We have written before about the virtual dead end faced by marijuana companies who try to seek protection in the bankruptcy courts. Almost uniformly, bankruptcy courts have shut their doors on marijuana companies, including their landlords and suppliers. These courts have held that although marijuana use may be legal in a majority of the States, it is still illegal under the federal Controlled Substances Act, and the bankruptcy courts cannot provide relief to debtors who are violating federal law.
These prior cases dealt with debtors whose income was, in whole or in part, derived from legal marijuana businesses. But, what about an individual who uses some of his or her income to legally purchase marijuana and who also needs bankruptcy protection? Are the bankruptcy courts off limits to those individuals as well? Recently, a bankruptcy court in Colorado addressed whether the cost of medical marijuana can be deducted from an individual debtor’s monthly disposable income for plan distribution purposes. Unfortunately for individuals who both use medical marijuana and who need to file bankruptcy, the court’s answer was a succinct “no”.
In In re Andrick, the debtors were a husband and wife who filed bankruptcy petitions under Chapter 13 of the Bankruptcy Code. Chapter 13 allows individuals with regular income to propose a plan to repay all or a part of their debts. As part of the Chapter 13 process, the debtors had to disclose both their current monthly income and a calculation of their disposable income. In their disposable income calculations, the debtors disclosed that they spent $900 per month on medical marijuana. Claiming a special circumstances deduction for the medical marijuana, the debtors’ plan provided for a distribution to unsecured creditors of approximately 38%. If the deduction for medical marijuana was backed-out, meaning that the $900 would be counted as disposable income that could be distributed to creditors, unsecured creditors would receive close to a 100% distribution under the plan.
Read the full article at LexBlog