It isn’t often that the newspaper provides ideas for this site, whose focus is polishing new bankruptcy lawyers.
But a story on the surge in cost for health insurance based on a study by the Commonwealth Fund reminded me to remind you: the means test allows deduction for the cost of health insurance, even if the debtor doesn’t have health insurance!
The opportunity to deduct expenses that the debtor ought to have is a gift to our clients from the late Senator Ted Kennedy who introduced this tweak to the §707(b) list of allowable expenses when BAPCPA was taking shape in Congress.
This section embodies the idea that no filing is abusive unless there is money left after the debtor provides “reasonably necessary” health insurance; disability insurance; and a health savings account. On the B-22 A, this provision is found in Line 34.
Like most of BAPCPA, the statute is not a model of clarity. Here’s what the committee notes of the form drafters say:
In addition to the expense deductions allowed under the IRS standards, the means test makes provision—in subclauses (I), (II), (IV), and (V) of § 707(b)(2)(A)(ii)—for six special expense deductions. Each of these additional expense items is set out on a separate entry line in Subpart B, introduced by an instruction that tracks the statutory language and provides that there should not be double counting of any expense already included in the IRS deductions.
One of these special expense deductions presents a problem of statutory construction. Section 707(b)(2)A)(ii)(I), after directing the calculation of the debtor’s monthly expenses under the IRS standards, states, “Such expenses shall include reasonably necessary health insurance, disability insurance, and health saving account expenses . . . .” There is no express statutory limitation to expenses actually incurred by the debtor, and so the provision appears to allow a reasonable “monthly expense” deduction for health and disability insurance or a health savings account even if the debtor does not make such payments, similar to the way in which the National Standards give an allowance for food, clothing and personal care expenses without regard to the debtor’s actual expenditures. However, the statutory language might also be read as providing that the debtor’s “Other Necessary Expenses” should include reasonable insurance and health savings account payments. Since “Other Necessary Expenses” are limited to actual expenditures, such a limitation could be implied here. The forms deal with this ambiguity by allowing the debtor to claim a deduction for reasonable insurance and health savings account expenses even if not made, but also require a statement of the amount actually expended in these categories, thus allowing a challenge by any party who believes that only actual expenditures are properly deductible.
The last time I checked, there are no reported cases interpreting this provision of 707(b), so you are writing on a clean slate. If challenged, the debtor certainly has right and decency on their side: no payments to unsecured creditors while the debtor is uninsured.
Given the cost increases in health insurance that the news story sets out, an allowance for health insurance for an above median debtor without should swing your means test results significantly.
Image courtesy of Carlos62