7th Circuit Allows Car Ownership Means Test Deduction

The issue of whether a debtor should get to take the car “ownership” allowance when he has no loan or lease payment has been one of the many controversial issues surrounding the bankruptcy means test. Recently, the 7th Circuit Court of Appeals addressed the issue and described the split of authority in this manner:

We note that of the four bankruptcy appellate panels that have addressed this question, two have concluded that a debtor who owns his car outright may take the deduction, see In re Kimbro, 389 B.R. 518, 532 (6th Cir. BAP2008), In re Pearson, 390 B.R. 706, 714 (10th Cir. BAP 2008), and two have concluded the opposite, see In re Ransom, 380 B.R. 799, 808 (9th Cir. BAP 2007), In re Wilson, 383 B.R. 729, 734 (8th Cir. BAP2008).

In re Ross-Tousey, 2008 WL 5234070, 6 (7th Cir. 2008).

The United States Trustee, in opposing the debtor’s allowance, had argued that the ownership allowance was only “applicable” in cases in which a debtor had a car payment. Debtor’s counsel read the statute differently, arguing that the word “applicable” in the statute pertained to the debtor’s location and number of vehicles the debtor owned. The court sided with the debtor, allowing the deduction despite the lack of a corresponding car payment.

The court also held that the Internal Revenue Manual (IRM) should not be used as authority in resolving the issue. The court stated that using the IRM, which vests revenue officers with discretion, to resolve issues of statutory interpretation would render the means test less mechanical and more discretionary, a result that would be contrary to the reason for the the means test’s creation. The court stated “In sum, because we believe that reference to IRM methodology is inconsistent with the statutory language, history, and purpose, we do not turn to it in interpreting the means test.” Id. at 10.