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Bankruptcy

: Arizona Bankruptcy Attorney Blog

The Entire Text of the Slip Opinion in the Ransom Chapter 13 Case; Bad News for Debtors and Car Companies

By Joseph McDaniel, Esq.

ADVERTISEMENTS

You have to ask yourself whether Congress thought through the implications of the 2005 Amendments to the Bankruptcy Code. It appears to say that Congress wanted as few Chapter 13 cases to be a success as possible.

Now, I've been wrong before, but the simple fact is that if you make a Chapter 13 budget too restrictive, it won't work; ordinary people, and for that matter extraordinary people, have expenses and needs, and they sometimes show up unexpectedly.

Here's the Slip Opinion, in all its glory, so you can determine whether 1) a Chapter 13 looks like more fun, or if 2) you would rather qualify for a Chapter 7.

Enjoy!

(Slip Opinion)

OCTOBER TERM, 2010

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is

being done in connection with this case, at the time the opinion is issued.

The syllabus constitutes no part of the opinion of the Court but has been

prepared by the Reporter of Decisions for the convenience of the reader.

See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

RANSOM v. FIA CARD SERVICES, N. A., FKA MBNA

AMERICA BANK, N. A.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE NINTH CIRCUIT

No. 09?907. Argued October 4, 2010?Decided January 11, 2011

Chapter 13 of the Bankruptcy Code uses a statutory formula known as

the ?means test? to help ensure that debtors who can pay creditors do

pay them. The means test instructs a debtor to determine his ?dis-

posable income??the amount he has available to reimburse credi-

tors?by deducting from his current monthly income ?amounts rea-

sonably necessary to be expended? for, inter alia, ?maintenance or

support.? 11 U. S. C. §1325(b)(2)(A)(i). For a debtor whose income is

above the median for his State, the means test indentifies which ex-

penses qualify as ?amounts reasonably necessary to be expended.? As

relevant here, the statute provides that ?[t]he debtor?s monthly ex-

penses shall be the debtor?s applicable monthly expense amounts

specified under the National Standards and Local Standards, and the

debtor?s actual monthly expenses for the categories specified as Other

Necessary Expenses issued by the Internal Revenue Service [IRS] for

the area in which the debtor resides.? §707(b)(2)(A)(ii)(I).

The Standards are tables listing standardized expense amounts for

basic necessities, which the IRS prepares to help calculate taxpayers?

ability to pay overdue taxes. The IRS also creates supplemental

guidelines known as the ?Collection Financial Standards,? which de-

scribe how to use the tables and what the amounts listed in them

mean. The Local Standards include an allowance for transportation

expenses, divided into vehicle ?Ownership Costs? and vehicle ?Oper-

ating Costs.? The Collection Financial Standards explain that ?Own-

ership Costs? cover monthly loan or lease payments on an automo-

bile; the expense amounts listed are based on nationwide car

financing data. The Collection Financial Standards further state

that a taxpayer who has no car payment may not claim an allowance

RANSOM v. FIA CARD SERVICES, N. A.

Syllabus

for ownership costs.

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 deduc-

tion of $471, the full amount specified in the ?Ownership Costs? table,

as well as a separate $388 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 unse-

cured debt. FIA objected on the ground that the plan did not direct

all of Ransom?s disposable income to unsecured creditors. FIA con-

tended that Ransom should not have claimed the car-ownership al-

lowance 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.

Held: A debtor who does not make loan or lease payments may not take

the car-ownership deduction. Pp. 6?18.

(a) This Court?s interpretation begins with the language of the

Bankruptcy Code, which provides that a debtor may claim only ?ap-

plicable? expense amounts listed in the Standards. Because the Code

does not define the key word ?applicable,? the term carries its ordi-

nary meaning of appropriate, relevant, suitable, or fit. What makes

an expense amount ?applicable? in this sense is most naturally un-

derstood to be its correspondence to an individual debtor?s financial

circumstances. Congress established a filter, permitting a debtor to

claim a deduction from a National or Local Standard table only if

that deduction is appropriate for him. And a deduction is so appro-

priate only if the debtor will incur the kind of expense covered by the

table during the life of the plan. Had Congress not wanted to sepa-

rate 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 cate-

gory listed in the Standards. Interpreting the statute to require a

threshold eligibility determination thus ensures that ?applicable?

carries meaning, as each word in a statute should.

This reading draws support from the statute?s context and purpose.

The Code initially defines a debtor?s disposable income as his ?cur-

rent monthly income . . . less amounts reasonably necessary to be ex-

pended.? §1325(b)(2). It then instructs that such reasonably neces-

sary amounts ?shall be determined in accordance with? the means

test. §1325(b)(3). Because Congress intended the means test to ap-

proximate the debtor?s reasonable expenditures on essential items, a

debtor should be required to qualify for a deduction by actually incur-

Cite as: 562 U. S. ____ (2011)

Syllabus

ring an expense in the relevant category. Further, the statute?s pur-

pose?to ensure that debtors pay creditors the maximum they can af-

ford?is best achieved by interpreting the means test, consistent with

the statutory text, to reflect a debtor?s ability to afford repayment.

Pp. 6?9.

(b) The vehicle-ownership category covers only the costs of a car

loan or lease. The expense amount listed ($471) is the average

monthly payment for loans and leases nationwide; it is not intended

to estimate other conceivable expenses associated with maintaining a

car. Maintenance expenses are the province of the separate ?Operat-

ing Costs? deduction. A person who owns a car free and clear is enti-

tled to the ?Operating Costs? deduction for all driving-related ex-

penses. But such a person may not claim the ?Ownership Costs?

deduction, because that allowance is for the separate costs of a car

loan or lease. The IRS? Collection Financial Standards reinforce this

conclusion by making clear that individuals who have a car but make

no loan or lease payments may take only the operating-costs deduc-

tion. Because Ransom owns his vehicle outright, he incurs no ex-

pense in the ?Ownership Costs? category, and that expense amount is

therefore not ?applicable? to him. Pp. 9?11.

tion of the key word ?applicable,? an objection to the Court?s view of

the scope of the ?Ownership Costs? category, and a criticism of the

policy implications of the Court?s approach?are unpersuasive.

Pp. 11?18.

577 F. 3d 1026, affirmed.

KAGAN, J., delivered the opinion of the Court, in which ROBERTS,

C. J., and KENNEDY, THOMAS, GINSBURG, BREYER, ALITO, and SO-

TOMAYOR, JJ., joined. SCALIA, J., filed a dissenting opinion.

Full post as published by Arizona Bankruptcy Attorney Blog on January 14, 2011 (boomark / email).