By Daniel Gill
A low-income single mother’s earned income tax credit is considered income to be used in calculations by the woman in her Chapter 13 case, the Seventh Circuit ruled on direct appeal from the bankruptcy court.
But the debtor can offset reasonable projected expenses against that income, as well as her tax overwithholding refunds, wrote Judge Joel M. Flaum in his March 22 opinion.
Denise L. Blake filed Chapter 13 in July 2016. In Chapter 13, individuals receiving regular income can obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three- to five-year period. The plan is facilitated by a Chapter 13 trustee appointed by the court.
A Chapter 13 debtor is required to disclose her “current monthly income,” or CMI, and must pay all her “projected disposable income” into the plan for distribution to creditors. Projected disposable income is calculated by subtracting allowed monthly expenses from the CMI.
Over the Chapter 13 trustee’s objection, the bankruptcy court approved a plan that included her anticipated tax refunds, including the expected income tax credits, and allowed certain monthly prorated expenses. These included medical and dental expenses, shoes and clothing for her two sons, and new beds and furniture for them. The trustee objected to these expense deductions.
The Seventh Circuit authorized direct appeal because there is no controlling decision from that circuit or the U.S. Supreme Court as to whether tax credits are disposable income under the bankruptcy code.
The court held that the tax credit should be considered when calculating CMI, by dividing the payment by 12 months. Neither of the parties actually disputed this conclusion.
The court then decided that the debtor could offset her listed expenses. It agreed with the bankruptcy court that the claimed expenses were reasonable and that the debtor was living on a “pretty skinny budget.”
The court explained that because the debtor’s income placed her below the median in her geographical area, she wasn’t constricted to IRS standards for allowable expenses. Instead she need only show that the expenses were reasonably necessary. The court didn’t have a basis to disagree with the bankruptcy court’s conclusions that the expenses were reasonably necessary.
Circuit judge William J. Bauer concurred with the decision. Circuit judge Daniel A. Manion wrote a separate concurrence, agreeing in the conclusion but arguing that the court shouldn’t have granted direct appeal in this case.
Marilyn O. Marshall, the Chapter 13 trustee, was represented by Lauren L. Tobiason, Chicago. James A. Brady and Jamie F. Resiman, Chicago, represented Blake.
The case is Marshall v. Blake , 2018 BL 99412, 7th Cir., No. 17-2809, 3/22/18 .
To contact the reporter on this story: Daniel Gill in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jay Horowitz at email@example.com
Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)