A bankruptcy judge in Georgia ruled that a debtor would be refused a discharge even though he passed the Means Test. At the time of filing, the Debtor paid monthly mortgage payments of $3,273 per month. When calculating the Means Test, the Debtor deducted the mortgage payments, according to 707(b)(2)(A)(iii)(I). The U.S. Trustee objected to the deduction and asked the Court to dismiss the case pursuant to 707(b)(2) and 707(b)(3). The Court ruled the debtor was allowed to deduct mortgage expense, even though the debtor planned to surrender the property. Thus, the debtor passed the Means Test, BUT the Court then ruled that since the debtor would not be making the mortgage payments, he could then pay some or all of his debts. The Court found no abuse under 707(b(2), but did find abuse pursuant to 707(b)(3).
What? In English please!
Basically, this is what happened. The debtor passed the Means Test, but did not pass the informal “I & J Test” (pre-BAPCPA test). Schedule “I” lists the debtor’s income. Schedule “J” lists the debtor’s expenses. The Court looked at what the debtor’s expenses would be, after the bankruptcy and saw that he could pay some or all of his debts. Basically, the debtor was allowed to deduct his mortgage payments on the Means Test, but was NOT allowed to deduct the mortgage payments from schedule “J”.
So a debtor is allowed to deduct an expense in one area of the bankruptcy, but not the other. Got it? Me either. There is now apparently a “double-hurdle” for debtors: 1. The Means Test. 2. The “I & J Test”.
Bankruptcy pundits will bend over backwards to explain this apparent incongruity, but in the end we can only thank the less-than-skilled drafters (read “lobbyists”) of the 2005 Bankruptcy law amendments.
So what is a debtor, and debtor’s counsel, to do? The only thing we can do; play by the rules…however messed up they are. Be certain you pass the Means Test AND you don’t get “blind-sided” by the “I&J Test”.