Consumer Law

"Supreme Court Hands Credit Card Companies a Big Win"

By M. Stan Herring

The BKBlog has posted an article about a recent Supreme Court case's outcome that ruled in the favor of creditors.

The U.S. Supreme Court issued a creditor friendly decision in the case of Ransom v. Fia Card Services. At issues was the "ownership expense" deduction in the means test.

The means test is a calculation used to determine whether a debtor has enough "disposable income" to afford a Chapter 13 bankruptcy repayment plan.

In the Ransom case, the debtor (Jason Ransom) claimed a means test deduction for both operation of a vehicle ($338 per month) and for ownership ($471 per month). The problem ? Mr. Ransom owned his vehicle free and clear.

The 8-1 decision held that if a debtor owns his vehicle then he can only claim a vehicle operation deduction, but not an ownership deduction. For Mr. Ransom, it means that for bankruptcy calculations it looks like he has an extra $471 that could be used to pay credit card companies in a Chapter 13 bankruptcy.

Chapter 13 cases last 5 years, so assuming Mr. Ransom has his car paid off it's probable that the car isn't new. If he had to replace his car in that 5 year period, he wouldn't have the funds to do it because of the money he's paying to fund his Chapter 13. It's quite unreasonable to assume that Mr. Ransom, or anybody for that matter, won't have an emergency in the next 5 years that will cost money.

The Supreme Court's decision ignores the realities of life. In the immediate near term the debtor may have $471 to pay towards his Chapter 13, but is it reasonable to expect that this "disposable" money will be there month after month? The Chapter 13 trustee will expect it, and these funds will come out in a payroll deduction. But I fear that even more Chapter 13 cases will fail when debtors lose their jobs because they do not have transportation or checks for mortgages will bounce because the funds were used for plumbing repairs or other emergencies.

The outcome of this case sends mixed messages to debtors who are about to enter into the process of bankruptcy. It doesn't encourage people to avoid debt, but rather rack up even more debt before filing for bankruptcy. For example, a debtor would be able to benefit from taking out a car title loan before filing bankruptcy because owing money on a car allows the person to claim it as an ownership expense and not be penalized for it.

Before you decide to file for bankruptcy, it's imperative that you consult with an attorney. If you have further questions or concerns about bankruptcy, feel free to contact us through our website or by calling 205-879-2447. You may also obtain a copy of our free book on stopping wrongful foreclosures and the problems of hidden fees by emailing us.

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Full post as published by Alabama Consumer Blog on February 10, 2011 (boomark / email).