As we have discussed in other posts, the money that has to be paid into a Chapter 13 Plan is based on calculations of disposable income. Calculating disposable income is both a science and an art, and a good, experienced Bankruptcy lawyer will know how to propose a plan that is in the best interests of the client (to the extent possible) and meets the requirements of the law (i.e., the plan is “confirmable”). One issue that comes up fairly regularly is that the client will have an older car that is out of warranty and requires more repairs than a newer vehicle. Under current law, clients are allowed to include expenses for their monthly loan payments and for additional “transportation costs.” This is based on IRS Standards and the actual number varies by location. In the South Region, for example, the figures are $244 a month (or $256 in Atlanta). As we all know, with today’s gas prices (currently $3.57 for regular at my nearest QT) this is not enough to even pay for a tank of gas a week for many vehicles, much less oil changes and regular maintenance. Sure, we can take normally more than the standard expense by showing our clients’ commute times and average mpg for their vehicle, but what if the car will need tires, brakes or (in the case of a current client) a $1200 transmission job? There are a few options available, and one possible option that did not work in a recent Georgia case.
One option is to ask for court approval to suspend the plan payments. For example, if monthly plan payments are $400 and the transmission repair is $1200, we would request a suspension for three months. Most Trustees and Judges are sympathetic to the situation and will agree to this. Second, the debtor may have had unexempt cash when the case is filed, so they have to use those funds (sometimes in combination with suspended payments). On occasion, sometimes people find that they are forced to dismiss their Chapter 13 case; for example, if the repair would require a suspension of most or all of their plan payments. Borrowing the money is an option, in theory, with Trustee approval but a bank would not likely loan money for that and borrowing from family and friends raises more issues. One final option I’ll mention is something I found to be a creative, good faith argument even if it did not work in a recent case. IRS Transportation Guidelines actually have a provision for vehicles that are more than 6 years old or have more than 75,000 miles, and they allow an additional $200 per month expense. An additional $2400 a year would certainly help pay for even expensive repairs for older cars (assuming the money is saved). Since the IRS allows the expense, would it work if included in a Chapter 13 budget? Although it seems to make sense, the Judge in a recent Georgia case said no. The reason was that the Bankruptcy Code expressly incorporates the IRS’ “National Standards and Local Standards” (see §1325(b)(3)) but not the IRS’ “guidelines” (which include the additional expense). Since the statute is clear on its face, the additional expense was not allowed even if common sense dictates that even creditors benefit by the debtor having reliable transportation. Though it did not work this time, this shows the importance of having a good Bankruptcy lawyer who knows the law, the cases, and knows when to make good faith arguments that can provide a significant benefit to their clients.
For lawyers or others who would like to see these resources:
In re Sires, Ch. 13 Case No. 13-12147 (Bankr. S.D. Ga. June 4, 2014).