Opinion ID: 1351814
Heading Depth: 1
Heading Rank: 3

Heading: Vehicle Ownership Deduction Under BAPCPA

Text: The only issue on the merits in this case is whether, in conducting their means test under section 707(b), the debtors may claim a vehicle ownership expense for a vehicle that is not encumbered by a debt or lease. We review this issue of statutory interpretation de novo. See U.S. v. Thornton, 539 F.3d 741, 745 (7th Cir. 2008); see also In re Kimbro, 389 B.R. 518, 520 (6th Cir.BAP2008). As noted above, the chapter 7 means test defines monthly expenses as follows: The debtor's monthly expenses 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 for the area in which the debtor resides.... Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts. 11 U.S.C. § 707(b)(2)(A)(ii)(I). The National and Local Standards referenced in the statute are found in the IRS's Financial Analysis Handbook which is, in turn, contained in the IRS's Internal Revenue Manual (IRM). [4] Revenue agents use the IRM to assess the financial condition of delinquent taxpayers in order to determine how much they can afford to pay back to the government. The IRM specifies three types of expenses: National Standards, Local Standards, and Other Expenses. See IRM § 5.15.1.7. The IRM's Local Standards set out two categories of expenses: transportation and housing/utilities. There are two components of the transportation standard: a nationwide allowance for ownership costs and an allowance to cover the cost of operating one or two motor vehicles or the cost of public transportation. See IRM § 5.15.1. In this case, the district court concluded that the debtors could not take the vehicle ownership deduction because they had no monthly car payment and so had no applicable monthly expenses. The debtors argue that the district court erred in its interpretation because the statute specifically differentiates between applicable monthly expenses (which include the transportation ownership deduction) and actual monthly expenses. Under the debtors' reading, applicable expenses are those that apply to the debtors by virtue of their geographic region and number of cars, regardless of whether the debtor has an actual loan or lease payment. This issue has been heavily litigated, and there is a close split among courts that have addressed it. See In re Ransom, 380 B.R. 799, 803-06 (9th Cir.BAP2007) (describing the split in authority) [5] ; see also In re Ragle, 395 B.R. 387, 392 (E.D.Ky. 2008) (same). We note that of the four bankruptcy appellate panels that have addressed this question, two have concluded that a debtor who owns his car outright may take the deduction, see In re Kimbro, 389 B.R. 518, 532 (6th Cir.BAP2008), In re Pearson, 390 B.R. 706, 714 (10th Cir. BAP2008), and two have concluded the opposite, see In re Ransom, 380 B.R. 799, 808 (9th Cir.BAP2007), In re Wilson, 383 B.R. 729, 734 (8th Cir.BAP2008). The Seventh Circuit is the first circuit court to consider this issue. In determining whether a debtor is entitled to take the ownership deduction, courts have generally taken two approaches. These approaches have generally been called the IRM approach and the plain language approach. [6] As explained below, we believe that the plain language approachwhich allows the vehicle ownership deduction even where the debtors have no monthly car paymentis the better interpretation.