Ransom v. FIA Card Services, N. A.
The Supreme Court ruled that a debtor filing for Chapter 13 bankruptcy who owns his car free and clear cannot deduct the standard 'car-ownership' expense allowance, because he has no loan or lease payment for the deduction to offset.
The decision affects how much above-median-income debtors must repay creditors, closing off a deduction some had used to shield income even though they had no actual car payments to make.
“A debtor who does not make loan or lease payments may not take the car-ownership deduction.”
The Court's core holding on who can claim the vehicle-ownership expense deduction.
How it got here: A bankruptcy court denied Ransom's repayment plan, the Ninth Circuit's bankruptcy appellate panel and the Ninth Circuit affirmed, and the Supreme Court took the case to resolve a circuit split.
The Case in Depth
What happened
Jason Ransom filed for Chapter 13 bankruptcy owing more than $82,500 in unsecured debt, including a debt to FIA Card Services. Ransom owned his car outright, with no loan or lease payments, yet claimed a $471 monthly 'car-ownership' deduction from a standard IRS expense table, which lowered the amount he proposed to repay creditors under his bankruptcy plan.
The question before the Court
If a bankruptcy debtor owns his car outright, with no loan or lease payments, can he still deduct a standard car-ownership expense from his income before repaying creditors?
The Court's answer
No — the Court ruled that a debtor who owns his car free and clear, with no loan or lease payments, cannot claim the standard car-ownership expense deduction under the bankruptcy 'means test.' The deduction only 'applies' to debtors who actually incur that kind of expense, and the ownership-costs table reflects average nationwide loan and lease payments, not general car-related costs.
Ransom could still deduct separate 'operating costs' (insurance, fuel, maintenance, and similar expenses), which are available to any car owner regardless of whether they make loan or lease payments. But because he had already paid off his Camry, the roughly $471 monthly ownership allowance was not available to him, meaning he had to direct more of his income toward repaying his unsecured creditors.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Debtors who own their cars outright will have to count more of their income as available to repay unsecured creditors, rather than shielding a few hundred dollars a month behind a deduction meant for people making loan or lease payments. Creditors, including credit card companies, stand to recover more under repayment plans as a result.
What changes now
This is a final merits decision resolving a split among the circuits, so lower courts must now follow this reading of the car-ownership deduction nationwide. The Ninth Circuit's judgment denying Ransom's bankruptcy plan confirmation stands, and Ransom (or debtors like him) would need to revise repayment plans to direct the full disposable income, including the disputed $471 monthly amount, toward creditors.
What this does not decide
The Court expressly declined to resolve whether a debtor whose actual car expenses are lower than the table amount can still claim the full table deduction, since Ransom had no ownership expense at all and that issue did not need to be decided here.
Concurrences and dissents
Dissent — Justice Scalia
Justice Scalia argued that a debtor who owns a car outright should still get the ownership-cost deduction, agreeing with three other circuits that had reached that conclusion. He read 'applicable' as simply directing debtors to the correct column in the table (one car versus two), not as importing an IRS collection-only rule about who lacks a car payment. He also argued the majority's reliance on IRS guidance amounted to an unacknowledged incorporation of rules Congress never enacted.
How the Court got there
The legal reasoning, step by step
- The Court focused on the statutory word 'applicable' in the rule that lets a debtor deduct his 'applicable monthly expense amounts' from standardized IRS expense tables, reasoning that Congress used this word to filter out debtors for whom a listed expense category does not actually fit.
- Because the ordinary meaning of 'applicable' is appropriate, relevant, or fit, the Court held that a debtor can only claim a deduction from a table if his financial situation actually corresponds to the type of expense that table covers.
- The Court looked at how the broader statute defines a debtor's disposable income as current income minus 'amounts reasonably necessary to be expended,' concluding that an expense a debtor will never actually pay cannot be 'reasonably necessary.'
- Turning to what the car-ownership table itself covers, the Court found it reflects only average nationwide loan and lease payments, not general costs of maintaining a car, which are instead covered by a separate 'operating costs' deduction available to all car owners regardless of payments owed.
- Applying this to Ransom, the Court concluded that because he owed no loan or lease payments on his car, the ownership-costs deduction simply did not apply to him, even though the separate operating-costs deduction still did.