Bankruptcy Courts Deny, And Allow, Car Ownership Deduction In Means Test For Fully Paid Vehicles

The Bankruptcy Means Test provides for a deduction for a car ownership expense, but Courts differ on whether or not the deduction can be taken if a car is fully paid for. Decisions that do not allow this often rely on the “plain meaning” of the language of the means test, however when judges across the country interpret the language differently, how plain can the language be?

Nicholas Ortiz wrote about how a recent decision from his Court: Car Ownership Deduction Allowed for Fully Paid Car. Judge William Hillman (Eastern Division Mass.) allowed the debtor to use the ownership deduction for a vehicle so long as there were actual costs of ownership and operation of the vehicle by the bankruptcy debtor. Yet in a decision issued on December 14, 2007 in a Chapter 13 bankruptcy case in the Western District of NC where I practice, the Court held that a debtor who did not have a lien on a vehicle may “not claim this allowance on Form B22C”. In Re Houser, 07-50529 at page 2 (WDNC).

This issue has been addressed in several articles on this website. Eugene Melchionne wrote Connecticut Allows Car Expense Without Loan where the court found that the car could be deducted even though there was no lien on it. Reaching the opposite conclusion in California, the 9th Circuit Bankruptcy Appellate Panel decided in in Re Ransom, that a debtor cannot take an ownership allowance for a car that is paid off. Cathy Moran wrote about that decision in Means Test Ownership Deduction Hits Pothole.

The MA case discussed by Mr. Ortiz was In Re Young , 2008 WL 3274425 (Bkrtcy.D.Mass.2008) and Judge Hillman reviewed cases on both sides of this issue in detail. In support of his decision, Judge Hillman said that courts holding otherwise were “essentially equating ‘ownership’ with ‘liability for a debt”. ” He included a quote of the United States Bankruptcy Appellate Panel for the Sixth Circuit Hildebrand v. Kimbro (In re Kimbro), 389 B.R. 518 (B.A.P. 6 Cir.thth2008). This quote sums up my feelings about why a car ownership expense should be allowed for car owners, not just those with car payments.

This argument ignores the economic realities of vehicle ownership. The expenses of vehicle ownership are the fixed expenses that an owner incurs that naturally arise from ownership regardless of the vehicle’s operation. By that definition, neither debt payments or lease payments are ownership expenses. Lease payments are not ownership expenses because by definition the debtor has no ownership. Debt payments are not ownership expenses because they are more naturally related to the necessities of financing the purchase. The expenses relating to vehicle ownership are the expenses for depreciation, insurance, licensing fees and taxes, each of which is a consequence of ownership and is incurred without regard to vehicle use. Ultimately, every vehicle owner incurs ownership expenses, and that is so regardless of debt or lease payments. In re Kimbro, 389 B.R. at 531

These differing opinions are further evidence of the absurd results reached by use of the Means Test, which totally ignores the economic reality faced by many bankruptcy debtors. Because the application of the means test and other nuances of the bankruptcy laws are different from place to place, it is important to consult with an experienced bankruptcy attorney in your area.

See articles on this site:

Bankruptcy Means Test: Costly and Really Pointless August 2, 2008 by Susanne Robicsek Charlotte NC Bankruptcy Lawyer

Bankruptcy Reform: Costly But Pointless July 31, 2008 by Cathy Moran, Bay Area CA Bankruptcy Lawyer

Is Bankruptcy The Same Everywhere? July 1, 2008 by Peter Orville, NY Bankruptcy Lawyer