Distressing Means Test Case on Car Allowance

Judge Cristol in In re Luban, 2012 Bankr Lexis 812 (Feb. 27, 2012) addressed an important means test issue on vehicles. The United States Supreme Court in Ransom has previously resolved the issue of whether a debtor may use the ownership allowance in the means test when the debtor owns the car free and clear and does not have a car payment. Though vehicles have a life span and depreciate, a debtor who tried to eliminate monthly payments and has a free and clear vehicle is not able to use this line deduction in the means test.

The issue remained about older cars with more than 75,000 miles or 6 years old. The Internal Revenue Manual (IRM) for collections authorizes an additional operating expense of $200 per month for these vehicles. Lower courts have differed on this issue. This reflects a long-standing issue still not fully resolved as to the legal relevance of the IRM to the means test.

Judge Cristol, who is known as a critic of BAPCPA and of many of the absurdities of the statute, felt compelled to hold that the IRM is not part of the bankruptcy statute and cannot be used to permit the $200 additional expense deductible in the means test. Judge Cristol recognized that the frugal debtor with old vehicles is penalized.

This particular case is most troubling for these debtors which were the subject of a prior blog post. The debtor had converted to Chapter 13 over the chapter 7 trustee’s objection because the chapter 7 trustee had tried to sell the debtors’ residence to an investor. 2011 Bankr Lexis 3507. The debtors tried to take the $4,000 exemption($8,000 total) instead of claiming the home as exempt. Now, the debtors likely cannot afford the means test required plan payments because they cannot each take the $200 additional expense item. See Case no 11-13633 for the case history in the Southern District of Florida.



Tags: ,

Leave a Reply

Your email address will not be published. Required fields are marked *