Means test: 3 cars allowed in Johnson decision

A July, 8, 2011 decision may provide great assistance to over median debtors. In re Johnson ,2011 Bankr. Lexis 2518, Case No. 8:11-bk-00810-MGW.(Bankr. M.D. FL 2011)

The operating expense allowance on the means test for above median income debtors permits the deduction of the allowance for two vehicles. There is no provision to use an operating allowance for three cars. The IRS table for Local Transportation Expenses only provides for this expense for 2 vehicles.

Debtors often have more than two vehicles. Consider husband and wife have two vehicles and both work. They have a minor child who has use of a third car for school and perhaps for extracurricular activities. But the IRS Collection Financial Standards, which were in part relied upon by the Supreme Court this year in Ransom, provide that other reasonable and necessary expenses may be allowed if for the health and welfare of the family or for the production of income. (Note that these collection standards also contain the provision for an additional $200 operating allowance for vehicles that are more than 6 years old or have more than 75,000 miles.)

Over the United States Trustee’s objection, Judge Williamson in the Middle District held that though the operating expense amount is fixed, that the debtor could deduct three operating expense allowances for three vehicles, subject to appropriate proof at an evidentiary hearing.

There is some bad news here. It would be nice for a debtor to be able to claim an expense higher than the authorized operating expense. Insurance costs, gasoline, tolls, and repairs may well exceed these costs. Special circumstances might have to be claimed, but this can be a difficult claim.

Note that the difference between allowing two and three operating expenses could mean the difference between eligibility of chapter 7 and chapter 13. But even if a debtor is in chapter 13, the extra allowance can reduce the required plan payment.

As a bankruptcy attorney in the Southern District of Florida, I would expect (hope) that the Johnson decision would be applied here as well.

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