Auto ownership expense without an existing loan?

[Quiznos1]

We have an older vehicle without a lien and we are hoping to still be able to claim full ownership expense. has anyone had in luck with the their trustee allowing this on the means test in chp7 or as an expense in chp 13? I found a case in our Circuit that allowed it , but it is from 2008.

"Following the rationale of the Seventh Circuit in In re Ross-Tousey, 2008 U.S. App. LEXIS 25803 (7th Cir. 2008), the U.S. Court of Appeals for the Fifth Circuit has held that a debtor may claim a ownership expense on the means test even if the debtor does not have an automobile loan or lease payment.*

The Fifth Circuit panel rejected the so-called "IRM approach," in which courts use the methodology of the Internal Revenue Manual (IRM) as an interpretive guide for applying the means test. Those courts look not only to the Local Standards, but also to how the IRS uses the Local Standards in its revenue collection process. Under the IRM, if a taxpayer has no car payment, the taxpayer is only entitled to the vehicle operation deduction, not the ownership deduction."

Quznois1

[btbeme]

That's a mighty big hope. I'd ask why you would need that expense - is your file <that close> to needing that expense in order to clear the Means Test?

Having a lien on the vehicle works best. A lien could be a documented and perfected loan from just about any source. It would have to be "seasoned" with a few payments, shown on the vehicle title, documented with loan paperwork (and preferably notarized), and the proceeds of the loan against the vehicle documented and spent on allowable exemptions to pass muster.

Now, that said, if it appears that you obtained a lien on the vehicle simply to qualify for a Ch 7, that could be bad.

[Quiznos1]

Thanks, btbeme, for the advice about perfecting a lien. While, we do have a older car that is free and clear we are also considering purchasing another car before our credit is ruined. My husband not only lost his job, but his company vehicle as well. The problem is we do not want to take on any more debt.

You know the old saying: "Hope for the best and plan or the worst" it has become our motto...

[Quiznos1]

Sorry, btbeme, I forgot to answer your question. Right now we are over the median income because of 6 month look back, but would be under the median looking forward because of job loss.

[ValleYum]

BK is kind of weird since adding debt will sometimes be the best "solution". If the Trustee hypothetically 'forced' you to a Ch 13, would your older car last the 3 to 5 year term of the BK? If not, would you rather finance the new(er) car @ 3-5% or 20%? Just make sure the monthly car payment is under ~$500/month. Good luck!

[AngelinaCat]

Not knowing what state you are in, would your exemptions not cover your older vehicle? And if they don't, depending on the age of the vehicle, and it's value, the trustee may just 'Abandon Interest' in it.

[Quiznos1]

Thank you, ValleYum and AngelinaCat. I'm starting to understand about BK being"weird". It just doesn't seem right to take on more debt when you can't pay for e debt you have. The quandary right now is how do we qualify for a new auto loan if my husband doesn't have a job. In-addition, do we really want a car payment when my salary will barely cover the basics.

AngelinaCat, we are in Texas so exemptions should cover almost everything we own.

[btbeme]

Bringing on debt you cannot afford to pay back is always a bad thing. You might consider getting a loan against your current vehicle and using the funds to service the car to the point that it would be reliable.

If there is a friend, relative, etc willing to loan you the money, you can draw up the loan agreement using any type of repayment plan that you could afford - say, interest-only or $50/mo for the first six months, then a regular payment afterwards, etc. After a BK discharge, calculate what you could afford to pay, then draw up the agreement. Get it notarized, make sure it gets recorded at the Motor Vehicle Department against the title (get a copy of the title showing the lien), and make a few payments as agreed.

Deposit the check you get (no cash, please) from the loan. Use that money to buy or do whatever you need to do to the car, buy food, etc - but keep track of what you spend (keep receipts). If you file Ch 7 after a few months, the loan and lien should pass muster with the Trustee and you will be able to claim the auto expense.

I strongly suggest that you work with an attorney if you are at or above median income, as there are dragons in those woods.

[Quiznos1]

Btbeme, I like your creative ideas on financing a vehicle. If we get a loan for a new vehicle, but our payments are only $200.00 a month can we still claim the full $497.00 ownership expense on the means test or in calculating our DMI for chp 13?

[kornellred]

Ownership expenses for a vehicle have nothing to do with whether it is financed or owned. You have to insure, fuel, and repair and maintain a vehicle even if it is owned free and clear. If you have more than one vehicle, you may not be able to claim the allowable expense for more than one.