Justices rule on vehicle ownership deductions (Jan. 11, 2011)

Case: 
Ransom v. MBNA

The Supreme Court held that in calculating a debtor's "projected disposable income," a bankruptcy court may allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles.

Jason Ransom filed for chapter 13 bankruptcy relief. Among his assets, he noted a 2004 Toyota Camry he owns free and clear of any loans or other encumbrances. In his liabilities, he noted a total of $82,542.93 in general unsecured claims, including a claim held by MBNA America Bank in the amount of $32,896.73.

On his Statement of Current Monthly Income, Ransom reported a current monthly income of

$4,248.56, and an annualized income of $50,982.72, which put him above the median income for his household size in his state of residence, Nevada. He claimed monthly expense deductions — including the vehicle “ownership cost” deduction at issue in this case — in the amount of $4,038.01, and a resulting monthly disposable income of $210.55.

In his chapter 13 plan, Ransom proposed paying $500.00 per month over sixty months, providing approximately a 25 percent distribution on general unsecured claims. MBNA objected to confirmation of the plan, arguing Ransom was not devoting all of his projected disposable income to fund the plan as required under 11 U.S.C. § 1325(b)(1)(B).

Specifically, MBNA argued that Ransom could deduct a vehicle ownership cost only if he actually was making lease or loan payments on the vehicle and, because Ransom owned his vehicle free and clear of encumbrances and lease obligations, he was not entitled to the vehicle ownership cost deduction. Thus, MBNA argued, Ransom’s projected disposable income should be $681.55 (the $210.55 he reported in disposable income plus $471.00, the amount of the vehicle ownership cost deduction to which MBNA objected).

The bankruptcy court agreed with MBNA, holding that Ransom could deduct a vehicle ownership cost only if he currently was making loan or lease payments on the vehicle. The bankruptcy court therefore entered an order denying without prejudice confirmation of the plan.

Ransom sought and obtained leave to appeal the bankruptcy court’s interlocutory order to our BAP. BAP affirmed the bankruptcy court. Concurrently with its opinion affirming the bankruptcy court, BAP certified its disposition of the case to this circuit for possible review of a non-final order.

In August 2009, a three-judge panel on the 9th U.S. Circuit Court of Appeals restricted Ransom from taking an ownership-costs deduction for a vehicle he owned outright.

"The statute is only concerned about protecting the debtor's ability to continue owning a car, and if the debtor already owns the car, the debtor is adequately protected," Judge Stephen S. Trott wrote. "When the debtor has no monthly ownership expenses, it makes no sense to deduct an ownership expense to shield it from creditors."

On Jan. 11, 2011, the Supreme Court affirmed the lower court order in the first opinion by Justice Elena Kagan. The court held that a debtor who does not make loan or lease payments could not take the car-ownership deduction.

Justice Antonin Scalia filed a dissenting opinion.

Question presented: Whether, in calculating the debtor’s “projected disposable income” during the plan period, the bankruptcy court may allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles.

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