9th Circuit Denies Allowance of Vehicle Ownership Expense: Frustrated at Congress

14 Aug 9th Circuit Denies Allowance of Vehicle Ownership Expense: Frustrated at Congress

The Ninth Circuit recently issued a very important decision in the case of In re Ransom, wherein it ruled that Debtors without vehicle debt can not deduct vehicle ownership expenses on Form B22 (the “means test”), a new form created under the new bankruptcy laws enacted in October, 2005. Such a ruling now creates a split of opinion between the 5th and 7th Circuit Court of Appeals and the 9th Circuit.

Form B22 was created as an attempt by Congress to create an artificial test to decide who may receive a discharge under chapter 7 and how much money needs to be paid to unsecured creditors in chapter 13 cases. As previously discussed on this website and others throughout the nation, this test has absolutely nothing to do with reality since it compares past income with artificial expenses created by the IRS. One such artificial expense is the vehicle ownership expense ruled on by the 9th.

If a debtor has a vehicle, there are two expenses that may be associated with it: operating expenses and ownership expenses. Both expenses are IRS numbers that are plugged in and have nothing to do with the actual expenses being incurred. Operating expenses supposedly account for gas and other necessary expenses to operate the vehicle from month to month. Ownership expenses, on the other hand, concern expenses to own the vehicle, namely payments for the debt or lien against the car, although arguably there are plenty of other ownership expenses out there as well.

While the 5th and 7th Circuit court of appeals have already ruled that ownership expenses are allowed simply because one owns a vehicle irrespective of debt, the 9th circuit has now ruled completely the opposite and held that unless there is a debt associated with the vehicle, one is not allowed to take the ownership deduction.

Perhaps the most amusing part of this decision is the fact that the 9th Circuit appears sick and tired of all the problems, ambiguities, and errors contained in the new Bankruptcy Legislation (that one congressman even stated, “is so perfect that not even one word needs to be changed”). In a very unusual comment at the end of the decision, the 9th circuit actually ordered the opinion to be sent to Congress to provide further clarification as to exactly what they were intending the new laws to mean:

The correct answer to the question before us, which the courts have been struggling with for years at the unnecessary cost of thousands of hours of valuable judicial time depends ultimately not upon our interpretation of the statute, but upon what Congress wants the answer to be. We would hope, in this regard, that we the judiciary would be relieved of this Sisyphean adventure by legislation clearly answering a straightforward policy question: shall an above-median income debtor in chapter 13 be allowed to shelter from unsecured creditors a standardized vehicle ownership cost for a vehicle owned free and clear, or not? Because resolution of this issue rests with Congress, we have taken the unusual step of directing the Clerk of the Court to forward a copy of this opinion to the Senate and House Judiciary Committees.

Perhaps the Supreme Court of the United States will now get involved due to the split of opinions at the Circuit Level. Nevertheless, what does this really mean to the average debtor in Chapter 7 or 13. If you have a good attorney, it should mean nothing. This is because that attorney probably already has been filing cases without taking ownership deductions all along where debts do not exist, and in the rare cases where the expense is needed, plenty of alternatives exist such as engaging in pre-bankruptcy planning to obtain the expense or maximizing other deductions in the means test.

Written byMichael G. Doan

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