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The Impact of Ransom on Chapter 13 Expenses

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The Supreme Court’s recent holding in the bankruptcy case of Ransom v. FIA Card Services, N.A., means new challenges regarding allowed expenses for Chapter 13 debtors.  In an eight to one opinion, the Court recently affirmed the Ninth Circuit's ruling that a debtor may not deduct "vehicle ownership" costs when computing his Chapter 13 plan payment if that debtor happens to own his vehicle "free and clear."

In layman’s terms, this means that a person filing bankruptcy under Chapter 13 cannot reduce his payments to unsecured creditors by claiming "ownership costs" for a car on which he owes no money.  In this case, the petitioner, Jason Ransom, filed for bankruptcy in 2006 and claimed a $471 monthly expense in his Chapter 13 payment plan for automobile ownership costs. Those costs would have lowered his Chapter 13 payments by almost $28,000 over the life of the plan.

FIA Card Services, one of Ransom's unsecured creditors, objected to this Chapter 13 plan, arguing that Ransom could not deduct car ownership costs because the applicable IRS manual (which the Bankruptcy Code uses to determine such costs) defined them to include only lease or loan payments—which Ransom didn't have as he owned the car outright. The Supreme Court agreed with FIA.

This controversial decision from our nation’s highest court, following up on the bankruptcy court, Ninth Circuit Bankruptcy Appellate Panel and the Ninth Circuit agreement that the IRS manual's language is clear—stating that only loan and lease payments count as “ownership expenses” for the purposes of exemption—has major implications for bankruptcy attorneys nationwide.

As everybody knows, car loan payments or lease payments are not the only ownership expenses involved in owning an automobile. A debtor must also deal with insurance payments, gasoline, maintenance and other expenses; a point Ransom unsuccessfully argued should be included in the cost of ownership. Unfortunately for him and other people filing for bankruptcy, the Ransom case now holds many Chapter 13 debtors hostage (pun intended) to their older loan-free vehicles.

Despite the Ransom ruling, debtors should be undeterred from choosing a Chapter 13 bankruptcy, albeit with the assistance of an experienced bankruptcy attorney.  A good bankruptcy lawyer will be able to maneuver through the pitfalls and pratfalls of the Ransom case by maximizing other means test deductions in your own filing. And because of the intricacies of bankruptcy law, a true bankruptcy professional can also provide the necessary pre-filing planning and can make sure that you don't end up paying too much in your Chapter 13 plan.

The experienced bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation that can begin you on the road to conquering your creditors and facing your financial fears through Chapter 13 bankruptcy or via other bankruptcy options. Just call toll free to 1-888-234-4181, or make an appointment online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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