There is always a conflict between actual expenses and expenses allowed in the means test. Actual expenses are usually more than those allowed by the means test. As between actual and means test expenses, the latter prevails when computing disposable income. Disposable income is net income minus allowable deductible expenses using IRS standards of the means test. Recently, my client’s proposed plan payment was $1,400 based on pay stub net income and actual expenses. Her gross income was $12,000 a month. The problem was she had actual expenses which included college tuition and expenses for her son of $1,500. The means test only allows $137 monthly for education expenses of a child under 18. In addition, she owned an S corporation which a yearly profit of $30,000. According to her, even though the $30,000 profit is declared as part of her gross income, she does not receive any portion of it because the money is kept by the business for salaries.

These figures create a major obstacle in the Chapter 13 plan for two reasons. The $1,500 college expenses for her son are not deductible under the means test and the $30,000 profit results in $2,500 monthly as additional pass through income for her. Therefore, as expected, the trustee disputes her net income and wants a lot more as plan payment. The profit income adds $2,500 a month to the plan. On this issue alone, the trustee wants $1,400 plus $2,500, or $3,900 as plan payment. If all disposable income is not proposed by debtor, a good faith issue arises, and the trustee will argue that the plan is proposed in bad faith. And the college expenses if not allowed as a deduction, will add another $1,400 to the plan, so $3,900 plus $1,400, is $5,300. That’s the plan payment that the trustee really wants from debtor because that is the amount of disposable income that the means test says debtor has. Unfortunately, actual expenses of the debtor are almost irrelevant in arriving at the final plan payment.