May a debtor include payments due secured creditors (house payment and car payment) for Chapter 13 means test calculation purposes if the debtor’s plan provides for the surrender of the collateral?  Attorney Mary Beth Ausbrooks, managing attorney of Clark and Washington’s Nashville office recently argued this issue before Judge Marian Harrison in Nashville (Middle District of Tennessee) bankruptcy court.

Opposing Mary Beth was the Nashville Chapter 13 trustee, Henry Hildebrand.  The trustee argued that if the debtor was planning on surrendering her house and her car, she could not deduct the monthly payments for these items when calculating the means test.  Without these deductions, the debtor would show over $1,000 more in “disposable income” which would result in a much higher Chapter 13 payment.

In a brief published decision, Judge Harrison sided with the debtor and Clark and Washington.  The judge focused on the language of Section 1325 of the Bankruptcy Code which looks to payments contractually due in the 60 months following the filing of the case.  The statute does not provide that surrendered items result in the disallowance of the deduction so the trustee cannot demand as much.   Click here to read Judge Harrison’s decision in the case of Brenda Sue Ray.