Supreme Court hearing arguments today about means test auto ownership deduction

[debee]

"A little over a year ago, Bankruptcy Law Network contributor Cathy Moran wrote a post about the 9th Circuit’s decision in the MBNA v. Ransom case. At issue was the question of whether an above-median debtor could claim the “ownership deduction” in a means test calculation even if that debtor owned his vehicles free and clear and was not making payments on a vehicle.

The 9th Circuit Court of Appeals concluded that such a debtor could not claim the ownership deduction. By contrast, other Circuit Courts of Appeal such as the 8th Circuit had decided exactly the opposite.

Because of this difference of opinion among federal appeals courts, the Supreme Court agreed to consider the Ransom case. On Monday, October 4, 2010, the Court will hear arguments to decide this issue. A decision is likely sometime after the first of the year."

I thought this might be useful for above-median filers who are still in the planning stages. We can't claim the deduction on the means test now (we're in district 9) and have to buy new cars to get it.

[SunkShip]

Great information Debee, thanks for sharing it!

[IBroke]

I agree, great info.

Looking at some recent decisions, it seems that the 9th Circuit, well, su*ks big time!

[wipetheslate]

I'm in the 9th circuit. Can I claim the $200 for paid off older cars on my means test or is that a no-no in the 9th, as well?

[debee]

My understanding is that in the 9th circuit we can claim the "operating" expense for any car but not the "ownership" expense (unless we have a loan).

[tcreegan]

Hi wipetheslate,

In the 9th, you can claim operating expenses but not ownership expense on a paid off car....unless the Supreme Court rules otherwise.

Tom in Colo

[wipetheslate]

There's a middle ground between the $489 (west) ownership expense and nothing. The IRS has a $200 ownership allowance for paid off cars that are over six years old and have more than 75K miles. That's what I was wondering about.

http://howardlevyirslawyer.com/blog/2010/09/26/offer-in-compromise-pointer-claim-the-200-ownership-cost-for-an-older-car/

[debee]

I copied the blurb below from caselaw.findlaw.com & you can read the whole thing by changing the xx to tt in the link I pasted under the text.

It's all written in English but that doesn't help me get at the meaning. No idea how the differing courts interpret this, but it appears that the deduction is allowed in the 9th circuit in chapter 13 cases at least. Not sure about 7. I don't get why ch7 filers can usually contribute to 401k plans, but ch13 filers cannot. And I don't get why ch13 filers can count 401k loan repayments but ch7 filers cannot. And all that of course depending on the district. The more reading I do, the more ignorant I feel. Anyway, here's the blurb:

Numerous safeguards are in place to protect both debtors and creditors.   Debtors who own old or high mileage cars “free and clear,” are entitled to an extra $200 per month operating expense.   Also, a “free and clear” owner is not “stuck” with the vehicle operating expenses allowed under the IRS Standards.   Section 707(b)(2)(B) is also available for “above the median” Chapter 13 debtors.  Section 707(b)(2)(B), allows additional expenses based on “special circumstances.”

348 B.R. at 798 (citations omitted).   We agree with the court in Carlin and conclude that the debtor's appeal to equity is unavailing.

Further, our interpretation of § 707(b)(2)(A)(ii)(I) has a substantive effect that is consistent with the underlying goals of BAPCPA.   Cf. [United Sav. Ass'n v. Timbers of Inwood Forest Assocs., 484 U.S. 365, 371, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988) ].   To interpret the statute otherwise is counterintuitive to one of the main objectives of BAPCPA:  to ensure that debtors repay as much of their debt as reasonably possible.   When viewed within the larger context of BAPCPA, we believe the statute can only be interpreted to “apply” expense standards in cases where debtors in fact pay such expenses.

Full text available at: hxxp://caselaw.findlaw.com/us-9th-circuit/1157729.html

[debee]

wipetheslate - I was just reading an old thread on the forum - "high mileage car expense on the means test" - that you might find useful. It's all about the $200 deduction. Thanks alot for raising the issue!

[tcreegan]

Hi all,

Your website is a little off debee, the $200 figure is an ownership expense allowed by the IRS for paid-off, high mileage cars. It is based on the assumption that you are going to need a car in the near future, so you can allow $200/month in your budget to save up.

Operating costs remain the same, actual or local standards, whichever is lower.

But BK code is not IRS code. For the BK form 22a (means test) you use the IRS regional standard, which is $496 in the west region.

Here is the rub:

If you fill out the means-test literally, official form B22a, the instructions are to put $496 on line 23a and then subtract line 23b which is your car payment. If you own the car outright, that gives you $496 - 0 = $496 expense on line 23c

So if you use a literal interpretation of form B22a, you get $496 car ownership expense for any car that is paid off.

The UST (and 9th circuit) have taken a more logical interpretation: if you don't owe a car payment, you don't have an ownership expense, put 0 on line 23c

The Supreme Court is going to rule between the literal interpretation of form B22a ($496 ownership expense on paid off car) or the UST interpretation, no ownership expense for paid off cars. Or....maybe they compromise on the IRS $200 value, who knows?

On face value, this is a ridiculous case for the Supreme Court; it is essentially a clerical error on a BK form. But with the lack of unity among the Circuits, and no real help from the language Congress put in the law, the Supreme Court is going to settle it once and for all.

We should take bets...

Tom in Colo

[debee]

Some districts are allowing the $200 as an extra expense on the means test. It has nothing to do with the ownership allowance. Totally different thing. If the vehicle meets the requirements (age, mileage, etc), you get to claim the $200 as an expense on your means test. Here's a blurb from bankruptcylawnetwork about it. Also, the other link was from the actual transcript of the 9th circuit...


Means Test on Old or High Mileage Cars

by L. Jed Berliner, Springfield & Marlborough, MA Bankruptcy Attorney · Posted in *Chapter 7 Bankruptcy,Means Testing,Your Bankruptcy Attorney & You

The Means Test is not a pretty part of the new bankruptcy filing requirements.� Above Median Income filers need to compare their income and expenses against allowances based on the Internal Revenue guidelines for delinquent taxpayers.� The new statute is not particularly clear on a number of issues, including two which concern the form’s three places where vehicle expenses might fit: The two IRS allowances for vehicles, one for ownership expenses one for operating expenses, and the catch-all “special circumstances” which is left to the Court’s discretion (for example, for excessive commuting costs needed to retain employment).

Courts are split on whether a bankrupt may use the IRS vehicle ownership allowance where there is no vehicle loan.� They are also split on whether a bankrupt may also use the extra $200 allowance for a car older than six years or having more than 75,000 miles, found in the Internal Revenue Manual, as an addition to ownership expenses, to operating expenses, to special circumstances, or simply not at all.

This can decisively determine if your Chapter 7 case gets dismissed.� Be sure your attorney knows the issues and the local decisions.

[Dee]

So...if you file this month and your 341 hearing is prior to the ruling, AND you are in a district that currently allows the ownership deduction for vehicles with no lien, do you think the pending ruling would have any impact on being able to use that deduction in the meantime?

[debee]

Dee- I'm low on the bk learning curve, but from what I've been reading it won't make any difference until they come back with a ruling.

[keptdigging]

When the Supreme Court rules, this should no longer be a circuit-by-circuit thing. This doesn't just affect the 9th circuit. If the 9th circuit ruling is upheld, it will apply nationally. The law is going to change somewhere.

[justbroke]

Actually, I hope that the Supremes do not rule on the "literal" interpretation of what's on Schedule B22A/B22C, since they are not the law themselves. Hopefully, they rule on the meaning in 11 USC 707(b)(2)(A)(iii).

(II) any additional payments to secured creditors necessary for the debtor, in filing a plan under chapter 13 of this title, to maintain possession of the debtor's primary residence, motor vehicle, or other property necessary for the support of the debtor and the debtor's dependents, that serves as collateral for secured debts;

I think there may be some problems and the 9th Circuit may be right. Read the plain language. It reads "to maintain possession of". If you don't require a payment to "maintain possession of" the vehicle, then how do you get the ownership allowance?