In a recent decision in In re Harris, EDNC 14-04458, the United States Bankruptcy Court for the Eastern District of North Carolina clarified what deductions debtors may take when calculating their Disposable Monthly Income on form B22C. In a departure from the usual practice in the Eastern District, the court held that the IRS Local Standards for home and vehicle allowances serve only to operate as a “cap” on the amount that above-median income debtors may deduct, when their average monthly secured home and vehicle payments exceed the Local Standard allowance amount. If debtors wish to deduct additional amounts the debtors must show that such deductions are reasonably necessary and qualify as a “special circumstance” under 11 U.S.C. 707(b)(2)(B).
Conversely, the court held that when the debtors’ home or vehicle expense is less than the Local Standard allowance, the debtors may only deduct the actual amount of the expense. Debtors are not entitled ot the full Local Standard deduction as a matter of course. The court noted that “because Congress intended the means test to approximate the debtors’ reasonable expenditures on essential items, the debtors should be required to qualify for a deduction by actually incurred and expense in the relevant category.
Finally, the court chastised the practice of duplicative deductions and held that expenses entered on line 25B and 28 of the B22C form should not also be allowed on line 47 and 48.
The practice in the Eastern District has been for debtors to take both the Local Standard deduction (in line 25(B) and line 28) and the actual expense deduction (in lines 47 and 48). The Harris opinion drastically changes how disposable monthly income is calculated in the Eastern District. To many a debtor’s dismay, while some Eastern District trustees are only enforcing the Harris decision prospectively, some of the Eastern District trustee’s have begun immediately enforcing the decision even for cases filed prior to the entry of the order.