Chapter 7 and 13 bankruptcies in Northern California and elsewhere require debtors to complete Official Form 22A Statement of Current Monthly Income and Means-Test Calculation (Means Test). The Means Test allows debtors to use the IRS transportation standards www.usdoj.gov/ust/ to claim an ownership or lease expense on up to two vehicles based on the average monthly payments for any debts or leases secured by a vehicle. There have been different interpretations by Courts regarding when this expense can be taken.
The issue has recently been resolved by the United States Supreme Court in Ransom v. FIA Card Services, N.A.No. 09-907. WL 66438 (January 11, 2011) (Kagan). Citing the Oxford English Dictionary, the Supreme Court held that to be "applicable" an expense must be "capable of being applied: having relevance" or "fit, suitable, or right to be applied: appropriate." Applying this definition, the court found that the debtor in a Chapter 13 case could claim a deduction only if "that deduction is appropriate for him. And a deduction is so appropriate only if the debtor has costs corresponding to the category covered by the table - that is, only if the debtor will incur that kind of expense during the life of the plan."
In the Ransom case the debtor did not have a car loan or a lease, but took the expense anyway. The Supreme Court determined that the debtor was artificially increasing the funds that were protected from distribution to creditors by asserting the IRS allowance without the related expense. "Because Congress intended the means test to approximate the debtor's reasonable expenditures on essential items, a debtor should be required to qualify for a deduction by actually incurring an expense in the relevant category." This interpretation is consistent with the stated Congressional purpose of BAPCPA: " (Bankruptcy Abuse Prevention and Consumer Protection Act-To insure that [debtors] repay creditors the maximum they can afford." The Supreme Court did not rule on whether an expense which is less than the allowance would be entitled to the full allowance.
The decision makes it clear that Chapter 13 debtors that do not have a loan or lease expense for an automobile cannot claim the expense. Although the case is a Chapter 13 case, the decision references Chapter 7 cases from the Fifth and Seventh Circuits, therefore, it would be reasonable to assume that the case is applicable to Chapter 7 cases. In his dissent, Justice Scalia observed the following: "[A] debtor entering bankruptcy might purchase a junkyard car for a song plus a $10 promissory note payable over several years. He would get the full ownership expense deduction." As stated, debtors should consider whether they would be better served by having some form of automobile debt before filing a bankruptcy petition.