Car allowance: The effect of the Ransom in light of the Lanning - debate please

[despritfreya]

We have been seeing a lot of posts since the Supremes decided Ransom. Everyone is talking about payments going up since the car allowance for certain vehicles has been eliminated. But, no one has talked about what this means in light of the Lanning decision. Lanning, in its simplest terms, tells us we do not look at that stupid Congressionally mandated test (Form 22) but, instead, we look at the real picture. . . the way we did it before October, 2005.

In my district the Trustees always took the position that they would look at the real numbers of income and expenses (within reason) and not what Congress says your DMI is. Unsecured creditors get what you can afford to pay or your Chapter 7 Reconciliation, which ever is greater.

Let's discuss this.

Des.

[RunningMan]

Basing your payments on real income and real expenses sounds more reasonable to me than counting phantom car payments as an expense and one time bonuses as part of your regular income. If they want these chapter 13 plans to be successful, they have to be realistic about what a persons income is. A bonus received six months ago and already spent is not going to pay future bills. Some people can count on a regular bonus, but most bonuses are based on employee and company performance and can vary a lot and may not be paid at all.

[olivies]

Here here! If a large percentage of wage earner plans fail, there's a reason. Make the plans make sense and you increase the chances of the plan working. If we want proof that Congress knows nothing about income and expenditures, look at our national budget.

[Gladysw]

Olivies, why is your bankruptcy keep getting extended, just curious? We are getting ready to file, I have the actual filing papers, I have not signed them yet. I'am nervous, we under the median by $2000, because of one of us being unemployed. I'am still nervous that somehow we will get dismissed or something. Our attorney made it sound so easy.

[olivies]

Olivies, why is your bankruptcy keep getting extended, just curious? We are getting ready to file, I have the actual filing papers, I have not signed them yet. I'am nervous, we under the median by $2000, because of one of us being unemployed. I'am still nervous that somehow we will get dismissed or something. Our attorney made it sound so easy.

The UST filed a POA and motion to dismiss (we are over median, but passed the means. The biggest issue the UST has is that our actual rent is higher than the IRS standard rent), and keeps extending the hearing. I posted an update in the Ch7 forum.

[justbroke]

We have been seeing a lot of posts since the Supremes decided Ransom. Everyone is talking about payments going up since the car allowance for certain vehicles has been eliminated. But, no one has talked about what this means in light of the Lanning decision. Lanning, in its simplest terms, tells us we do not look at that stupid Congressionally mandated test (Form 22) but, instead, we look at the real picture. . . the way we did it before October, 2005.

I think that they can co-exist, but arguing that Lanning would allow "actual" ownership expenses on an unencumbered vehicle, may be a stretch? (Is that where you are going with this?) In any event, Florida -- in alignment with Tate -- hasn't allowed one to use the Ownership allowance for an unencumbered vehicle. However, I do know that the same Districts in Florida allow the $200 old vehicle expense (over 75,000 miles and/or over 6 years old) on that same vehicle.

I think, though, that Tate and Ransom are correct. I read from the statues, in justbroke's statutory construction, that the "ownership allowance" was meant to cover an encumbered vehicle, in order to pay debt service on that vehicle and to limit how much someone paid in debt service. The "operating allowance" covered all things maintenance, fuel, insurance, etc... as necessary expenses. That seems to be in alignment with the $200 extra "operating" allowance for older unencumbered vehicles. However, I guess you could argue that even the encumbered "old" vehicle should get the extra $200 as well... but I digress (and that $200 comes from an IRS Manual).

I'm hoping, for other debtor's sake, that the courts (Districts) come into alignment on these issues, so that at least it's coherent. LOL

I have never liked the idea of using the DMI from Official Form B22C anyhow. As one judge put it, and I'm paraphrasing, the means test is an mechanical test consisting of arbitrary numbers, based on the past, with no real association with reality. Gotta love some of the Judges. It would have been ridiculous for me to be charged, say, a payment based on a DMI that included the income I received 6 months ago (prior to filing) on my investment properties, or a job that I lost and obtained new employment at half the pay. Absolutely ridiculous... so I thank Lanning for that.

[despritfreya]

I think that they can co-exist, but arguing that Lanning would allow "actual" ownership expenses on an unencumbered vehicle, may be a stretch? (Is that where you are going with this?)

No, not trying to apply the ownership expense. My district also has not allowed it for a long time. Ransom came out of the 9th Cir. and I remember when the BAP (or was it the District Court - can’t remember that far back) ruled on it before it headed to the 9th Cir. CA.

More interested in the thought that, at least as it relates to a Chapter 13, Ransom has no meaning if, under Lanning, we look at the real picture. Ransom will still force folks to fail the Means Testing but it should not impact the payout to unsecured creditors in a 5 year Chapter 13. Debtors will pay what they can afford, not what form 22's bottom line says. Yes? No?

Des.

[justbroke]

More interested in the thought that, at least as it relates to a Chapter 13, Ransom has no meaning if, under Lanning, we look at the real picture. Ransom will still force folks to fail the Means Testing but it should not impact the payout to unsecured creditors in a 5 year Chapter 13. Debtors will pay what they can afford, not what form 22's bottom line says. Yes? No?

I didn't read the SCOTUS Ransom decision, but, if you really wanted to push more people into a Chapter 13, then this is certainly a way to do it! After all, it was what Congress was trying to do with the BAPCPA of 2005, right?

You know what Des, I have always agreed that the disposable monthly income (DMI) under the Means Test in a Chapter 13 (Form B22C) is bogus. I was ready to argue mine since it included pre-petition income on an investment property that I surrendered in the bankruptcy! Imagine my surprise when the Trustee didn't care and went by Schedule I&J and my Reorganization Plan, without objection.

I'm just wondering how long it will actually take for Lanning to become mainstream. As a practitioner yourself, and you probably subscribe to ABI or something similar, how long do you think before this trickles down into the practices and the attorneys actually start to insist on the Trustees adhering to Lanning or do you think it will always be a fight?

[despritfreya]

I'm just wondering how long it will actually take for Lanning to become mainstream. As a practitioner yourself, and you probably subscribe to ABI or something similar, how long do you think before this trickles down into the practices and the attorneys actually start to insist on the Trustees adhering to Lanning or do you think it will always be a fight?

This is an interesting issue. In my district this has never been a fight. One trustee started down the path but quickly stopped after we had a heart to heart with him. From our point of view:

"Go ahead and try to raise the payment based upon DMI not I&J. We will just flip the case to a Chapter 11. Once other "Chapter 13" attorneys figure out how simple individual Chapter 11's are (never mind that the fees are much higher) you will lose business."

Never had a problem again.

____________________________

As to other districts I am a bit puzzled. Many of the recent threads dealing with Ransom state that someone's attorney told them that the Plan payments must increase since the expense is no longer allowed. But what about Lanning? Why does the payment have to go up if Lanning says we look at the real numbers at the time of Plan Confirmation? I know Lanning dealt with the income the debtor made in that 6 months window vs. what her real income was, but what about the expenses. How can you limit expenses (gas alone is over $3/per gallon now). Your expenses are what they are, just like your income is what it is.

What am I missing?

Des.

[justbroke]

As a practitioner, I think you're being analytical where the poster didn't provide enough information to analyze the specific facts. I know what you mean though... Lanning helps Chapter 13 debtors where Ransom really hurts would-be Chapter 7 filers. Is this what you are getting at?

[despritfreya]

Lanning helps Chapter 13 debtors where Ransom really hurts would-be Chapter 7 filers. Is this what you are getting at?

Yes, if the holding of Ransom has no real impact (because of Lanning) in the context of Schedule I&J despite the requirements of 1325(B)(2) and (3). . . But Ransom is a Chapter 13 case. Doesn’t the holding in Lanning take us away from the mechanical approach of 1325(B)?

Is this just too esoteric?

Des.

[justbroke]

Is this just too esoteric?

That, or SCOTUS forgot what they said in Lanning! LOL! I always thought that the mechanical approach was solely to, as my District has put it, establish a "starting point" for what the unsecured payment might be, not the absolute number. I think they peacefully coexist, and I guess the real point would be the windfall for Chapter 13 debtors who are able to claim the entire $489 (or whatever it is now) a month ownership allowance when they already own the car.

Maybe the Supremes are being hypertechnical too. Maybe they're saying for the purposes of the Means Test itself, Ransom applies and you are not granted the ownership allowance. However, where the rubber meets the road for establishing the surrender of the disposable monthly income to the custody and control of the Trustee, Lanning is the law. That makes more sense to me, but that means Ransom is just hypertechnical.

You have my brain on overdrive now! I think this is no different than In re Walker, 2006 WL 1314125 (Bankr. N.D. Ga. 2006) and In re Parada, 391 B.R. 492 (Bankr. S.D. Fla. 2008) both Chapter 7 cases. Where the issue was a "technical" issue of whether you can expense payments on secured debt on the Means Test (Schedule B22A) even though your intent is to surrender them. That is now the supermajority view, and makes the Means Test nothing more than mechanical. This makes the interaction between Ransom and Lanning more clear to me now, and if I were an attorney, is what I'd argue. LOL

You know, now that I think about it, Ransom really doesn't help or hurt Floridians since we only have a $1,000 exemption for motor vehicles anyhow. So, owning a car outright is not a good thing.

[enginegirl]

All I have to say is how very thankful I am for Lanning and this website... If I had not have found out about it through here, I would have been stuck with a 13 that was unmanageable and would have been defaulted on and dismissed... I really do believe that Chapter 13 plans should be based on actual numbers and not something pulled out of the federal standards....

Thank you to both justbroke and Des for all your valuable info etc... I was able to educate myself and the attorney (she was super impressed!) to get me in a 13 that allows me to live modestly and not in a panic as to where I was going to find an extra $1500.00 month from!