MEANS TESTING: VEHICLE EXPENSE WHEN NO PAYMENTS BEING MADE?
In re Ross-Tousey, 549 F.3d 1148 (7th Cir. 2008), 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,
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. Although these decisons are persuasive authoritiy, there does mnot appear to be any ruling on the issue in the Ninth Circuit.
In Tate, the appeals court noted that some lower federal courts had followed wo approaches 1)the Internal Revenue Manual (IRM) approach to the question of vehicle ownership allowance expenses, amd 2) the Plain Language approach.
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. These courts say that if you aren’t actually paying it, you can’t deduct it 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 more persuasive because 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.
In the Eastern District of California, the US TRUSTEE has taken the position that these costs cannot be deducted if they are not being paid. This appears to be consistent with the IRM approach and probably will result eventually to an appeal to the 9th Circuit.