Bankruptcy

Two Vehicle Deductions, Not One, Allowed on Means Test for Single Debtor

By Craig Andresen, Minnesota Bankruptcy Attorney

The question of whether a single bankruptcy debtor is limited to one motor vehicle allowance on the means test has vexed bankruptcy debtors since the inception of the 2005 Bankruptcy Reform Act.  While Form B22 does not explicitly limit the number of motor vehicle allowances to the number of debtors in the bankruptcy case (that is to say, at most, two), many have assumed that Form B22 authorizes only one motor vehicle allowance in a case involving only one debtor.

However, a New York bankruptcy court recently ruled that the only limit on the number of motor vehicle allowances claimed on the means test is that of reasonableness in the circumstances.

In re Daniel-Sanders, 2009 WL 5227839 (W.D.N.Y. Dec. 30, 2009), involved a divorced mother of three children, ages two through ten years.  She worked one full time job and also had a part time job in the evenings.  The debtor owned a 2004 Honda Odyssey with a loan balance of $9,368.53, as well as a 2007 Ford 500 with a loan balance of $27,737.44.  The second vehicle was needed because the debtor’s ex-husband cared for their children while she worked, and the second vehicle supplied reliable transportation while he did so.

The chapter 13 trustee objected to the diversion of funds from unsecured creditors by reason of the debtor’s two car loans being paid through the chapter 13 plan.

The bankruptcy court first ruled that the debtor’s claim of two motor vehicle operating allowances, and two ownership allowances, on the means test was proper.  The IRS website’s explanation of allowed transportation expenses simply stated that “normally” a debtor may have only one allowance.  To the court, this indicated that the IRS standards contemplated that in some circumstances, more than one allowance, and more than one vehicle, could be authorized.  The debtor’s claim of two vehicle allowances was therefore upheld.

However, the court denied confirmation of the debtor’s chapter 13 plan due to its view that any vehicle subject to a loan in excess of $16,000 was a luxury item.  As such, the debtor could not propose to pay the vehicle loan because to do so violated the good faith requirement of section 1325(a)(3).

Full post as published by Bankruptcy Law Network on March 12, 2010 (boomark / email).