Health insurance is an allowable means test deduction, even if the debtor doesn’t currently have health insurance.
In my view, the sweetest words in an otherwise miserable bankruptcy means test are found buried in a long paragraph of §707(b)(2)(A)(ii)(1):
The debtor’s monthly expenses “shall include reasonably necessary health insurance, disability insurance and health savings account expenses…”
This provision, standing independently in the paragraph, stands for the proposition that the debtor can deduct from his CMI the costs of health insurance that he ought to have but may not have now.
It is a tribute to the late Senator Ted Kennedy who engineered the addition of this sentence to BAPCPA as it rolled toward enactment in 2005.
Health insurance is necessary
The characterization of these expenses as “reasonably necessary” distinguishes them from those expenses deductible in amounts prescribed by the IRS standards. It also frees these expenses from the need for a history of such expenses.
If the debtor doesn’t have health insurance, disability insurance, and a health savings account, those costs are deductible from income before creditors have any entitlement to the debtor’s otherwise disposable income. If the debtor suffered a form of disability, he is entitled to a disability tax credit, which is a non-refundable tax credit that allows qualifying individuals to lower their taxable income.
I know that lots of trustees haven’t gotten the message that expenses on the means test are forward looking. They want a history of payment as if that is proof of future expenses.
They’ve apparently forgotten the statutory interpretation stricture that what wasn’t changed by amendment remains the same. BAPCPA made income, for the purposes of projected disposable income, backward looking. Unchanged, therefore, was the projection of expenses into the future.
The structure of this paragraph cuts these expenses free of that argument. They are deductible if they are “reasonably necessary”. That’s why there is the box to check on line 34 of B-22A to indicate that the debtor isn’t currently paying those items.
Deduction in means test is logical
Deducting an expense you don’t have but should have makes sense, unlike so much of BAPCPA. A Chapter 13 plan of 60 months is unlikely to complete if the debtor and his dependents must continue to go uninsured.
So, don’t miss the opportunity to provide for these health and stability related expenses on the means test, just because the debtor doesn’t currently pay them.
Image courtesy of truthout.org.