In the case Lynch v. Jackson, No. 16-1358 (4th Cir. Jan. 4, 2017), the two debtors filing for Chapter 7 bankruptcy complied with Form 22A’s instructions to list their expenses using the IRS National and Local Standard amounts rather than their actual expenses, which were less.
The bankruptcy administrator moved to dismiss their case as “abusive” under section 707(b)(2)(A)(i). Section 707(b)(2) permits a debtor to take the full National and Local Standard amounts for expenses even though the debtor’s actual expenses are less. The bankruptcy court denied the motion to dismiss.
The administrator argued that Form 22A’s instructions were erroneous and that the expense deduction amounts listed in the IRS Standards represent a cap on how high an expense amount may be claimed for certain expenses, but that if the actual amount is less, the debtor must use the lesser amount.
The Fourth Circuit found the answer in the plain language of the statute: “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards. 11 U.S.C. § 707(b)(2)(A)(ii)(I).”
The fact that Congress used the word “actual” elsewhere in the same statute indicates that it made a distinction between applicable and actual. The court also recognized how outlandish it was to punish a frugal debtor should the bankruptcy administrator’s interpretation of the statute be accepted.
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