Ransom v. FIA Card Services, N. A.
562 U.S. 61, 178 L. Ed. 2d 603, 2011 U.S. LEXIS 608 (2011)
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Rule of Law:
Under the Bankruptcy Code's means test, a debtor may only claim a standardized expense allowance, such as for vehicle ownership costs, if the debtor actually incurs an expense in that category. A debtor who owns a car outright and makes no loan or lease payments cannot take the vehicle ownership deduction.
Facts:
- Jason Ransom owned a 2004 Toyota Camry.
- Ransom owned the vehicle free and clear of any debt and was not making any loan or lease payments on it.
- In July 2006, Ransom filed for Chapter 13 bankruptcy protection.
- When calculating his disposable income under the bankruptcy means test, Ransom claimed a $471 monthly deduction for vehicle 'Ownership Costs,' based on a standardized IRS table.
- Ransom also claimed a separate, undisputed deduction of $338 for vehicle 'Operating Costs' like gas and maintenance.
- Ransom's proposed bankruptcy plan, which included the ownership deduction, would have repaid approximately 25% of his unsecured debt over five years.
Procedural Posture:
- Ransom filed a Chapter 13 bankruptcy petition in the U.S. Bankruptcy Court.
- FIA Card Services, N.A., an unsecured creditor, objected to the confirmation of Ransom's proposed repayment plan.
- The Bankruptcy Court denied confirmation of the plan, holding Ransom was not entitled to the vehicle ownership deduction.
- Ransom, as appellant, appealed to the Ninth Circuit Bankruptcy Appellate Panel, which affirmed the Bankruptcy Court's decision.
- Ransom, as appellant, then appealed to the U.S. Court of Appeals for the Ninth Circuit, which affirmed the lower courts.
- The U.S. Supreme Court granted Ransom's petition for a writ of certiorari to resolve a circuit split on the issue.
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Issue:
Does a debtor who owns a vehicle outright, and thus makes no loan or lease payments, qualify to take the standardized vehicle 'Ownership Costs' deduction under the Bankruptcy Code's means test formula?
Opinions:
Majority - Justice Kagan
No. A debtor who owns a vehicle outright and makes no loan or lease payments does not qualify to take the standardized vehicle 'Ownership Costs' deduction because the expense is not 'applicable' to him. The statutory text allows debtors to deduct 'applicable' monthly expense amounts, and the ordinary meaning of 'applicable' is relevant, appropriate, or suitable. A deduction for an expense a debtor does not have is not relevant or appropriate. This interpretation is supported by the context of the means test, which is intended to calculate 'amounts reasonably necessary to be expended,' and by the overall purpose of the 2005 Bankruptcy Act, which was to ensure debtors repay creditors the maximum they can afford. The IRS's own guidelines clarify that the 'Ownership Costs' category is for loan and lease payments, while other costs like maintenance and insurance are covered by the separate 'Operating Costs' deduction.
Dissenting - Justice Scalia
Yes. A debtor who owns a car free and clear is entitled to the car-ownership allowance. The word 'applicable' in the statute simply directs a debtor to the correct entry in the standardized tables (e.g., the amount for one car versus two cars); it does not import an external requirement from IRS guidelines that the debtor must actually incur the expense. The means test is a standardized formula that Congress intended to be a bright-line test, and such formulas inevitably produce some odd results. The majority's interpretation does not eliminate these oddities, as a debtor with only one payment remaining still gets the full deduction. Where Congress intended to limit deductions to actual expenses, it used explicit language like 'actual monthly expenses,' which it did not do here, suggesting the standardized amount should be allowed regardless of the debtor's specific payments.
Analysis:
This decision significantly clarifies the application of the means test, a cornerstone of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The Court held that standardized deductions are not automatic entitlements; they must correspond to a real expense incurred by the debtor. This ruling resolves a major circuit split and strengthens the position of creditors by preventing debtors from shielding income with deductions for non-existent costs. It moves the means test away from a purely formulaic, 'check-the-box' application toward one that more closely reflects a debtor's actual ability to pay.
