THE means test B22C form which calculates the availability of disposable income of debtors who file for bankruptcy to determine eligibility for Chapter 7 or Chapter 13 contains a deduction for car loan or lease payment. What if you own a car that is fully paid and therefore debtor does not actually pay a car loan or lease payment? Can debtor deduct the amount allotted by IRS for a car or lease payment of about $500 even though debtor does not actually make this payment?
The answer to this question is,
it depends which state you live in. After the new bankruptcy code took effect in 2005, this question started to arise in every state. Bankruptcy courts made decisions that were not uniform. Some courts said that you can deduct a nonexistent car loan or lease payment. Some courts said no.
In Re Coffin, the bankruptcy court refused to confirm Coffin’s Chapter 13 plan because the above-median income Chapter 13 debtor included a deduction for an ownership expense on a vehicle that he owned free of liens and encumbrances. The court concluded that, under Section 707(b)(2)(A)(ii)(I), the vehicle ownership expense deduction is not “applicable” to debtors who have no loan or lease payments. Because the debtor took a deduction for which he was not entitled, the bankruptcy court found that he understated his disposable income and his plan failed to commit all of his disposable income to the payment of unsecured claims as required by Section 1325(b)(1)(B). But on appeal to the 1st Circuit court of appeals, the court reversed and remanded, although it found the bankruptcy court’s ruling to be well reasoned and sensible. The court of appeals found that the statute as drafted and the policy considerations involved dictated the opposite result. “It is generally accepted that many provisions of BAPCPA are unclear, making it difficult for courts to discern the congressional intent… Further complicating matters, different portions of BAPCPA are driven by differing congressional goals, namely the sometimes competing goals of “Bankruptcy Abuse Prevention” and “Consumer Protection.” As such, the canons of statutory interpretation do not necessarily compel consistent conclusions with respect to different sections of BAPCPA,” said the 1st Circuit Court of Appeals.
Further, the Appeals Court said that, “In creating the means test, Congress intended that there be an easily applied formula for determining when bankruptcy courts should presume that a debtor’s filing of a Chapter 7 petition is abusive, and presumptions are typically created to avoid litigation…Thus, Congress intended for the National and Local Standards to serve as a list of standard expenses for all debtors that could be easily and uniformly applied.” Hence, the court said that it was clear that Congress intended to limit judicial discretion when determining the amount of a debtor’s disposable income. Reconciling the Supreme’s Court ruling in Hamilton v. Lanning (130 S. Ct. 2464 (2010) which could be read as endorsing judicial discretion, the 1st Circuit did not read it as endorsing, “An unfettered grant of discretion which would permit bankruptcy courts to apply BAPCA in a manner directly at odds with its express terms.”
Thus, if you lived in a state that is under the jurisdiction of the 1st Circuit Court of Appeals and an above-median debtor filing a Chapter 7 you can deduct the amount allocated for a car or lease payment as your expense even if your car is fully paid and has no liens. This is a great benefit for above median borderline cases. To illustrate, if debtor’s household income for a family of 3 is $100,000, it is above median. Let’s assume that the means test allows debtor to deduct $94,000 of his annual expenses but he has no car payment or lease payment. His ability to deduct a non-existent car payment of $6,000 a year would squeeze him into Chapter 7 because if you add $6,000 to his yearly expenses for a car payment that does not actually exist, he would have zero disposable income..
* * *
Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
( www.asianjournal.com )
( Published November 6, 2010 in Asian Journal Los Angeles p. C4 )
| < Prev | Next > |
|---|
