial family expense. See In re Johnson, 346 B.R. 256, 267-268 (Bankr.S.D.Ga.2006)(Other necessary expense under the means test must be actual, necessary and reasonable.) The court noted that the statutory predicate for line 59 was most likely section 707(b)(2)(A)(ii)(I) which provides that "the debtor's monthly expenses shall be the debtor's ...actual monthly expenses for the categories specified as Other Necessary Expenses [in the IRS Manual)". Form 22C's instructions allow these expenses to be deducted on line 59 if they are "required for the health and welfare" of the debtor and his family. The court noted that the IRS manual set forth the categories of "other expenses" and that they are allowed if they meet the necessary expense test, ie. "they must provide for the health and welfare of the taxpayer and/or his or her family or they must be for the production of income." Section 5.15.1.10, Internal Revenue Manual, Financial Analysis Handbook. The categories listed as "other expense" include accounting and legal fees, childcare, dependent care, certain education costs such as continuing education costs, health care, life insurance and telecommunication expenses. The court noted that besides line 59 (now 60), these categories of expenses are provided for in lines 39-46 of Form B22C, Part IV, Subpart B.
The court did hold though that these expenses for the nonfiling spouse's recreation, personal expenses, unsecured loan repayments, and assistance to her daughter would be allowed as part of the "marital adjustment" on line 19. See In re Travis, 353 B.R. 520 (E.D.Mich.2006)(marital adjustment allowed for nonfiling spouse's expenses for clothing and personal items). The court noted that these were not the debtor's expenses and that the nonfiling spouse's daughter was not a dependent of the debtor. The court stated that it could not hold that these expenses did not qualify as household expenses necessary to the health and welfare of the debtor or his family and at the same time hold they were paid on a regular basis for the household expenses of the debtor or the debtor's dependents as specified in section 101(10)(A). The court also stated that the parenthetical reference to a debtor's spouse in a joint case "suggest[s] that Congress did not intend to include a non-filing spouse's expenses for income to be included in CMI." In re Quarterman, 342 B.R. 647, 650-51 (Bankr.M.D.Fla.2006)(Proctor, J.)("The parenthetical [reference in section 101(10A)] stating that, in a joint case, a debtor's current monthly income shall income the debtor's spouse's income suggest that, in a single case, the spouse's income is not included in the debtor's current monthly income; otherwise, the parenthetical would be superfluous.")
