In Re Wilson
- Reporters:
- , ,
- Before:
- Shannon
MEMORANDUM OPINION 1
BRENDAN LINEHAN SHANNON, Bankruptcy Judge.
Before the Court is the Motion of the United States Trustee (“UST”) to Dismiss the chapter 7 case of Celine Artie Wilson (the “Debtor”) pursuant to
For the reasons stated below, the Court concludes that the Debtor may take the deduction.
BACKGROUND
On August 8, 2006, the Debtor commenced the above-captioned case (the “Case”), seeking protection under chapter 7 of the Bankruptcy Code (the “Code”). Along with her voluntary petition, the Debtor filed her Schedules, Statement of Financial Affairs, and Statement of Current Monthly Income and Means Test Calculation (“Form B22A”).
On October 23, 2006, the UST filed its Motion to Dismiss arguing that,
inter alia:
(1) although the Debtor’s Form B22A demonstrated that the Debtor did not have sufficient net monthly income for the presumption of abuse to arise under
On November 8 and, again, on November 16, 2006, the Debtor amended her Schedule I, Schedule J, and Form B22A. On November 9, 2006, she objected to the Motion to Dismiss, arguing that, inter alia: (1) Chief Judge Walrath’s recent opinion in In re Fowler, 349 B.R. 414 (Bankr.D.Del.2006), permitted her to deduct the transportation-ownership expense, as an “applicable monthly expense amount”, even though she owns her vehicle free and clear of hens; and (2) even if this Court held the deduction improper, she did not have excess income with which to fund a chapter 13 plan due to changes in her financial condition following the filing of her voluntary petition.
A hearing was held on November 16, 2006, at which time the parties advised the Court that, although there were other minor disputes regarding the Debtor’s claimed expenses, there would be no presumption of abuse under
This matter is ripe for decision.
JURISDICTION
The Court has jurisdiction over this matter pursuant to
DISCUSSION
Dismissal of a chapter 7 case is governed by
For purposes of this test, a debtor’s current monthly income, as defined under section 101(10A), is:
the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on ... the last day of the calendar month immediately preceding the date of the commencement of the case if thedebtor files the schedule of current income required by section 521 (a)(1)(B)(ii) .... or ... the date on which current income is determined by the court for purposes of [chapter 7] if the debtor does not file the schedule of current income required by section 521(a)(l)(B)(ii) ....
From this amount, certain expenses must be subtracted. Pursuant to
In addition to expense amounts specified under the National and Local Standards, in some instances, a debtor may deduct actual expenses.
If, after performing the means test calculations, the presumption of abuse arises, the Court has no discretion and must dismiss the chapter 7 case unless a debtor is able to rebut the presumption pursuant to
If the presumption of abuse does not arise under the means test or if a debtor successfully rebuts the presumption, a debtor’s chapter 7 case still may be dismissed if “the debtor filed the petition in bad faith ... or ...
[if] the totality of the circumstances ... of the debtor’s financial situation demonstrates abuse.”
The Congressional intent behind the BAPCPA modifications to
In recent years, too many people have abused the bankruptcy laws. They’ve walked away from debts even when they had the ability to repay them. This has made credit less affordable and less accessible, especially for low-income workers who already face financial obstacles. The bill I sign today helps address this problem. Under the new law, Americans who have the ability to pay will be required to pay back at least a portion of their debts. ... This practical reform will help ensure that debtors make a good-faith effort to repay as much as they can afford.
In re Richie, 353 B.R. 569, 580-81 (Bankr.E.D.Wis.2006) (quoting Press Release, White House Press Office, President Signs Bankruptcy Abuse Prevention, Consumer Protection Act (Apr. 20, 2005), available at http://www.wMte house.gov/news/releases/2005/04/20050420-5.html). One method Congress developed to achieve this purpose is the means test, described as a “blind legislative formula that attempts to direct debtors to a chapter that provides for at least some measure of repayment to unsecured creditors over a period of years.” In re Barraza, 346 B.R. 724, 729 (Bankr.N.D.Tex.2006).
While the legislative purpose behind the modifications to
The Court’s examination of the existing ease law has revealed a split in authority.
3
A majority of the courts, beginning with
In re Hardacre,
338 B.R. 718 (Bankr.N.D.Tex.2006), has denied a transportation-ownership expense deduction where the debtor owns a car free and clear of liens.
See, e.g., In re McGuire,
342 B.R. 608 (Bankr.W.D.Mo.2006);
Barraza,
346 B.R. at 727-29;
In re Carlin,
348 B.R. 795 (Bankr.D.Or.2006);
In re Wiggs,
No. 06-B-70203, 2006 WL 2246432 (Bankr.N.D.Ill. Aug.4, 2006);
In re Oliver,
350 B.R. 294 (Bankr.W.D.Tex.2006);
In re Harris,
353 B.R. 304 (Bankr.E.D.Okla.2006). The majority looks to the plain language of
[T]he statute provides that a “debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts” under the Standards. If a debtor does not own or lease a vehicle, the ownership expense is not “applicable” to that debtor. Thus, if a debtor is not incurring expenses for the purchase or lease of a vehicle, the debtor cannot claim a vehicle ownership expense under the IRS Standards.
McGuire, 342 B.R. at 613; accord Carlin, 348 B.R. at 798; Harris, 353 B.R. at 307-09.
For further support, the majority cites to the language of the IRS’s Internal Revenue Manual (“IRM”) as well as the IRS’s Collection Financial Standards (“CFS”), both of which provide instructions for analyzing a taxpayer’s financial condition. They instruct: “If a taxpayer has a car payment, the allowable ownership cost added to the allowable operating cost equals the allowable transportation expense.
If a taxpayer has no car payment only the operating cost portion of the transportation standard is used
to figure
Finally, to defend against the argument that the denial of such deduction causes a disparate impact and an absurd result by rewarding those who can afford to finance vehicles while punishing those most impoverished, cases in the majority line put forth several arguments, including: (1) the lack of a debtor’s constitutional right to file a chapter 7 voluntary petition; (2) the ability of a debtor to amend a chapter 13 plan if he or she finances a vehicle or must pay for vehicle repairs; (3) the existence of a transportation-operating expense deduction for those debtors who own a vehicle free and clear of liens; (4) the ability of a debtor to overcome the presumption of abuse by showing special circumstances; and (5) the apparent Congressional conclusion that debtors who own vehicles free and clear of liens have a greater ability to commit funds to repay their creditors. See McGuire, 342 B.R. at 612-14; Barraza, 346 B.R. at 728-30; Carlin, 348 B.R. at 798; Wiggs, 2006 WL 2246432, at *2; Harris, 353 B.R. at 307-10.
The minority approach, led by
Fowler
and followed by
In re Hartwick,
352 B.R. 867 (Bankr.D.Minn.2006) and
In re Haley,
354 B.R. 340 (Bankr.D.N.H.2006), also emphasizes the plain language of
The minority approach also finds it inappropriate to rely on the IRM and CFS instructions. As explained in
Fowler
and its progeny, the IRS and the Code apply the Local Standards differently. The IRS uses the Local Standards as a cap on taxpayers’ actual expenses, whereas
This approach reflects the reality that a car for which the debtor no longer makes payments may soon need to be replaced (so that the debtor will actually have ownership expenses), and it avoids arbitrary distinctions between debtors who have only a few car payments left at the time of their bankruptcy filing andthose who finished making their car payments just before the filing.
Finally, in further support of its approach, the court in
Foivler
cited to legislative history and several policy considerations.
Id.
at 419-21. More specifically, it highlighted a prior draft version of
In the instant case, the Court finds the reasoning set forth by the minority approach persuasive and thus will permit the- Debtor to deduct the transportation-ownership expense for a car owned free and clear of liens. The Court’s conclusion rests upon the plain language of
Second, like the courts in
Fowler
and
Haley,
the Court finds it cannot ignore
Congress drew a distinction in the statute between “applicable” expenses on the one hand and “actual” expenses on the other. “Other Necessary Expenses” must be the debtor’s “actual” expenses. Expenses under the “Local Standards,” in contrast, need only be those “applicable” to the debtor — because of where he lives and how large his household is. It makes no difference whether he “actually” has them.
353 B.R. at 230-31. Thus, based upon the clear statutory language of
Although the majority approach argues that the legislative history of BAPCPA justifies its reliance on the IRM and CFS instructions, this Court disagrees.
McGuire,
342 B.R. at 613 n. 15 (“[T]he legislative history of BAPCPA specifically refers to the IRS Financial Analysis Hand
[I]n interpreting a statute a court should always turn first to one, cardinal canon before all others. We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then, this first canon is also the last: “judicial inquiry is complete.”
Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992) (quoting Rubin v. United States, 449 U.S. 424, 430, 101 S.Ct. 698, 66 L.Ed.2d 633 (1981) (internal citations omitted)).
Moreover, even if this Court found the statute ambiguous, the legislative history merely tells the Court where to find the amounts specified under the Local Standards — in the Financial Analysis Handbook (the “FAH”). See IRM, pt. 5, ch. 15, ex. 5.15.1-2 (describing the internet location of the Allowable Expense Tables). It does not direct the Court to consider the instructions therein:
In addition to other specified expenses, the debtor’s monthly expenses — exclusive of any payments for debts (unless otherwise permitted) — must be the applicable monthly amounts set forth in the Internal Revenue Financial Analysis Handbook as Necessary Expenses under the National and Local Standard categories and the debtor’s actual monthly expenditures for items categorized as Other Necessary Expenses.
H.R.Rep. No. 109-31(1), at 13-14 (2005), as reprinted in 2005 U.S.C.C.A.N. 88, 99-100 (emphasis added).
The Court’s finding inappropriate the use of IRM and CFS instructions is buttressed also by two additional observations. First, as discussed above, the IRS uses the Local Standards as a cap on taxpayers’ actual expenses whereas
Second, the Court notes that the IRS directs debtors, who are calculating expense amounts under the means test, away from its own guidelines and to the website of the UST.
See
IRM, pt. 5, ch. 15, ex. 5.15.1-2 (providing, “IRS Allowable Expenses are intended for use in calculating repayment of delinquent taxes. Expense information for use in bankruptcy calculations can be found on the website for the U.S. Trustee Program.”). Upon accessing the means test information located on the UST’s website, the Court merely found Allowable Expense Tables setting forth specific monetary amounts to be deducted by debtors as allowable expenses under the National and Local Standards.
See
Dep’t of Justice, U.S. Trustee Program, IRS Local Transportation Expense Standards — Northeast Census Region (Cases Filed on and After October 1, 2006) (Jan. 27, 2006),
available at
http://www.usdoj. gov/ust/eo/bapep a/20061001/ bcLdata/IRS_Trans_Exp_Stds_NE.htm (stating that the allowable transportation-ownership expense deduction for a debtor who owns one car is $471). It did not contain the CFS or IRM instructions so heavily relied upon by the UST today. Rather, and consistent with the Court’s
Finally, in addition to the clear statutory language of
Therefore, because the statutory language of
CONCLUSION
For the foregoing reasons, the Court concludes that the Debtor may deduct the transportation-ownership expense deduction. As a result, no presumption of abuse arises under
An appropriate Order follows.
Notes
. This Opinion constitutes the findings of facts and conclusions of law of the Court pursuant to
. Pub.L. No. 109-8, 119 Stat. 23 (2005).
. The arguments presented to the Court by the UST and the Debtor mirror the arguments presented by the majority and minority approaches, respectively.
. At the November 16, 2006 hearing, the UST argued that Farrar-Johnson was inapplicable to the instant case because the IRM and CFS instructions regarding the Local Standard housing expense differ from those of the transportation-ownership expense. More specifically, the IRM and CFS do not disallow a housing expense deduction where a debtor either owns a home free and clear of liens or incurs no actual housing expense. However, because the Court holds it inappropriate to rely on the IRM and CFS instructions, it finds the Fairar-Johnson decision both relevant and persuasive.