May a debtor claim an ownership expense deduction under the means test if the vehicle is unencumbered? The Supreme Court will hear a case on this issue to resolve a split in the circuits; well, not a 50/50 split, but the usual split…the 9th Circuit versus everyone else.
Pre-BAPCPA, this would be a simple issue…if the debtor has an expense, then the debtor is allowed the deduction, as long as it does not breach the subjective test of “substantial abuse”; a subjective test based on “real” objective figures. In 2005, BAPCPA introduced the “means test”, an objective test based on contrived (i.e.- “fake”) figures.
Stephen Saser’s article in the June 2010 issue of the ABI Journal, “Supreme Court to Decide whether Means Test Allows Deduction for Unencumbered Vehicles”, expertly details the issues involved. Much hangs on the definition of “applicable.” The Ninth Circuit defined “applicable” in In re Ransom, 577 F.3d at 1030-31 as follows:
The ordinary, common meaning of “applicable” further impels us to this conclusion. “Applicable,” in its ordinary sense, means “capable of or suitable for ebing applied.” Given the ordinary sense of the term “applicable,” how is the vehicle ownership expense allowance capabale of being applied to the debtor if he does not make any lease or loan payment on the vehicle? In other words, how can the debtor assert a deduction for an expense he does not have? If we granted the debtor such an allowance, we would be reading “applicable” right” out of the Bankruptcy Code.
The Seventh Circuit reached a completely opposite view of “applicable” when it said:
Section 707(b)(2)(A)(ii)(I) is more strongly supported by the language and logic of the statute. In order to give effect to all the words of the statute, the term “applicable monthly expense amount” cannot mean the same thing as “actual monthly expenses.” Under the statute, a debtor’s “actual monthly expenses” are only relevant with regard to the IRS’s “Other necessary Expenses;” they are not relevant to deductions taken under the Local Standards, including the transportation ownership deduction. Since “applicable” cannot be synonymous with “actual,” applicable cannot reference what the debtor’s actual expenses is for a category, as courts favoring the IRM approach would interpret the word. We conclude that the better interpretation of “applicable” is that it references the selection of the debtor’s geographic region and number of cars. (In re Ross-Tousey, 549 F.3d at 1158)
Hopefully, the Supreme Court will clarify the term “applicable” and help to make some sense of a poorly drafted bill. Until then, bankruptcy lawyers should be familiar with how their judges and trustees view this issue.