US Supreme Court decides Ransom v. FIA Card Services - Debtor loses

[despritfreya]

January 11, 2011

http://www.supremecourt.gov/opinions/10pdf/09-907.pdf

[The body of this decision is too large to insert in this posting as it is 26 pages long - you can view the PDF via the above link (comment by Moderator)]

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Hot off the press today (1/11/11) the USSC has released its decision in the case of Ransom v. FIA Card Services. "We hold that the Local Standard expense amount for transportation 'Ownership Costs' is not 'applicable' to a debtor who will not incur any such costs during his bankruptcy plan. Because the 'Ownership Costs' category covers only loan and lease payments and because Ransom owns his car free from any debt or obligation, he may not claim the allowance. In short, Ransom may not deduct loan or lease expenses when he does not have any. We therefore affirm the judgment of the Ninth Circuit."

So, if you own two vehicles but only owe on one of them, you can only claim an "Ownership Costs" (line 23 & 24 of Form 22) for one vehicle.

Des.

[DebtEnder]

All the more reason to get a new car before going with a CH13.

[SunshineGal]

Hi Des,

Quick question, IF your district allowed it, and the case has already been discharged, will this have any effect on the case?

Thanks so much,

SG

[despritfreya]

IF your district allowed it, and the case has already been discharged, will this have any effect on the case?

Can't imagine that this decision would have any affect on cases either Discharged or already Confirmed in Districts that were allowing the "double" deduction. Will it affect cases in the pipeline - I bet it could.

Des.

[SunshineGal]

Thanks Des.

[MSbklawyer]

All the more reason to get a new car before going with a CH13.

Yes, or, as Scalia suggests, buying a junkyard car for $10 and paying for it with a promissory note for many years. Or, for that matter, taking out a title loan on a car you already own free and clear.

[HHM]

I am not surprised that they ruled the way they did, but it is a let down.

The means test is best understood as a "benchmark" since the means test in no way reflects the reality of a debtor's situation. The Means test basically says, that if you make less than "x" amount, you don't really have the means to pay back your creditors. It shouldn't matter whether you actually have certain expenses, the idea is that there is a certain income level that if you fall below it, you cannot pay debt. Now it will discriminate against the thrifty and reward the reckless...the exact opposite of the intent of the 2005 law change.

[despritfreya]

. . . the idea (behind Means Testing) is that there is a certain income level that if you fall below it, you cannot pay debt. Now it will discriminate against the thrifty and reward the reckless...the exact opposite of the intent of the 2005 law change.

But. . . according to that most learned body called Congress. . .

"It's a perfect law".

Des.

[RichM]

Hmmm... It's rare that I agree with Scalia, but this is one of those times.

In practical terms, I suspect that some enterprising individual or financial institution will start marketing title loans through bankruptcy lawyers some time this afternoon, or tomorrow morning at the latest. I may do it myself, in fact, depending on what kind of licenses I would need.

I would charge debtors an "application fee" of $166.00 up-front (plus whatever the lien filing fee is in their state) to process an application for a $126.00 loan, at 0.0% interest, payable over five years, using their car as security. Upon "approval" I would file a lien against their car and hand them a check for $126.00. They pay me back $2.10 a month for the next 60 months. I make $166.00 for my trouble, and they get the deduction.

-Rich

[HHM]

Nice idea, but not exactly fool proof. It is WIDELY unsettled if you can take the "full" car expense deduction when your payment is less, trustees object left and right to that move; and the Supreme Court in this decision (in a foot note) expressly states that they are not taking a position on that issue, so that litigation is ongoing.

[dontburnthep]

Does anyone have any thoughts on debtors who filed before the Ransom decision and are awaiting their 341? I wonder if the Trustee's will let them keep the deduction? Bad timing.

[HHM]

Probably bad timing. If your district was one that allowed the deduction pre-ransom, you could argue that you are not subject to the Ransom decision. But it is a tough road to hoe.

[dontburnthep]

My district did allow the deduction and that's the exact argument our lawyer is trying to make. We lost $1K off the means test (which we passed pre-Ransom and now fail spectacularly) between the date of filing and when this decision was handed down.

Thanks for the response.

[wikkibird]

Hmmm, our lawyer filed our Chapter 13 on the 11th, the day this ruling passed. Our 341 meeting is on February 24th. We owe on one car, the other is paid off. Before he did the two car deduction, we would have had to pay more than $700 a month. With both entered, it's $405, which we can do just fine... He did mention that we made too much for a Chapter 7, but we fall within the means test (or something like that, he said we were a rare situation -- we have no car, no assets, etc -- we just make too much for a Chapter 7 thanks to my income), so the Trustee wouldn't take our tax return (unless we made over $2200 in a return) nor any bonuses from my husband unless it was over a certain amount. Does that make sense? So, I'm curious how this would effect us...

Or, maybe I'm confused and he added the Operating Expense for my paid-off car and not a deduction. :-P Suppose I should look at the paperwork again!

[olivies]

Would this decision also apply if you are surrendering a financed vehicle??