Supreme Court Reviews Allowance for Car Ownership Expense in Bankruptcy

The United States Supreme Court heard Oral Arguments yesterday in the case of Ransom v. FIA Card Services N.A. The case concerns the expense allowance a debtor receives in the means test for ownership of a vehicle. The means test is a calculation that was added to the bankruptcy law in 2005. It looks at a household’s income and expense and determines if an individual has enough disposable income to pay back part of his or her unsecured debt.

 The results of the means test can require an individual to file a Chapter 13 Bankruptcy in which he or she will make monthly payments for five years that will pay off part of the debts, rather than being allowed to file a Chapter 7 bankruptcy which would bring a discharge in about three months. Also if the individual files a Chapter 13 the means test will determine how much the Chapter 13 plan must pay toward his or her unsecured debts.

The means test includes a vehicle ownership expense for up to two vehicles owned by a household. Currently for Debtors living in Northern Illinois the allowance is $496 a month for each car. In the last five years since the means test was added to the law, courts have disagreed on an important question. Some courts have held that in order to take an ownership allowance the debtor has to be making payments on the car. Other courts have held that the debtor may take the allowance even if the vehicle is paid for. The question is significant because at $496 a month, it can make a difference of $29,760 in the amount the debtor will have to pay over the life of his Chapter 13 plan.

The Supreme Court has now accepted a case with this issue, Ransom v. FIA Card Services N.A, and on October 5, 2010 the court heard arguments on the issue. Once the court issues its opinion it will become the law in all jurisdictions. Needless to say we are anxiously awaiting the results..