In re Sires
OPINION AND ORDER
Before the Court is an objection to confirmation filed by the Chapter 13 Trustee (“Trustee”) asserting that Tony L. Sires (“Debtor”) is not devoting all his disposable income to the plan. Specifically, the Trustee objects to Debtor taking an “old car” allowance as an “operating expense” and an “ownership expense” for a vehicle encumbered by a non-purchase money security interest. The Court has jurisdiction under 28 U.S.C. § 1334 and this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L). For the following reasons, the Trustee’s objection is sustained.
FINDINGS OF FACT
Debtor filed a chapter 13 bankruptcy petition on November 12, 2013. Debtor has a household of one with no dependents. Dckt. No. 1, Sch. I. Debtor’s average monthly income is $3,028.70 and his monthly expenses are $2,739.50 yielding a net monthly income of $289.20. Dckt. No. 1, Sch. J. Debtor values his 2006 Ford Taurus (“the Vehicle”) with approximately 151,000 miles at $4,000.00. The Vehicle is encumbered by the non-purchase money security interest in favor of Wells Fargo Bank. Dckt. No 1, Sch. D. Debtor’s amended plan proposes to pay $290.00/month for
According to his most recent means test, Debtor is above-median with an applicable commitment period of five years. Dckt. No. 38. Debtor’s means test calculation includes a $200.00 “old car operating expense” along with the $244.00 standard IRS Local Transportation Expense for this region. Dckt. No. 38, Line 27A. Debtor also deducts $517.00 as an “Ownership Cost” pursuant to IRS Local Transportation Standards; and $74.10 as the average monthly payment to Wells Fargo. Dckt. No. 38, lines 28(a) and 28(b). Subtracting the $74.10 from the $517.00, gives a net “Ownership Cost” deduction of $442.90. Id, line 28(c). With these deductions, Debtor’s means test reflects a negative $121.56 monthly disposable income allowing Debtor to propose a plan to pay his unsecured creditors 0%. Dckt. Nos. 23 and 38. According to the Trustee, if her objection is sustained, the monthly disposable income would require a 100% dividend to general unsecured creditors.
CONCLUSIONS OF LAW
There are two main issues raised by the Trustee’s objection to confirmation. The first issue is whether Debtor is entitled to a $200.00 “old car” deduction on line 27A of the means test for an operating expense. The second issue is whether Debt- or may take an “ownership cost” deduction on line 28 of the means test for a vehicle encumbered by a non-purchase money security interest. The Court holds Debtor cannot claim such deductions.
In a chapter 13 bankruptcy case an individual may obtain a discharge of many of his debts if he pays all of his disposable income into the chapter 13 plan during the life of the plan. See 11 U.S.C. § 1325(b)(1)(B) and § 1328. Under 11 U.S.C. § 1325(b)(1), a debtor must commit all of his “disposable income” to unsecured creditors or pay all claims in full. 11 U.S.C. § 1325(b)(1). “Disposable income” is defined in pertinent part as “current monthly income” less “amounts reasonably necessary to be expended” for the “maintenance or support of the debtor or a dependent of the debtor.” 11 U.S.C. § 1325(b)(2)(A)(i). With the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPC-PA), Congress instituted a means test which provides a formula to calculate a debtor’s disposable income. “For a debtor whose income is above the median for his State, the means test identifies which expenses qualify as ‘amounts reasonably necessary to be expended.’ ” Ransom v. FIA Card Servs., N.A.,
Pursuant to 11 U.S.C. § 1325(b)(3) “amounts reasonably necessary to be expended” for above median debtors must be determined pursuant to 11 U.S.C. § 707(b)(2)(A) and (B) which provides in pertinent part:
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....
11 U.S.C. 707(b)(2)(A)(ii)(I) (emphasis added).
Operating Expense.
“The IRS publishes tables providing national and local expense standards. The
Debtor argues he should be allowed to take an additional $200.00 “old car” expense deduction because his car is more than six years old and has more than 150,000 miles on it. Debtor cites support for this deduction in the IRM, Chapter 5.8 which states:
In situations where the taxpayer has a vehicle that is currently over six years old or has reported mileage of 75,000 miles or more, an additional monthly operating expense of $200 will generally be allowed per vehicle (up to two vehicles when a joint offer is submitted).
IRM 5.8.5.22.3,
The Trustee opposes this deduction arguing this old car expense is not allowed because it is not part of the IRS “National” or “Local” Standards sections of the IRM which identify, describe and interpret the National and Local Standards for the means test, and are set forth in IRM (Financial Analysis Handbook) sections 5.15.1.1, 5.15.1.7-5.15.1.10. See In re Luedtke,
As the Trustee states, the plain language of 11 U.S.C. § 707(b)(2)(A)(ii) controls the issue before the Court. The “old car” deduction is located in the part of the IRM that aids agents in offers to compromise, and is not in the part of the IRM that identifies the National and Local Standards. Compare IRM 5.8.5.22.3 with IRM 5.15.1.1, 5.15.1.7-5.15.1.10; see also In re Luedtke,
The Supreme Court in Ransom, provided guidance on how the IRM should be utilized by bankruptcy courts:
Although the statute does not incorporate the IRS’s guidelines, courts mayconsult this material in interpreting the National and Local Standards; after all, the IRS uses those tables for a similar purpose — to determine how much money a delinquent taxpayer can afford to pay the Government. The guidelines of course cannot control if they are at odds with the statutory language.
Ransom,
Contrary to Debtor’s argument that dis-allowance of the old car expense thwarts Congress’s purpose of limiting judicial discretion, disallowance of the deduction actually furthers the purpose of the means test. Sustaining the Trustee’s objection would increase the amount available to pay unsecured creditors, which furthers the means test’s purpose of requiring debtors to pay the maximum amount that they can afford to pay. See Ransom,
For these reasons and given the plain meaning of the language of § 707, Debtor cannot utilize the IRM to create a deduction that does not exist in the National or Local Standards. Therefore, Line 27 of
Ownership Cost.
The second issue is whether Debtor may take an “ownership cost” deduction for a loan totally unrelated to the purchase of the vehicle. Debtor claims a $442.90 deduction on his means test as an “ownership cost” associated with a non-purchase money Wells Fargo loan which is secured by the Vehicle. Debtor also deducts $74.10, which is allowed for servicing the actual debt on the car.
The Supreme Court in Ransom addressed the IRS Local Standards ownership cost deduction in the means test. The Supreme Court held that this deduction is for “the costs of a car loan or lease, and nothing more,” and that a debtor who owns a car free and clear of any car loan or lease cannot claim this category of expense. See Ransom,
The few cases that have addressed this specific issue have determined the ownership cost deduction is limited to car loans associated with financing the purchase or lease of a vehicle. See In re King,
These cases based their opinion on language contained in the IRM interpreting the National and Local Standards. As the court in In re King explains there are three references to vehicle ownership expenses in the IRM:
[First is] IRM § 5.15.1.7(4)(B) (“The transportation standards consist of nationwide figures for loan or lease payments referred to as ownership costs.”) (emphasis added). The other two provisions utilize more specificity in indicating that the ownership expense is associated with the financing of an automobile. See id. § 5.15.1.9(1)(B) (“Transportation. This includes ... vehicle payment {lease or purchase)....”) (emphasis added); see also id. § 5.8.5.20.3(3) (“Ownership Expenses-Expenses are allowed forpurchase or lease of a vehicle.”) (emphasis added).
In re King,
Debtor argues under Aristotle’s law of non-contradiction, the Court cannot refuse to look to the IRM for the old car deduction, but then look to the IRM to deny the ownership expense. However, the Court does not find the analysis in conflict. There is an important distinction between the two analyses. The IRM has been used to “interpret” a deduction already in the National and Local Standards, i.e. the Ownership Cost, not to “create” an Operating expense deduction for an old car that is not located in the National and Local Standards. As noted in Ransom, “courts may consult this material in interpreting the National and Local Standards.” Ransom,
This interpretation helps prevent abuse and ensure that debtors pay to creditors the maximum they can afford. See In re King,
For the foregoing reasons, the Trustee’s objection to confirmation is ORDERED SUSTAINED and confirmation is ORDERED DENIED. Debtor has 21 days from the date of this order to amend his means test and file a modified plan or the case will be dismissed.
Notes
. There are some post-Ransom Ninth Circuit bankruptcy cases such as In re Emerson,
. In regards to the Vehicle, Debtor also properly claims a deduction for cure payments of $7.97. Dckt. No. 38, Line 48.
. The Trustee does not oppose Debtor’s deduction for his actual loan payments.