In Re Scott
2011 Bankr. LEXIS 3091, 457 B.R. 740, 66 Collier Bankr. Cas. 2d 646 (2011)
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Rule of Law:
A Chapter 13 debtor with above-median income, who has actual vehicle loan payments, may deduct the full Internal Revenue Service (IRS) transportation ownership expense standard, even if their actual monthly payment is less than the standard, when calculating projected disposable income for plan confirmation.
Facts:
- Debtors Greg and Ka Sandra Scott, Marcus and Jacquelyn White, and James and Laurie Shewmake each filed for relief under Chapter 13 bankruptcy.
- Each debtor reported annualized income on their Form B22C (the 'means test') that was above the applicable median income for their respective household size.
- As required for above-median income debtors, they calculated their disposable income pursuant to 11 U.S.C. § 1325(b)(3), utilizing Internal Revenue Service (IRS) standardized deductions.
- On Form B22C, at Lines 28a and 29a, the debtors claimed a standardized 'transportation ownership/lease expense' of $496 for each of two cars.
- The debtors' actual monthly car ownership expenses for these vehicles were less than the $496 IRS standardized amount.
- The debtors then deducted their actual monthly car payments on lines 28b and 29b and subsequently listed their average monthly loan payments for their two cars at line 47 of Form B22C.
Procedural Posture:
- Debtors Greg and Ka Sandra Scott, Marcus and Jacquelyn White, and James and Laurie Shewmake each filed for relief under Chapter 13 bankruptcy.
- The Chapter 13 Trustee filed objections to the confirmation of the plans offered by the Scotts and Whites, and to the amended plan offered by the Shewmakes.
- The Trustee's objections asserted that the debtors were not paying all of their projected disposable income to unsecured creditors under their proposed plans, specifically challenging their deduction of the full IRS standardized transportation expense.
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Issue:
Can a debtor whose secured debt payment on a car is less than the I.R.S. Standard receive the benefit of the full deduction when calculating disposable income for a Chapter 13 plan?
Opinions:
Majority - Laura K. Grandy
Yes, a debtor whose secured debt payment on a car is less than the IRS Standard can receive the benefit of the full deduction. The court based its decision on the plain language of 11 U.S.C. § 707(b)(2)(A)(ii)(I), which states that a debtor's monthly expenses 'shall be' the applicable monthly expense amounts specified under National and Local Standards. Car payments fall under these local standards, not 'Other Necessary Expenses,' which are the categories explicitly limited to a debtor's actual monthly expenses. The court found that Form B22C, created by the Judicial Conference as an advisory interpretation of the statute, supports this approach by directing debtors to subtract actual payments from the IRS Standard on lines 28/29 and then add back debt payments at line 47, thereby harmonizing all subparts of the statute, including § 707(b)(2)(A)(iii) which addresses secured debt payments. The Trustee's interpretation would render parts of Form B22C meaningless, which is contrary to the principle of giving effect to every word of a statute. The court distinguished Ransom v. FIA Card Services (2011), noting that Ransom only established that a debtor must actually have a vehicle payment to claim the standard but explicitly declined to address whether a lesser actual payment limits the deduction to the actual amount. Applying Ransom's 'applicable' expense test, the court concluded that the IRS Standard is 'applicable' because the debtors undeniably have existing car loans. Congress knows how to limit deductions to 'actual expenses' for other categories but chose not to for National and Local Standards. While maximizing creditor repayment is a goal of BAPCPA, another primary goal was to eliminate judicial discretion and replace it with standardized formulas, which this interpretation upholds. Finally, the court found Hamilton v. Lanning (2010), which allows for adjustments based on known or virtually certain changes in a debtor's financial situation, inapplicable because the Trustee presented no evidence of such changes.
Analysis:
This case clarifies the application of the 'means test' for Chapter 13 debtors with above-median income regarding transportation ownership expenses. By affirming that debtors can claim the full IRS standardized deduction despite lower actual payments, the court reinforced the shift from pre-BAPCPA judicial discretion to a more objective, formulaic approach in determining disposable income. The decision underscores Congress's intent to create predictable standards, even if it occasionally leads to 'peculiarities' where debtors retain slightly more income than their 'actual' expenses might suggest. It distinguishes between expense categories where actual costs apply versus those where IRS standards are determinative, providing a clearer framework for attorneys and debtors navigating the complexities of Chapter 13 plans.
