Ownership Cost for Vehicles in the Means Test Finally Put to Rest in the Ransom Case


In 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act or BAPCPA was passed by Congress and created the Means Test.  The Means Test was created in an attempt to change a perceived problem with the bankruptcy system.  The idea behind the Means Test was to take IRS standard deductions and compare them to the income of those in need of bankruptcy protection to determine if someone has disposable income to pay some of their debts back in a Chapter 13 bankruptcy rather than having all of the debts discharged in a Chapter 7 bankruptcy.

In 2006, Mr. Ransom filed for bankruptcy protection under Chapter 13 of the bankruptcy code.  In his Means Test Mr. Ransom included an “Ownership Cost” in line 28 of the Means Test or Form 22C even though he did not actually have a car loan or lease payment.  By taking this deduction totaling $471 per month, Mr. Ransom reduced his monthly disposable income available to pay his unsecured creditors.  Taken over a 60 month Chapter 13 plan, Mr. Ransom would not have to pay back to his unsecured creditors approximately $28,000.  FIA Cards objected to the confirmation or approval of Mr. Ransom’s Chapter 13 Plan arguing that the $471 deduction can only be taken if Mr. Ransom actually has a car loan or lease payment.

While the Ninth Circuit agreed with FIA Cards and held that Mr. Ransom could not take the $471 “Ownership Cost,” the Fifth Circuit, Seventh Circuit and Eighth Circuit in similar cases did not agree.  On January 11, 2011, the United States Supreme Court upheld the Ninth Circuits judgment and agreed that the “Ownership Cost” in line 28 and line 29 of the Means Test or Form 22C may only be taken if the bankruptcy filer actually has a car loan or lease expense.  If a person owns their car free and clear then they must not take the “Ownership Cost” deduction. A bankruptcy attorney formerly could choose to take the additional ownership expense to decrease the line 59 disposable income of their client or pass the means test altogether.

The issue in this case turns on the interpretation of the word “applicable.”  What a mess one simple word could create.  The moral of the story is when Congress is considering the language of laws to pass, they must make their intent clear and analyze each word they use when drafting new legislation.  One word could make a huge difference.  In Mr. Ransom’s case, it is now a $28,000 difference.  Contact one of our bankruptcy lawyers for more information about the Means Test or In re Ransom.