Means Test Vehicle Ownership Expense: Another Appeals Court Says “Yes” Even When There’s No Car Payment

15 Jun Means Test Vehicle Ownership Expense: Another Appeals Court Says “Yes” Even When There’s No Car Payment

The U.S Court of Appeals, Fifth Circuit, recently ruled that on the means test’s Form B22A, a vehicle ownership expense is allowed even when the debtor has no car payment. The court’s ruling in In re Tate, No. 08-60953 (5th Cir. June 10, 2009), agrees with the only other circuit court opinion on this issue, In re Ross-Tousey, 549 F.3d 1148 (7th Cir. 2008).

Both Tate and Ross-Tousey agree that such an expense is allowed, making it easier for a debtor whose motor vehicle is owned free and clear of lease or car payments to pass the means test. That these courts are among the highest federal appeals court authorities makes these rulings highly persuasive, even in circuits whose appeals courts have not yet spoken on this issue.

In Tate, the appeals court noted that some lower federal courts had followed the Internal Revenue Manual approach to the question of vehicle ownership allowance expenses. Under the IRM approach, a debtor can deduct for a vehicle ownership expense only if he or she has an “applicable” or “relevant” ownership expense. No lease or car payment means no vehicle ownership expense deduction on the means test, under the IRM approach.

The other approach, followed by the appeals court in both Tate and Ross-Tousey, is the plain language approach, which simply interprets the bankruptcy code’s section 707(b)(2)(A)(II)(i) to refer to a debtor’s specific geographic location and the number of vehicles the debtor owns.Thus, the debtor’s “applicable monthly expense” for the vehicle ownership allowance is the expense specified in the Internal Revenue Manual for the debtor’s location for his or her number of vehicles. Having an actual lease or car payment is not required to take an expense for vehicle ownership allowance on the means test under the plain language approach.

The appeals court in Tate found the Ross-Tousey court’s reasoning to be persuasive. There are “costs associated with vehicle ownership even when no lease or car payments are due,” and “debtors with no car payments may nonetheless need replacement transportation during the bankruptcy proceedings.”

The court also observed that “disallowing the deduction has arbitrary results, punishing a debtor who completes paying for their car before filing for bankruptcy and rewarding those who make purchases closer to the time of filing.” The court therefore adopted the plain language approach allowing deductions without actual lease or car payments.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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