Yet Another Reason Why the Means Test is “Broken”

The Bankruptcy Code produces some difficult results. Sometimes those results pass difficult and extend into problematic. The Bankruptcy Court for the District of Idaho crossed well over difficult in In re Clifford, 2022 WL 16727279 (Bankr. D. Id. 2022).

The question addressed in Clifford is one that comes up in every Chapter 13 case – how do we calculate “Current Monthly Income”? Debtor worked for the City of Nampa, Idaho. Her form B122 listed her Monthly Gross Income of $4,132.47 for annualized CMI of $49,589.64. The applicable median income for Debtor’s household size is $54,942.00. Debtor’s Chapter 13 Plan provided for a 60-month Plan but asserted that Debtor was “below median” income with a 36-month Applicable Commitment Period.

The Chapter 13 Trustee objected, asserting that Debtor had incorrectly calculated CMI and that Debtor was actually above-median. The Trustee argued – and the Court agreed – that in addition to Debtor’s salary, CMI includes the actual cost of any employer-paid benefits. The Court stated that §101(10A) includes not only income received by Debtor, but also “any amount paid by any entity other than the debtor on a regular basis for the household expenses of the debtor or the debtor’s dependents”. In this case, in addition to her salary, the City paid $35.50 per month for dental insurance and $597.00 per month for health insurance. When this additional “income” is added to Debtor’s salary, Debtor’s CMI increases to $4,764.97, which annualizes to $57,179.64, placing Debtor “above median”.

Debtor argued that she does not actually “receive” or have any right to receive any of the insurance premium payments- those go directly from her employer to the insurance company and Debtor could not use those funds to pay creditors which was the whole purpose of BAPCPA. The Court stated that §101(10A) does not require the payments be made to Debtor as long as they are payments regularly made for Debtor’s personal expenses and not specifically excluded from CMI in §101(10A). Further, while Debtor does not directly receive the premium payments, Debtor does not have to provide her own insurance coverage and Debtor’s health care expenses are reduced, thus increasing the amount of a debtor’s income available to pay creditors.

The Trustee attempted to make the same argument regarding Debtor’s employer’s contribution to her retirement account, but the Court held that the Trustee did not present sufficient evidence or argument regarding those contributions.

The Court’s decision in Clifford is not entirely an outlier. The Court cited In re Toxvard, 485 B.R. 423, 435 (Bankr. D. Colo. 2013), in which the Court concluded that amounts withheld from Debtor’s non-filing Spouse’s income and used to purchase family health insurance constituted payment by Debtor’s spouse of an expense for Debtor’s benefit. In In re Aslakson 2013 WL 1304494 (Bankr. D. Or. 2013), the Court held that medical and dental expenses paid by Debtor’s wholly-owned LLC were payments for the benefit of Debtor and Debtor’s dependents and must be included.

Toxvard and Aslaksonat least had one “redeeming characteristics” – in both cases the medical expenses were within the control of Debtor or the non-filing spouse. In Aslakson, Debtor chose to have his company pay the expenses directly rather than provide additional income to Debtor for him to use to pay the expenses, and had the money been advanced to Debtor it would have been included in CMI. In Toxvard, Debtor’s spouse controlled the decision to have funds deducted to pay insurance. Had the spouse not elected that deduction, her income would have been that much higher and that would have raised the CMI figure. But in Clifford, there is no indication that Debtor had any option – the employer automatically paid the insurance premiums, not from funds deducted from Debtor’s paycheck but from the employer’s own funds. Had the employer decided to stop paying those premiums, it would not have increased Debtor’s income by one cent, yet Debtor somehow “enjoyed” these premiums as “income”.

The list of reasons why the means test makes no sense is long and well-discussed. Including employer-paid benefits – whether health insurance, employer-funded retirement contributions or the cost of other “fringe benefits” – needs to be added to that list.


Attorney at Osipov Bigelman, PC (Southfield, MI)

Tom DeCarlo is an attorney at Osipov Bigelman, PC, in Southfield, Michigan. He has over 38 years of experience in bankruptcy, including a 17-year stint as a Staff Attorney to a Chapter 13 Standing Trustee in Detroit. He is a frequent contributor to and a recurrent seminar speaker including the Annual Steven W. Rhodes Veteran’s Day Conference.

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