In a recent Supreme Court decision, the Court held that a chapter 13 debtor, in a Bankruptcy case originating in the Ninth Circuit, who does not make loan or lease payments may not take the car-ownership deduction in calculating his projected disposable income under the means test. In Ransom v. FIA Card Services (“FIA”), the debtor asserted a right to car-ownership deduction, but did owe lease or loan payments on his car. 131 S.Ct. 716, 723 (U.S.,2011). FIA objected and the case went all the way to the Supreme Court.
Even though to non-bankruptcy practitioners may seem to only reiterate who sounds like common sense, this ruling, was necessary because there was a split among the circuits on this issue. The Eight Circuit in In re Washburn and the Fifth Circuit in In re Tate permitted a chapter 13 debtor to take a car-ownership deduction even though the debtor did not make loan or lease payments.
This ruling is obviously not favorable to debtors, but nonetheless represents a common sense reading of the law and results in an equitable result. There is no justification for allowing a debtor who is not making lease or loan payments to a car-ownership deduction other than that it would save that particular debtor money. Understandably, a debtor in this position might cry foul because a debtor with lease or loan payments gets the deduction and thus the benefit of the deducted amount.
Once again, I think this is a common sense reading of the law even though it negatively impact my clients. Debtors negatively impacted still have a deduction for car operating costs.