Central District Consumer Bankruptcy Attorney's Association

Seventh Circuit Decides Hotly Debated Means Test Issue posted by Tara
Twomey
One of the more divisive post-BAPCPA consumer issues has been whether a
debtor who has no monthly vehicle loan or lease expense can claim a
vehicle ownership deduction when applying the means test. Until
Wednesday, no circuit court of appeals had considered the issue. The
four bankruptcy appellate panels that had rendered opinions were evenly
split, as were the bankruptcy courts. Now the Seventh Circuit Court of
Appeals has weighed in on the issue in In Ross-Tousey v. Neary, 2008 WL
5234070 (7th Cir. Dec. 17, 2008). The court reversed the district court
and held that when conducting a means test analysis a debtor may claim a
vehicle ownership expense even if the vehicle is not encumbered by a
debt or lease payment. According to the court of appeals, this result
was dictated by the plain language of the statute, the legislative
history, and the underlying policies of the means test.
The importance of the decision extends beyond the car ownership
allowance.
The court rejected the methodology used in the Internal Revenue Manual
(IRM) as an interpretive guide for the means test. While the IRM is
useful to IRS agents determining a taxpayer's ability to pay, the court
found no indication the Congress intended the IRM to be used in
conducting the means test. The substantial discretion of IRS agents
under the IRM was also found to be inconsistent with the purpose of the
means test to adopt a uniform, bright-line test that eliminates judicial
discretion. This means that other expenses provided for in the National
and Local Standards, such as housing expenses, should be used as
allowances and not as caps on expenses (at least in the Seventh
Circuit).
And, while the court noted that the UST can still request dismissal
under section 707(b)(3) for bad faith or based on the totality of the
circumstances, the burden of proof will be on the party seeking
dismissal.
For those less interested in consumer bankruptcy, the court also
addressed finality and appellate jurisdiction issues.
M. Erik Clark
Borowitz, Lozano & Clark, LLP
100 N. Barranca Avenue, Suite 250
West Covina, CA 91791
www.blclaw.com
Office: (626) 332-8600
Fax: (626) 332-8644
Board Certified in Consumer Bankruptcy
American Board of Certification

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