The U.S. Supreme Court ruled today that a debtor in bankruptcy is not allowed to take a deduction on the so-called means test for ownership costs for a vehicle, unless they are actually buying or leasing a vehicle. What does this mean?
If your income is over the median income for your state, and you file a Chapter 13 bankruptcy, and you own your cars or trucks outright, you may have to pay more to your unsecured creditors than you would have otherwise. By implication, if the same reasoning applies to Chapter 7, then you may be less likely to qualify for Chapter 7 bankruptcy relief, if your vehicles are paid off.
Mr. Ransom deducted $471 per month for "ownership" costs under the B22C form or means test in his case, and FIA Card Services objected. The Bankruptcy Court denied confirmation or approval of the plan, and the appeals court agreed and affirmed the denial of the plan. The U.S. Supreme Court today agreed with the 9th Circuit Court of Appeals and denied confirmation of the plan.
So, it is not the end of the world, but the Ransom decision today makes the means test a little meaner. Under the law here in the 5th Circuit before Ransom, we were allowed to deduct an additional $471 per month of ownership expense for a first car, and $332 for a second car, even if they were paid for. If a debtor's vehicles are paid for, it will mean a higher chapter 13 plan payment for future cases, and if this same reasoning is extended to chapter 7, which I'm sure it will be, it may be considerably harder for people to qualify for chapter 7, unless they have loans or leases on their vehicles.
This was the first Supreme Court opinion written by our newest Supreme Court Justice, Justice Elena Kagan.