Ransom v. MBNA United States Supreme Court Deals A Blow To Consumer Debtors
The Supreme Court’s most recent opinion on bankruptcy, Ransom v. MBNA, issued on January 11, 2011 deals a major blow to above median consumer debtors in a Chapter 13 bankruptcy that do not have a car payment. The issue before the court was whether a Chapter 13 debtor may take a vehicle ownership expense under the Means Test when a vehicle is owned free and clear of any liens and no payment is being made. The Court, in an 8-to-1 opinion written by Justice Kagan, answered a flat no. Justice Scalia was the sole dissenting judge.
For some background, the Means Test is, in very simple terms, essentially a mathematical formula whereby an above the median income debtor is required to take IRS standard and allowable expenses to determine the debtor’s ability to pay. One of the standard deductions is a vehicle ownership/lease expense. The debtor in the case before the Supreme Court (“Ransom”) was above median and owned his vehicle outright and thus did not have a car payment. He filed a Chapter 13 bankruptcy and proposed a Chapter 13 plan that specified a plan payment amount based upon the results of the Means Test with the inclusion of the vehicle ownership expense. The bankruptcy court denied confirmation of the plan based upon MBNA’s objection due to the inclusion of the vehicle ownership expense and Ransom appealed.
In affirming the lower courts’ rulings, the Supreme Court held not allowing the debtor to take the vehicle ownership expense is in line with Chapter 13’s purpose of compelling debtors to pay as much as they can afford toward their debts during the life of the case. The Supreme Court both, debtor’s interpretative argument of the statutory language and policy arguments and no deduction for vehicle ownership expenses is allowed where they do not exist at the outset of the case.
Though the decision strikes a blow to debtors without a car payment, the Court acknowledged that its opinion opens the door for a particular set of circumstances where debtors may have a car payment at the onset of the case but that end shortly thereafter to take the deduction. In acknowledging same, the Court reasoned that those results are inevitable when dealing with standardized formulas and, in the Court’s opinion, the Court’s approach works a better solution than that offered by Ransom. Therefore, more so now than ever, timing is a key element in filing a bankruptcy and anyone considering filing should consult with an experienced bankruptcy attorney.
This Blog was written by Attorney David Fineman, Esq. of The Dellutri Law Group, P.A. Mr. Fineman practices Bankruptcy Law, Fair Credit Reporting Act Law, Fair Debt Collection Practices Act Law and in other areas of Consumer Law.
