The U.S. Supreme Court issued an opinion last week that clears up the question of whether or not a debtor can claim an ownership deduction when calculating disposable income for his Chapter 13. Ransom v. FIA Card Services, N.A., No. 09-907
The case involved a Chapter 13 bankruptcy. Chapter 13 of the Bankruptcy Code uses a statutory formula known as the “means test” to help ensure that debtors who can pay creditors do pay them. The means test requires a debtor to determine his “disposable income”—the amount he has available to reimburse creditors—by deducting from his current monthly income “amounts reasonably necessary to be expended” for, among other things, “maintenance or support.”
Section 1325(b)(2)(A)(i) of the Bankruptcy Code provides that “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service [IRS] for the area in which the debtor resides.”
When Ransom filed for Chapter 13 bankruptcy relief, he listed respondent (FIA) as an unsecured creditor. Among his assets,Ransom reported a car that he owns free of any debt. In determining his monthly expenses, he nonetheless claimed a car-ownership deduc-tion of $471, the full amount specified in the “Ownership Costs” table,as well as a separate $388 deduction for car-operating costs. Based on his means-test calculations, Ransom proposed a bankruptcy plan that would result in repayment of approximately 25% of his unsecured debt. FIA objected on the ground that the plan did not direct all of Ransom’s disposable income to unsecured creditors. FIA contended that Ransom should not have claimed the car-ownership allowance because he does not make loan or lease payments on his car. Agreeing, the Bankruptcy Court denied confirmation of the plan.The Ninth Circuit Bankruptcy Appellate Panel and the Ninth Circuit affirmed.
The Court held that a debtor who does not make loan or lease payments may not take the car-ownership deduction.
You can read the opinion here.
