20 Aug Ransom Footnote 8: Illinois Judge Preserves Chapter 13 Car Deduction
A Chapter 13 bankruptcy debtor may deduct the full IRS Standards vehicle allowance even though the actual payment may be less, per a decision by Bankruptcy Judge Laura Grandy in the Southern District of Illinois case of In re Scott, 10-32582 (August 8, 2011).
When the Supreme Court ruled in Ransom v. FIA Card Services, 131 S. Ct. 716, 723-24 (2011) that an over median income debtor could not take an I.R.S. Standards Ownership Cost deduction against Disposable Income, (11 U.S.C. 1325(b)(1)(b)), for a vehicle if the debtor did not have an â€œapplicableâ€ vehicle payment, the Supreme Court refused to indicate whether a debtor could take the full amount of that deduction if the actual vehicle payment was less than the amount of the I.R.S. Standards. The Supreme Court commented in footnote 8 of Ransom at page 727:
â€œThe parties and the Solicitor General as amicus curiae dispute the proper deduction for a debtor who has expenses that are lower than the amounts listed in the Local Standards. Ransom argues that a debtor may claim the specified expense amount in full regardless of his out-of- pocket costs. Brief for Petitioner 24â€“27. The Government concurs with this view, provided (as we require) that a debtor has some expense relating to the deduction. See Brief for United States as Amicus Curiae 19â€“21. FIA, relying on the IRSâ€™s practice, contends to the contrary that a debtor may claim only his actual expenditures in this circumstance. Brief for Respondent 12, 45â€“46 (arguing that the Local Standards function as caps). We decline to resolve this issue. [emphasis added] Because Ransom incurs no ownership expense at all, the car-ownership allowance is not applicable to him in the first instance. Ransom is therefore not entitled to a deduction under either approach.â€
In Scott, Judge Grandy was asked to confirm a Plan that deducted the full I.R.S. Standards vehicle allowance on Form B22C over the objection of the chapter 13 trustee. The trustee suggested the Judge should limit the amount of the deduction to the actual amount of the vehicle loan payment amortized over a 60 month period. A ruling in favor of the trustee would have required debtors to increase the amount of money paid to unsecured creditors during the life of the Plan. Because this decision would affect the calculation of Disposable Income for all over median income debtors with unconfirmed plans in that Bankruptcy District, the practical effect of such a requirement would have caused several active cases to fail in which debtors were already paying as much as they could afford.
Judge Grandy refused to disallow â€œstandard expense deductions for anything that could be considered a debt paymentâ€, an interpretation proffered by the trustee of 11 U.S.C. 707(b)(2)(A)(ii)(I)â€™s “notwithstanding sentence”. â€œNotwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debtsâ€. Instead, Judge Grandy focused on the B22C form. Judge Grandy noted the history of the form as being created by the Judicial Conference of the United States – the principal policy making body concerning the administration of the United States Courts comprised of the Chief Justice of the United States, the chief judge of each judicial circuit, the Chief Judge of the Court of International Trade, and a district judge from each regional judicial circuit, with a number of committees and members appointed by the Chief Justice to advise on a wide range of subjects, including rules of practice and procedure and deriving its authority from federal statute 28 U.S.C. 331 [Pretty much her words, not mine]. Judge Grandy also noted the Official Forms prescribed by the Judicial Conference â€œshall be construed to be consistent with [the Rules of Bankruptcy Procedure] and the Code.â€ Fed. R. Bankr. P. 9009.â€ [Again, better said by her than me].
Form B22C directs debtor to list the applicable I.R.S. Standards vehicle ownership expense on line 28a. From that amount the debtor is directed to deduct the actual amount of the vehicle loan payment on 28b. The resulting amount on 28c is subtracted from the amount of money a debtor is presumed to be able to pay to unsecured creditors. The amount subtracted at line 28b is added back at line 47, in effect giving debtor a full deduction of the I.R.S. Standards no matter the amount of the vehicle loan payment, provided there is a loan payment. [Per Ransom, a debtor is not permitted to claim the I.R.S. Standards if debtor does not have a vehicle loan payment.]
Because the Official Form permitted a debtor to deduct the full allowance, and based on the history and authority behind the form, Judge Grandy accepted the form as an advisory opinion on how to calculate Disposable Income.
Andy Miofsky, Esq.
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