U.S. Supreme Court: Debtor Not Entitled To Vehicle Cost Deduction

WASHINGTON, D.C. - (Mealey's) A divided U.S. Supreme Court on Jan. 11 ruled that a debtor who does not make lease or loan payments on a vehicle is not entitled to the car ownership deduction in a Chapter 13 bankruptcy proceeding (Jason M. Ransom v. MBNA America Bank, et al., No. 09-907, Chapter 13, U.S. Sup.).

Jason M. Ransom filed for Chapter 13 bankruptcy and listed as an asset a 2004 Toyota Camry that he owned in full.  On his bankruptcy schedules for disposable monthly income, Ransom listed vehicle ownership costs as a deduction.

MBNA America Bank and FIA Card Services objected to the deduction, arguing that the deduction was not permitted in a case where the debtor owned his vehicle free and clear of payments.

The majority, comprising Chief Justice John G. Roberts Jr. and Justices Samuel A. Alito Jr., Clarence Thomas, Elena Kagan, Ruth Bader Ginsburg, Anthony M. Kennedy, Steven G. Breyer and Sonia Sotomayor, held that the Ninth Circuit U.S. Court of Appeals had properly held that Ransom was not entitled to the deduction.

Writing for the majority, Justice Kagan said that the Bankruptcy Code provides that only "applicable" expense amounts may be claimed, and because "applicable" is not specifically defined in the code, the term carries its ordinary meaning of "appropriate, relevant, suitable or fit."

What makes an expense "applicable" in the context of this case, the majority said, is most naturally understood to be its correspondence to an individual debtor's financial circumstances.  Moreover, the majority held that a deduction is appropriate only if the debtor will incur the expense in question during the life of the Chapter 13 payment plan.

In dissent, Justice Antonin Scalia wrote that the Bankruptcy Code makes it "very clear" when prescribed deductions are limited to actual expenditures.  Specifically, Justice Scalia said that 11 U.S. Code Section 707(b)(2)(A)(ii)(l) authorizes deductions for a host of expenses for health and disability insurance only to the extent that they are "actual" expenses that are "reasonably necessary." 

[Editor's Note:  Full coverage will be in the Jan. 19 issue of Mealey's Litigation Report: Bankruptcy.  In the meantime, the opinion is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #80-110119-014Z.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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