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Payments on Cars
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Ninth Circuit BAP Rules that a Chapter 13 Debtor Can Deduct A Vehicle
Ownership Expense in Calculating Current Monthly Income Only If the Debtor
Actually Makes a Such a Payment.
On December 27, 2008, the United States Bankruptcy Appellate Panel of the
Ninth Circuit ruled in In re Ransom, ____ B.R. _____, 2007 WL 4625248 (BAP
9th Cir. Dec. 27, 2007) that in calculating current monthly income on Form
B22C ("CMI"), a debtor is entitled to take the vehicle ownership expense
deduction only if the debtor makes an actual car lease or loan payment.
Facts: The debtor filed chapter 13 and scheduled an unencumbered vehicle.
On Form B22C, in calculating CMI, the debtor included a $471 vehicle
ownership expense, resulting in a monthly disposable income of $210.55. A
creditor objected to the debtors plan on the grounds that pursuant to the
IRS Internal Revenue Manual, a debtor is entitled to deduct a vehicle
ownership expense only if the debtor makes a lease or loan payment. Since
the debtor made no vehicle payment, the debtor was not entitled to the
ownership expense deduction, and the debtors disposable income should have
been $681.55, all of which should have been committed to the plan. The
bankruptcy court agreed, denied confirmation and the debtor appealed.
Applicable Law: When an unsecured creditor objects to confirmation, if the
debtor is not paying allowed unsecured claims in full, Section 1325(b)(1)(B)
requires that the debtor commit all of the debtors projected disposable
income during the commitment period to pay creditors. In calculating CMI,
if the debtors annualized income is above the median income for the state,
the debtor is allowed the expenses under section 707(b)(2)(A) and (B).
Section 707(b)(2)(A)(ii)(I) provides that the debtors expenses shall be the
debtors applicable monthly expense amounts specified under the National
Standards and Local Standards, and the debtors actual monthly expenses for
the categories specified as Other Expenses issued by the IRS for the area
in which the debtor resides. The Local Standards include Transportationexpenses, which includes Ownership Costs.
Reasoning: The BAP rejected decisions from other jurisdictions that
held that applicable modified Local Standards so that the monthly
expense applicable to a debtor depended on the debtors geographic location
of residence and not the actual payment. In looking at the language of the
statute, whether it is plain or ambiguous, the statute must be
interpreted holistically. Congress determined that the expense of owning
a car should be an allowable expense. In calculating what a debtor can pay
his creditors, the important issue is the vehicle payment actually made
since that impacts the debtors ability to pay creditors under the plan.
The statute seeks to protect the debtors ability to continue to own a car,
but if the debtor already owns the car, and has no monthly ownership
expenses, it makes no sense to deduct an ownership expense to shield those
funds from creditors. Moreover, in section 707(b)(2)(A)(ii)(I),
pense
amount specified in the Local Standards becomes relevant to the debtor
only if the debtor has an expense in the first instance. This
interpretation furthers the goals of BAPCPA to ensure that debtors repay as
much of their debt as reasonably possible; it would be contrary to those
goals to allow the deduction when the debtor does not have actual an
ownership expense. Therefore, under section 707(b)(2)(A) (ii)(I), the
deduction of the vehicle ownership expense applies only when the debtor has
that particular expense.
In a companion decision in In re Ransom, __ B.R. __, 2007 WL 4625249 (9th
Cir. BAP Dec. 27, 2007), the BAP determined that it could certify the
bankruptcy courts order to the United States Court of Appeals pursuant to
28 U.S.C. 158(d) even though the decision affirming the bankruptcy courts
dismissal of the debtors case was an interlocutory order.
These materials were written by Elizabeth Berke-Dreyfuss of Wendel, Rosen,
Black & Dean LLP, Secretary of the Insolvency Law Committee.
edreyfuss@wendel.com.
Best regards,
Ellen Friedman
Friedman Dumas & Springwater LLP
efriedman@friedumspring.com
Insolvency Law Committee, Co Vice Chair
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal
Specialization.
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