574 B.R. 159
Bankr. E.D. Cal.2017Background
- Debtor Ellyn D. Lopez filed Chapter 13 after incurring large unsecured and secured debts in 2015; she has two jobs and proposed a $1,415 monthly plan payment for 60 months.
- Debtor refinanced her home and took an equity-style loan against her 2005 Toyota Highlander (Automobile Loan) with monthly payments of ~$256; unsecured claims exceed $286,000.
- Trustee objected to confirmation arguing the Automobile Loan payments are not an "applicable" Means Test vehicle-ownership expense because the loan was not purchase-money, and alternatively that the IRS Local Standard is a cap (not an allowance).
- Debtor completed Official Form 122C-1 claiming the vehicle-ownership Local Standard and deducted the actual secured payment on Line 33 as required by the form.
- The court rejected Trustee’s reliance on IRS manuals, found no bad-faith filing, and confirmed the plan: (1) non-purchase-money car loans can make the vehicle-ownership Standard "applicable" when debtor will incur the expense during the plan, and (2) the vehicle-ownership Standard is an allowance (debtor may use full Standard amount, adjusted by actual secured payments entered on Line 33).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a non-purchase‑money auto loan qualifies as an "applicable" vehicle-ownership expense under § 707(b)(2) | Lopez: payments are required to retain the car so the ownership Standard is "applicable" | Trustee: only purchase-money loans qualify; refinance/equity loans should be excluded | Held: "Applicable" includes non-purchase‑money loans when debtor will incur the expense during the plan (aligning with Ransom's "will incur that kind of expense" test) |
| Whether the vehicle-ownership Local Standard is a cap (limited to actual payments) or an allowance (full Standard usable even if actual expense is lower) | Lopez: the Code and Official Form permit claiming the full Standard (an allowance) once category is applicable | Trustee: Standard should function as a cap so debtors cannot claim more than actual payments | Held: The vehicle-ownership Standard is an allowance; debtor may claim the Standard amount, with actual secured payments listed separately on Line 33 (no double‑counting) |
| Whether the Official Form or IRS Internal Revenue Manual (IRM) controls interpretation | Lopez: Official Form and Code control; IRM not binding and may be inconsistent | Trustee: IRM supports excluding non-purchase loans and interpreting Standards as caps | Held: Court prefers Code + Official Form and rejects IRM as authoritative for Means Test interpretation; consult IRM only if necessary |
| Whether policy/bad-faith concerns require denying the deduction here | Trustee: allowing non-purchase deductions invites abuse | Lopez: no bad faith; deduction follows the Code and form | Held: No evidence of bad faith here; statutory scheme and Official Form govern; remedies for actual abuse remain available |
Key Cases Cited
- Ransom v. FIA Card Servs., 562 U.S. 61 (Sup. Ct. 2011) (an expense is "applicable" only if debtor will incur that kind of expense during the plan)
- Hamilton v. Lanning, 560 U.S. 505 (Sup. Ct. 2010) (projected disposable income may account for virtually certain changes)
- Lynch v. Jackson, 853 F.3d 116 (4th Cir. 2017) (debtors entitled to full National/Local Standard amounts if they incur an expense in that category)
- Drummond v. Welsh (In re Welsh), 711 F.3d 1120 (9th Cir. 2013) (good-faith retention of secured items analyzed under totality of circumstances)
- In re Kimbro, 389 B.R. 518 (6th Cir. BAP 2008) (distinguishing IRS agent discretion from Congress’s intent to impose a bright-line Means Test)