US Sup Ct Limits Car-Ownership Deduction for BAPCPA's Means Test

The Supreme Court of the United States recently held that, under BAPCPA’s means test, a debtor in Chapter 13 Bankruptcy who does not make loan or lease payments may not take the car-ownership deduction.


A copy of the opinion is available at:

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

This case came before the Supreme Court on certiorari from the United States Court of Appeals for the Ninth Circuit. Petitioner Jason Ransom, a debtor in Chapter 13 Bankruptcy, had liabilities which included $82,500 in unsecured debt, part of which consisted of a claim by respondent FIA Card Services N.A. Ransom, who owned his vehicle outright, contended that under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

(BAPCPA) means test used to determine a debtor’s disposable income, he was entitled to deductions in relation to the vehicle for both “Ownership Costs” and “Operating Costs.” FIA disputed Ransom’s proposed repayment plan stating that it “did not direct all of Ransom’s disposable income to unsecured creditors” because it improperly included the ownership deduction.

As you may recall, Chapter 13 of the Bankruptcy Code enables an individual to obtain a discharge of his debts if he pays his creditors a portion of his monthly income in accordance with a court-approved plan. 11 U. S. C.

§1301 et seq. To determine how much income the debtor is capable of paying, Chapter 13 uses a statutory formula known as the “means test.” The means test instructs a debtor to deduct from his current monthly income “amounts reasonably necessary to be expended” for, inter alia, “maintenance or support.” 11 U. S. C. §1325(b)(2)(A)(i). The result is his “disposable income”—the amount he has available to reimburse creditors.

§1325(b)(2).
As relevant here, the statute provides that “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service [IRS] fort he area in which the debtor resides.” The Standards are tables listing

standardized expense amounts for basic necessities, which the IRS prepares to help calculate taxpayers’ ability to pay overdue taxes. The IRS also creates supplemental guidelines known as the “Collection Financial Standards,” which describe how to use the tables and what the amounts listed in them mean. The Local Standards include an allowance for transportation expenses, divided into vehicle “Ownership Costs” and vehicle “Operating Costs.” The Collection Financial Standards explain that “Ownership Costs” cover monthly loan or lease payments on an automobile.

The expense amounts listed are based on nationwide car financing data. The Collection Financial Standards further state that a taxpayer who has no car payment may not claim an allowance for ownership costs.

The Supreme Court examined the language of the Bankruptcy Code at §707(b)(2)(A)(ii)(I), which states, “The debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards.” The Court focused on the term “applicable,” stating that whether or not Ransom could claim the car ownership deduction hinged on whether this amount “is “applicable” to him.” The Court then noted that as this term is undefined in the statute they look to the “ordinary meaning of the term” which is “appropriate, relevant, suitable, or fit.”

The Court stated that applicability, in the context of BAPCPA, is determined by making “individualized determination” of a debtor’s monthly expenses. The Court noted that if Congress had not intended to differentiate between debtors who did and did not qualify for a deduction, it “could have omitted the term ‘applicable’ altogether.” The Court also noted that the “statutory context” gives support to this reading as the Code defines disposable income as “current monthly income…less amounts reasonably necessary to be expended.” Lastly, the Court examined the legislative intent behind BAPCPA, which was to prevent perceived bankruptcy abuses by ensuring “[debtors] repay creditors the maximum they can afford.”

Ransom argued that the term “applicable” refers to the deduction tables, directing the debtor to chose the “applicable” ownership deduction of whether he or she owned one or two vehicles. The Court noted that this interpretation made the use of the word “applicable” superfluous, and was contrary to the statutory purpose effected by the means test giving an allowance for ““reasonably necessary” expenses.” The Court further noted that “[e]xpenses that are wholly fictional are not easily though of as reasonably necessary.” The Court also disagreed with Ransom’s contention that this reading would conflate “applicable” with “actual”, noting that although an expense can only be deducted if actually incurred, the actual debtor expenses incurred does not necessarily control, if for instance the debtor’s “actual expenses exceed the amounts listed in the tables….”

The Court also disagreed with Ransom’s contention that the car-ownership deduction cannot cover only loan and lease payments, because a separate sentence of the means test provides that “notwithstanding” the other provisions of the test, “the monthly expenses of the debtor shall not include any payments for debts.” The Court held that this sentence did not apply solely to the car-ownership provision, and that this sentence could only serve to “exclude, and not authorize, deductions.”

Lastly, Ransom argued that his reading of the means test was necessary to avoid results not intended by Congress. Ransom gave as an example of such “senseless results” as that of a debtor timing their bankruptcy filing so that he or she would have only a few car payments left, and thus claim an ownership deduction that would not be applicable soon after entering bankruptcy. The Court stated that such anomalies were “the inevitable result of a standardized formula like the means test”, and Ransom’s reading introduced its own problems, namely, “the strangeness of giving a debtor an allowance for loan or lease payments” when he or she is incurring no such costs. The Court held that all of Ransom’s arguments miss the point of both BAPCPA and the means test, which are to prevent bankruptcy abuses while simultaneously assuring that a debtor has enough money for “reasonable expenses.”

Justice Scalia alone dissented from the majority opinion. His dissenting opinion took issue with the majority’s assertion that Ransom’s reading of the word “applicable” would render it superfluous, noting “[t]he canon against superfluity is not a canon against verbosity.” Justice Scalia then stated that “[t]he point of the statutory language is to entitle debtors who own cars to an ownership deduction” and that an independent interpretation of the tables used was unnecessary as there was “little doubt” that a debtor would be able to choose whether to claim a deduction for one car or two. Scalia also noted that the Court’s job was not to “eliminate or reduce” the “oddities” mentioned by the court, but to “give the formula Congress adopted its fairest meaning.”