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The Bankruptcy Code initially defines a bankruptcy debtor's disposable income as his current monthly income less amounts reasonably necessary to be expended. 11 U.S.C.S. § 1325(b)(2). The statute then instructs that amounts reasonably necessary to be expended shall be determined in accordance with the means test. § 1325(b)(3). Because Congress intends the means test to approximate the debtor's reasonable expenditures on essential items, the debtor should be required to qualify for a deduction by actually incurring an expense in the relevant category. If the debtor will not have a particular kind of expense during his plan, an allowance to cover that cost is not reasonably necessary within the meaning of the statute.
When petitioner Ransom filed for Chapter 13 bankruptcy relief, he listed respondent (FIA) as an unsecured creditor. Among his assets, Ransom reported a car that he owns free of any debt. In determining his monthly expenses, he nonetheless claimed a car-ownership deduction of $471, the full amount specified in the “Ownership Costs” table, as well as a separate $338 deduction for car-operating costs. Based on his means-test calculations, Ransom proposed a bankruptcy plan that would result in repayment of approximately 25% of his unsecured debt. FIA objected on the ground that the plan did not direct all of Ransom's disposable income to unsecured creditors. FIA contended that Ransom should not have claimed the car-ownership allowance because he does not make loan or lease payments on his car. Agreeing, the Bankruptcy Court denied confirmation of the plan. The Ninth Circuit Bankruptcy Appellate Panel and the Ninth Circuit affirmed.
Was Ransom allowed, under 11 U.S.C.S. § 1325(b), to deduct car-ownership costs in calculating disposable income available to pay creditors?
The U.S. Supreme Court held that Ransom was not entitled to the vehicle ownership expense since Ransom did not make any loan or lease payment for the vehicle. Ransom was only entitled to deduct applicable expenses, meaning expenses applicable to Ransom’s financial circumstances, and Ransom had no applicable vehicle ownership expense since he had no loan or lease expense. Further, the debtor's interpretation that he could claim the standard expense even if he had no actual expense would have rendered the word "applicable" superfluous. Also, limiting the deduction to the expense actually incurred comported with the legislative goal of ensuring that the debtor paid his creditors the maximum amount the debtor could reasonably afford.