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How Do The May 2016 Means Test Numbers Affect Your Clients

May 17, 2016 by Shannon Doyle

budget squeezeFor the first time since the enactment of BAPCPA, the allowable deductions in the Means Test have been reduced. As you may know, these deductions as revised each year, were adopted by Congress in 2005, and are derived from the allowable living expenses determined by the IRS when considering a person’s ability to pay tax debt. The IRS relies on data from the Bureau of Labor Statistics and other governmental surveys of actual consumer expenditures to provide a basis for the allowances.  So why have these deductions gone down? According to an article from the American Institute for Economic Research, “the average American costs of living did not rise in 2015, and in fact fell relative to wages.” Apparently, there has been no inflation so it makes sense that the Means Test figures have declined but did the IRS really get it right?  Below are the significant changes to the Means Test deductions:

  • Medical – Standard medical deductions have been reduced from $60 per person to $54.  Senior citizen medical deductions have been reduced from $144 to $130.  These changes represent a 10% reduction.  Funny, because according to an article in Forbes dated June 15, 2015, healthcare costs in 2015 alone, outpaced overall inflation by 3.2%.
  • Transportation – The new IRS standards for operating costs for automobiles in the Western Region of the US have fallen from $236 per vehicle to $213 per vehicle, another 10% reduction.  Okay, so maybe gas prices have fallen from $4.50 per gallon but I just paid $2.99 a gallon today, and we all know what happens when summer hits.
  • Auto Finance Deduction – Instead of subtracting 1/60th of the secured auto debt from the old standard of $517, the new standard will be $471, an 8.9% drop.  Has there really been an almost 9% fall in the cost of new cars?  According to to U.S. News & World Report, “new car prices increased by 1.4 % in October 2015 compared to October 2014.
  • Food, Clothing & Personal Care – The new Means Test standards show minor reductions varying on the number of people in the household, anywhere from no change to down $15 per person.  However, according to the most recent reports from the Bureau of Labor Statistics, the Consumer Price Index states that these costs are up 1.53% from March 2015.  It looks like the Bureau of Labor Statistics and the IRS are drawing from different economic sources.
  • Housing Costs – In a cursory review of the California numbers, very, very few housing numbers increased.  Almost all housing deductions fell; some by as much as 15% (Sierra County).  Only one County, Mariposa, saw its housing deduction increase (about 2%).
  • Utilities – The IRS data showed parallel reductions for allowable utility costs on a county-by-county basis.  This data is similarly indexed by the number of ‘heads-on-beds’ and while there were a few increases, the numbers as a whole show a marked reduction.  I wonder how these reductions square with the recent 7% increase in rates for PG&E?

The bottom line is that it will be more difficult for debtors to pass the Means Test and Debtors will be paying higher plan payments in Chapter 13. You may be using more special circumstances and justifying to your trustees actual expenses in the real world!


eBankruptcy Assistants, Inc. does not engage in the unauthorized practice of law. We never give your clients legal advice. All case analyses’ are done in a consulting capacity for the attorney of record. We do not represent individual debtors. We work solely for bankruptcy attorneys.