Wednesday, May 05, 2010

Supreme Court to Determine Whether Ninth Circuit Can Hold Ownership Expense Deduction for Ransom

On April 19, the Supreme Court granted cert in In re Ransom, 577 F.3d 1026 (9th Cir. 2009), cert granted, 2010 U.S. LEXIS 3359 (2010). The issue in the case is:

Whether, in calculating the debtor's "projected disposable income" during the plan period, the bankruptcy court may allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles.

The Ninth Circuit held that a debtor could only claim a vehicle ownership expense on the means test if she had a debt or lease payment. The Fifth Seventh Circuit and Eighth Circuits and the Sixth Circuit BAP have all ruled that the ownership expense is available regardless of whether there is an actual payment. In re Washburn, 579 F.3d 934 (8th Cir. 2009)(with dissenting opinion); Tate v. Bolen, 571 F.3d 423 (5th Cir. 2009); In re Ross-Tousey, 549 F.3d 1148 (7th Cir. 2008); In re Kimbro, 389 B.R. 518 (6th Cir. BAP 2008).

The cases raise a fascinating issue under BAPCPA. The Means Test refers to the Local Standards, National Standards and Other Necessary Expenses referred to by the Financial Analysis Handbook within the Internal Revenue Manual. The standards themselves consist of tables of expenses. However, the manual itself provides guidelines for applying the standards and states that the deduction is only available if there is an actual payment. Thus, the issue is whether the availability of the deduction depends on how Congress wrote the statute (which references the standards) or the way the IRS would have applied the standards under the manual.

Since the stated goal of BAPCPA was "to ensure that debtors repay creditors the maximum they can afford," it would be ironic if the Supreme Court finds that the way the statute was actually drafted allows a more generous deduction than the IRS would have allowed.

I have an article discussing this issue in more detail coming out in the June ABI Journal.

1 comment:

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