28 Aug Means Test Vehicle Ownership Expense Allowed Without a Debt, Says 8th Circuit
Whether to allow a debtor to claim a deduction on the bankruptcy means test for the ownership expense of a car if there is no debt on it is quickly being resolved by the courts.
In 2009, the Eighth Circuit Court of Appeals concluded that the deduction would be allowed. The circuit court joins with the Fifth and Seventh Circuits in taking this position, as Minnesota attorney Craig Andresen has recently outlined. This sets up a conflict with the Ninth Circuit which reached the opposite result only two-weeks previous.
Intriguingly the case at issue is a Chapter 13. The appeals court accepted that its Frederickson decision would be relevant to a final determination of what the debtor’s projected disposable income would be going forward in a wage earner plan. But the panel appeared to be making clear that, to the extent that the means test calculations under 707(b) apply in the Ch. 13 means test, the debtor will be allowed to claim the motor vehicle ownership deduction regardless of whether a debt is owed on the vehicle.
Perhaps the clearest message was that the panel rejected using the IRS’s allowances and disallowances (in the context of tax law) for bankruptcy purposes. The court pointed out that Congress previously rejected amendments that would incorporate the IRS procedures wholesale into the law and only added the “amounts specified in the [IRS] National and Local Standards.” In part this may be because Congress wished to avoid allowing bankruptcy judges discretion in the calculation which the IRS would allow its agents. But bankruptcy law still incorporated broad provisions to deter abusive filings:
…in the context of Chapter Seven, it is unnecessary to incorporate the [Internal Revenue Manual] into the means test to honor Congressional intent of limiting the courts’ ability to allow expenses and making it more difficult to discharge consumer debt. Rather, the catch-all provisions of Chapter Seven [707(b)(3)] provide a backstop that permits the dismissal of abusive Chapter Seven petitions.
The decision appears to reverse our Bankruptcy Appellate Panel’s 2008 decision in In re Wilson, 383 B.R. 729 (8th Cir.BAP 2008) which concluded in part that the deduction was not allowed because the deduction was not “applicable” where there was no debt, and relied on the IRS collection procedures in reaching this determination.
The panel pointed out that somewhat absurd results can accrue with either reading of the law. After all, it makes little sense to allow a deduction for the debtor who has only a couple payments left on a new car that will last many years while denying it completely to someone who yesterday paid off an ancient car which won’t last much longer. Both are mechanistic and unrealistic about the future ability of the debtor to make a meaningful repayment to other creditors. Therefore, the court opted for the interpretation which stayed within the four-corners of the Code and did not reach for authority outside it.
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