Supreme Court in the Driver’s Seat in Ransom v. FIA Card Services

In a significant decision affecting bankruptcy cases throughout the United States, the Supreme Court of the United States has determined that a debtor, who does not make a loan or lease payment, may not take the car ownership deduction. This case has impact on all Chapter 7 and Chapter 13 bankruptcy cases currently being administered by David M. Siegel & Associates, throughout Chicago and the surrounding suburbs.

The means test is the determining test as to what a debtor can pay under Chapter 7 and Chapter 13 bankruptcy. The court took a look at the plain meaning of the word “applicable” in determining what expenses a debtor could claim. The court believed that Congress intended the means test to approximate a debtor’s reasonable expenses on essential items. Thus, a debtor would be required to justify that actual expense prior to being permitted to deduct it on the means test. Further, the court reasoned that the purpose of the means test was to ensure that debtors repay the maximum of what he or she could afford. If a debtor is not actually making an auto payment, then that expenditure does not exist and such proceeds can be applied to repay creditors. The debtor is permitted to deduct the operating expenses for said vehicle.

Interestingly, if the debtor obtains a low financed vehicle or even a title loan prior to filing, the ownership deduction on the means test would be allowed.