Supreme Court Rules That Debtor Must Have Loan or Lease Payment for Means Test Deduction

Supreme Court Rules That Debtor Must Have Loan or Lease Payment for Means Test Deduction

In an 8-1 decision authored by Justice Kagan, the Supreme Court ruled today that an ownership expense is not "applicable" under the Means Test unless the Debtor has an actual payment. Ransom v. FIA Card Services, No. 09-907 (1/11/11).

Justice Kagan framed the issue in this manner:

This case concerns the specified expense for vehicle-ownership costs. We must determine whether a debtor like petitioner Jason Ransom who owns his car outright, and so does not make loan or lease payments, may claim an allowance for car-ownership costs (thereby reducing the amount he will repay creditors). We hold that the text, context, and purpose of the statutory provision at issue preclude this result. A debtor who does not make loan or lease payments may not take the car-ownership deduction.

Opinion, pp. 1-2.

Justice Kagan described the means as designed to "help ensure that debtors who can pay creditors do pay them." Opinion, p. 2.

The Dictionary Approach to Ordinary Meaning

Justice Kagan used an ordinary meaning analysis and a dictionary to conclude that the ownership expense was not applicable.

The key word in this provision is "applicable": A debtor may claim not all, but only "applicable" expense amounts listed in the Standards. Whether Ransom may claim the $471 car-ownership deduction accordingly turns on whether that expense amount is "applicable" to him.

Because the Code does not define "applicable," we look to the ordinary meaning of the term. (citation omitted). "Applicable" means "capable of being applied: having relevance" or "fit, suitable, or right to be applied: appropriate."Webster's Third New International Dictionary 105 (2002). See also New Oxford American Dictionary 74 (2d ed. 2005) ("relevant or appropriate"); 1 Oxford English Dictionary 575 (2d ed. 1989) ("[c]apable of being applied" or "[f]it or suitable for its purpose, appropriate"). So an expense amount is "applicable" within the plain meaning of the statute when it is appropriate, relevant, suitable, or fit.

What makes an expense amount "applicable" in this sense (appropriate, relevant, suitable, or fit) is most naturally understood to be its correspondence to an individual debtor's financial circumstances. Rather than authorizing all debtors to take deductions in all listed categories, Congress established a filter: A debtor may claim a deduction from a National or Local Standard table (like "[Car]Ownership Costs") if but only if that deduction is appropriate for him. And a deduction is so appropriate only if the debtor has costs corresponding to the category covered by the table-that is, only if the debtor will incur that kind of expense during the life of the plan. The statute underscores the necessity of making such an individualized determination by referring to "the debtor's applicable monthly expense amounts," (citation omitted)-in other words, the expense amounts applicable (appropriate, etc.) to each particular debtor. Identifying these amounts requires looking at the financial situation of the debtor and asking whether a National or Local Standard table is relevant to him.

If Congress had not wanted to separate in this way debtors who qualify for an allowance from those who do not, it could have omitted the term "applicable" altogether. Without that word, all debtors would be eligible to claim a deduction for each category listed in the Standards. Congress presumably included "applicable" to achieve a different result.

Opinion, pp. 6-8.

This passage is the heart of the opinion. One word used according to its ordinary meaning decides the issue.

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