Ransom v. FIA Card Services, N. A.

2011-01-11

Headline: Means-test ruling blocks debtors who own cars outright from claiming the IRS “ownership” car deduction, raising required Chapter 13 payments and reducing money shielded from unsecured creditors.

Holding: The Court held that a person who owns a car outright and makes no loan or lease payments may not claim the means-test car-ownership deduction, because that allowance covers only loan or lease payments.

Real World Impact:

Prevents car owners with no payments from taking the ownership allowance.
Raises required Chapter 13 payments for debtors who own vehicles outright.
May lead creditors to seek plan changes if payments or circumstances change.

Topics: bankruptcy repayment, consumer debt, car expenses, IRS expense rules

Summary

Background

Jason Ransom, an individual who filed for Chapter 13 bankruptcy in July 2006, owns a 2004 Toyota Camry free and clear and listed over $82,500 in unsecured debt, including a claim by a credit card company, FIA Card Services. For the means test that sets how much debtors must pay, Ransom reported monthly income of $4,248.56 and claimed $471 for car-ownership and $338 for car-operating costs, leaving $210.55 in disposable income and a proposed five-year plan to pay about 25% of unsecured debt. FIA objected, saying the $471 ownership allowance was improper because Ransom made no loan or lease payments.

Reasoning

The Court asked whether the means-test “applicable” ownership amount applies to a debtor who will not incur loan or lease payments. Reading the statute’s plain language, context, and purpose, the Court concluded that an expense amount is “applicable” only if it corresponds to an expense the debtor actually will incur during the plan. The Court explained the IRS’s Local Standards show the ownership figures are nationwide averages of loan and lease payments, while operating costs cover insurance, fuel, maintenance, and similar items. Because Ransom owns his car with no loan or lease payments, the ownership deduction is not “applicable.” The Court affirmed the Ninth Circuit and denied the deduction.

Real world impact

The ruling means Chapter 13 debtors who own vehicles free of loans cannot use the ownership allowance to lower their calculated disposable income. Creditors may later seek plan modification if circumstances change, but the decision requires debtors without loan or lease payments to report higher disposable income and pay more to unsecured creditors.

Dissents or concurrances

Justice Scalia dissented, arguing the word “applicable” should let a car owner claim the table amount for one car and criticizing reliance on IRS guidance.