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February 2, 2017
  Lynch v. Jackson -- Fourth Circuit
Debtors Filing For Bankruptcy May List Higher Amounts Than Actually Spent

Areas of Law: Bankruptcy

Issue Presented: Whether a debtor filing for bankruptcy can use the National and Local Standard amounts for expenses even if his or her actual expenses are lower.

Brief Summary:
The United States Court of Appeals for the Fourth Circuit affirmed the United States' Bankruptcy Court for the Eastern District of North Carolina's holding that debtors seeking bankruptcy relief are entitled to the full National and Local Standard amount for a category of expenses if they incur any expense within the category.

In Ransom v. FIA Card Servs., 562 U.S. 61 (2011), the Supreme Court interpreted 11 U.S.C. §707(b)(2)(A)(ii)(I), and held that an expense amount is applicable to a debtor under the provision "only if the debtor will incur that kind of expense during the life of the plan." However, the Court did not determine how a debtor should list expenses that are lower than the amounts listed in the National and Local Standards. As such, the Fourth Circuit addressed the unanswered question and determined that the plain language of the statute entitles a debtor to list the full amount provided under the National and Local Standards for expenses, even if their incurred expenses are less than the amounts listed by the Standards.

Extended Summary: On April 6, 2015, Plaintiffs Gabriel and Monte Jackson filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of North Carolina. The Jacksons made more than the median income for a family of four and therefore were required to complete a means test to determine their disposable income. A test revealing disposable income above a certain level would be considered an abuse of the bankruptcy code and would prevent the debtor from proceeding in Chapter 7. The test required the Jacksons to use Official Form 22A-1 and 22A-2 as provided pursuant to 28 U.S.C. § 2075.

These forms instruct submitters to use certain expense amounts as provided under the National and Local Standards to answer certain questions and to deduct the enumerated expense amounts "regardless of [the submitters'] actual expenses." Following the instructions provided, the Jacksons included the standard expense amounts on their forms. However, on June 3, 2015, Bankruptcy Administrator Marjorie Lynch moved to dismiss the Jacksons' petition for abusing the bankruptcy code. Lynch argued that the official form instructions were incorrect and that a Chapter 7 debtor was "limited to deducting their actual expenses or the applicable National or Local Standard, whichever [was] lesser." The Jacksons argued that the statute was unambiguous in directing debtors to use the full National and Local Standard expense amounts.

The bankruptcy court denied Lynch's motion on the basis that the Jacksons complied with the statute. Lynch filed a notice of appeal on September 23, 2015, and all of the parties subsequently jointly filed a certification to appeal directly to the Fourth Circuit on October 21, 2015. The Fourth Circuit granted the bankruptcy court's recommendation for direct appeal to address the split between bankruptcy courts within the Eastern District of North Carolina over interpretation of 11 U.S.C. § 707(b)(2). Turning to the plain language of the statute, the Fourth Circuit found that it unambiguously established that a debtor is entitled to take the full amount of the Standards' expenses if the debtor incurs any expense in that category. Consequently, the Fourth Circuit affirmed the decision of the bankruptcy court.

To read the full opinion click here.

Panel: Judges Motz, Keenan, and Thacker

Argument Date:
12/06/16

Date of Issued Opinion: 01/04/17

Amended Date: 01/05/17

Docket Number: No. 16-1358

Decided:
Affirmed by published opinion.

Case Alert Author:
Vanessa Destime, Univ. of Maryland Carey School of Law
Counsel: ARGUED: Brian Charles Behr, OFFICE OF THE BANKRUPTCY ADMINISTRATOR, Raleigh, North Carolina, for Appellant. Robert Lee Roland, IV, LAW OFFICES OF JOHN T. ORCUTT, P.C., Raleigh, North Carolina, for Appellees. ON BRIEF: Tara Twomey, J. Erik Heath, NATIONAL CONSUMER BANKRUPTCY RIGHTS CENTER, San Jose, California, for Amicus Curiae.

Author of Opinion: Judge Thacker

Case Alert Supervisor: Professor Renée Hutchins

    Posted By: Renee Hutchins @ 02/02/2017 09:36 AM     4th Circuit  

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