Keywords: autos . secured debt . means test allowances . vehicle-ownership deduction . means test . IRS standards . Ransom .
Means Test > Expenses > IRS Allowances > Vehicles > Ownership Costs Local Standards: Vehicle Ownership/Lease expense allowance -- contingent on existence of loan or lease obligation? (i.e. if owned free and clear)91 Cases , IssueID 1 |
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Ch 7 Means Test |
Ch 13 Means Test |
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Topic Description:The Supreme Court ruled in January 2011, that the Means Test Vehicle Ownership allowance is contingent on existence of loan or lease obligation. In other words, if you own a vehicle "free and clear" and are not making any payments, you cannot claim the ownership deduction. (Ransom v. FIA Card Services, __ U.S. ___ (S.Ct 2011 ) ) Lines of Cases:
Topic Background / Overview:This is a NOT the issue where a debt is tied to property to be surrendered. Here it's a question of whether the allowance is triggered at all. That is, does it require an ownership "expense" to qualify for the allowance. |
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A debtor who does not make loan or lease payments may not take the car-ownership deduction.
US Supreme Court has granted cert on this case which the 9th Cir held for the creditor, despite the clear language of the law, as written. There is a circuit split on this issue. THE COURT HAS NOT YET RULED. The issue indicator is set to what the ninth circuit court ruled. Oral argument here: http://www.oyez.org/cases/2010-2019/2010/2010_09_907/argument
Above-median income Chapter 13 debtors may not take a Means Test deduction for a vehicle ownership cost if there is no cost associated with ownership of the vehicle. "An 'ownership cost' is not an 'expense' -- either actual or applicable -- if it does not exist, period. Ironic it would be indeed to diminish payments to unsecured creditors in this context on the basis of a fictitious expense not incurred by a debtor,"
ownership expense not allowed for vehicle without lien
ownership expense not allowed for vehicle without lien
(ownership expense not allowed for vehicle without lien
statute does not allow the ownership expense deduction to free and clear owners;
"Means Test Deduction Limited To Amount Actually Spent"
Although Lanning can be read as an endorsement of judicial discretion, we cannot conclude that the Supreme Court intended to endorse an unfettered grant of discretion which would permit bankruptcy courts to apply BAPCPA in a manner directly at odds with its express terms. The Debtor owns and operates a vehicle and, therefore, incurs expenses related to it. The fact that those expenses may be less than the amount Congress fixed for inclusion in the means test analysis does not mean that courts have the discretion to disallow the expense in that analysis.
discusses split within 2nd circuit and decides in favor of allowing the expense deduction.
Debtors, who own two vehicles for which they are making no loan or lease payments, are entitled to deduct $978, the amount shown in the IRS Standards, in calculating the projected disposable income to be applied under their Plan to paying unsecured creditors.
Chapter 13 plan fails "Projected Disposable Income" test for failing to provide sufficient payments based on deduction for vehicle they owned outright. Although deduction is allowed on 22C under 5th Circuit law , Tate , court can still refuse to approve Chapter 13 plan based on consideration of "actual" expenses.Nowlin v. Peake
The court ruled that debtors get a full standard vehicle deduction, and that the court should treat the full-vehicle deduction as the presumptive vehicle ownership cost.
The court rejected the holding in In re Strickland (Bankr. M.D. Ala. 2001), that a debtor's use of the vehicle ownership deduction is inconsistent with the forward-looking nature of projected disposable income used to determine the adequacy of a Chapter 13 plan.
Court held that the standards of the means test should be applied in determining what expenses are allowed or not, while still allowing the court to look at changed circumstances -- as long as the standards applied don't change.
debtors are not permitted to take a vehicle ownership expense deduction on line 28 of Form 22C for a vehicle that they own free and clear of any liens and for which they make no loan payments.
Since Pearson I was vacated by the Tenth Circuit Court of Appeals, it has no precedential value, and this Court declines to adopt its reasoning.
above median income debtors may take means test deduction for motor vehilcle ownership expense for cars they own free and clear
allowing the full IRS deduction for motor vehicle ownership where the vehicle is owned free and clear of liens
"A question that has often arisen as courts attempt to interpret the Means Test, which has also arisen in this case, is whether such payments may be deducted in a Means Test calculation where, as here, the Debtors intend to surrender the collateral. .... Debtors may include both the Secured Debt Deduction and the Ownership Costs Deduction in their Means Test calculation."
(ownership expense not allowed for vehicle without lien
"Congress must have had a reason for allowing the ownership deduction in calculating the means test formula for debtors with modest [car] payments, perhaps as some courts have posited, because the debtors may need replacement transportation during the course of [bankruptcy proceedings]." Debtors who own their cars outright would have the same potential need for vehicle replacement, so we believe that they are similarly entitled to the deduction even though the deduction amount may exceed their actual costs. See id.; see also Eugene Wedoff, Means Testing in the New 707(b), 79 Am. Bankr.L.J. 231, 257 (2005) (recognizing that allowing the ownership deduction to debtors who own their cars outright "reflects the reality that a car for which the debtor no longer makes payments may soon need to be replaced (so that the debtor will have actual ownership expenses)....").
(ownership expense not allowed for vehicle without lien
the term "applicable" does not simply mean a debtor must only apply the Standard based on the number of cars he owns; he must apply the Standard based on how many cars for which he has monthly ownership expenses.
The Court concludes that Zaporski's applicable Local Standards ownership cost reductions are based on the number of vehicles Zaporski owns, not the number for which Zaporski makes payments
"Means Test Deduction Limited To Amount Actually Spent"
A debtor who does not make loan or lease payments may not take the car-ownership deduction.
Although Lanning can be read as an endorsement of judicial discretion, we cannot conclude that the Supreme Court intended to endorse an unfettered grant of discretion which would permit bankruptcy courts to apply BAPCPA in a manner directly at odds with its express terms. The Debtor owns and operates a vehicle and, therefore, incurs expenses related to it. The fact that those expenses may be less than the amount Congress fixed for inclusion in the means test analysis does not mean that courts have the discretion to disallow the expense in that analysis.
US Supreme Court has granted cert on this case which the 9th Cir held for the creditor, despite the clear language of the law, as written. There is a circuit split on this issue. THE COURT HAS NOT YET RULED. The issue indicator is set to what the ninth circuit court ruled. Oral argument here: http://www.oyez.org/cases/2010-2019/2010/2010_09_907/argument
discusses split within 2nd circuit and decides in favor of allowing the expense deduction.
Debtors, who own two vehicles for which they are making no loan or lease payments, are entitled to deduct $978, the amount shown in the IRS Standards, in calculating the projected disposable income to be applied under their Plan to paying unsecured creditors.
Chapter 13 plan fails "Projected Disposable Income" test for failing to provide sufficient payments based on deduction for vehicle they owned outright. Although deduction is allowed on 22C under 5th Circuit law , Tate , court can still refuse to approve Chapter 13 plan based on consideration of "actual" expenses.Nowlin v. Peake
The court ruled that debtors get a full standard vehicle deduction, and that the court should treat the full-vehicle deduction as the presumptive vehicle ownership cost.
The court rejected the holding in In re Strickland (Bankr. M.D. Ala. 2001), that a debtor's use of the vehicle ownership deduction is inconsistent with the forward-looking nature of projected disposable income used to determine the adequacy of a Chapter 13 plan.
Court held that the standards of the means test should be applied in determining what expenses are allowed or not, while still allowing the court to look at changed circumstances -- as long as the standards applied don't change.
debtors are not permitted to take a vehicle ownership expense deduction on line 28 of Form 22C for a vehicle that they own free and clear of any liens and for which they make no loan payments.
Since Pearson I was vacated by the Tenth Circuit Court of Appeals, it has no precedential value, and this Court declines to adopt its reasoning.
above median income debtors may take means test deduction for motor vehilcle ownership expense for cars they own free and clear
Above-median income Chapter 13 debtors may not take a Means Test deduction for a vehicle ownership cost if there is no cost associated with ownership of the vehicle. "An 'ownership cost' is not an 'expense' -- either actual or applicable -- if it does not exist, period. Ironic it would be indeed to diminish payments to unsecured creditors in this context on the basis of a fictitious expense not incurred by a debtor,"
allowing the full IRS deduction for motor vehicle ownership where the vehicle is owned free and clear of liens
"A question that has often arisen as courts attempt to interpret the Means Test, which has also arisen in this case, is whether such payments may be deducted in a Means Test calculation where, as here, the Debtors intend to surrender the collateral. .... Debtors may include both the Secured Debt Deduction and the Ownership Costs Deduction in their Means Test calculation."
(ownership expense not allowed for vehicle without lien
"Congress must have had a reason for allowing the ownership deduction in calculating the means test formula for debtors with modest [car] payments, perhaps as some courts have posited, because the debtors may need replacement transportation during the course of [bankruptcy proceedings]." Debtors who own their cars outright would have the same potential need for vehicle replacement, so we believe that they are similarly entitled to the deduction even though the deduction amount may exceed their actual costs. See id.; see also Eugene Wedoff, Means Testing in the New 707(b), 79 Am. Bankr.L.J. 231, 257 (2005) (recognizing that allowing the ownership deduction to debtors who own their cars outright "reflects the reality that a car for which the debtor no longer makes payments may soon need to be replaced (so that the debtor will have actual ownership expenses)....").
ownership expense not allowed for vehicle without lien
(ownership expense not allowed for vehicle without lien
the term "applicable" does not simply mean a debtor must only apply the Standard based on the number of cars he owns; he must apply the Standard based on how many cars for which he has monthly ownership expenses.
ownership expense not allowed for vehicle without lien
The Court concludes that Zaporski's applicable Local Standards ownership cost reductions are based on the number of vehicles Zaporski owns, not the number for which Zaporski makes payments
(ownership expense not allowed for vehicle without lien
statute does not allow the ownership expense deduction to free and clear owners;
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