Case Update: Whether a Claimed Expense Qualifies as an Adjustment to the Means Test Expenses Due to "Special Circumstances"
Compliled by: Becket & Lee LLP; Malvern, Pa.
The Bankruptcy Code specifically provides for adjustments of current monthly income or expenses due to "special circumstances," but in order to qualify, there must be "no reasonable alternative." The Code sets forth a test, placing the burden of proof on the debtor to determine if a requested adjustment qualifies as a special circumstance: "In order to establish special circumstances, the debtor shall be required to itemize each additional expense or adjustment to income; and to provide (1) documentation for such expense or adjustment to income and (2) a detailed explanation of the special circumstances that make such expenses or adjustment to income necessary and reasonable."
The Code provides two examples of special circumstances, as "a serious medical condition or a call or order to active duty in the Armed Forces." Bankruptcy courts, although not unanimously, have found that expenses such as student loans, child support incurred postpetition and marital separation qualify as special circumstances. Additionally, courts have found that lump-sum withdrawals from retirement funds, as well as a loss of employment, qualify as special circumstances to justify adjustments to current monthly income.
The following are sample cases involving income adjustments.
In re Templeton, 365 B.R. 213 (Bankr. W.D. Okla. 2007): Found that the debtors have the burden to present documentation and detailed explanation of additional expenses, attest to these expenses under oath and demonstrate no reasonable alternative but to pay expenses.
Allowed under Special Circumstances:
In re Delbecq, 368 B.R. 754 (Bankr. S.D. Ind. 2007): Student loan repayment.
In re Armstrong, No. 06-31414, 2007 Bankr. LEXIS 1812 (Bankr. N.D. Ohio May 24, 2007): Expenses related to marital separation.
In re Littman, 370 B.R. 820 (Bankr. D. Idaho 2007): Expense for child support incurred postpetition.
In re Cribbs, 387 B.R. 324 (Bankr. S.D. Ga. 2008): 401(k) loan.
In re Dethample, 390 B.R. 716 (Bankr. D. Kan. 2008): One-time withdrawal from 401(k) constitutes special circumstance to allow deviation from current monthly income.
In re Heath, 371 B.R. 806 (Bankr. E.D. Mich. 2007): Loss of longstanding employment warrants adjustment in income.
In re Martin, 371 B.R. 347 (Bankr. C.D. Ill. 2007): Postpetition birth of a child.
In re Scarafiotti, 375 B.R. 618 (Bankr. D. Colo. 2007): Housing rental costs exceeding IRS standard with medical evidence of child with special needs.
In re Turner, 376 B.R. 370 (Bankr. D. N.H. 2007): Business mileage.
Disallowed under Special Circumstances
In re Vaccariello, 375 B.R. 809 (Bankr. N.D. Ohio 2007): Student loans.
In re Delunas, 2007 Bankr. LEXIS 803 (Bankr. E.D. Mo. March 6, 2007): Dependent's education.
In re Zahringer, No. 07-30217, 2008 Bankr. LEXIS 1770 (Bankr. E.D. Wis. May 30, 2008): Student loans.
McVay v. Otero, 371 B.R. 190 (W.D. Tex. 2007): 401(k) loan.
In re Parulan, 387 B.R. 168 (Bankr. E.D. Va. 2008): Loss of overtime.
In re Patterson, 392 B.R. 497 (Bankr. S.D. Fla. 2008): Storage unit costs and unreimbursed on-the-job meal expenses.
In re Hernandez, No. 08-31588, 2008 Bankr. LEXIS 3609 (Bankr. N.D. Ohio Dec. 1, 2008): Choosing to work reduced hours and changing finances due to marriage.
In re Demonica, 345 B.R. 895 (Bankr. N.D. Ill. 2006): Housing expense for grandmother's home.
In re Davis, No. 08-32507, 2008 Bankr. LEXIS 2905 (Bankr. N.D. Ohio Sept. 12, 2008): Life and health insurance for nondependent adult child.
In re Schley, No. 08-26146, 2008 Bankr. LEXIS 2214 (Bankr. E.D. Wis. Aug. 22, 2008): Wages paid in nine months per year only since employed by school system.
In re Tranmer, 355 B.R. 234 (Bankr. D. Mont. 2006): Excessive transportation cost from home to work due to distance of commute.
In re Martin, 371 B.R. 347 (Bankr. C.D. Ill. 2007): Transportation costs due to distance to employment and household errands.