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Cases of Interest

Supreme Court Rules on the Expensing of Fictional Car Payment

On January 11, 2011, the Supreme Court decided the case of Ransom v. FIA Card Services, N.A., No. 09-907, slip op. (U.S. Jan. 11, 2011). The Court determined that a debtor may not claim a car ownership allowance to reduce the amount paid into a chapter 13 plan for a car owned free and clear of any liens or leases. This ruling will provide Ransom's unsecured creditors an additional $28,000.

The Bankruptcy Code states that a "debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards" (emphasis added). The Court decided that an expense is "applicable" if a debtor incurs costs that correspond to it-more precisely, "only if the debtor will incur that kind of expense during the life of the plan." Furthermore, the Court examined the statutory context of the means test, particularly its use in the calculation of a chapter 13 debtor's disposable income. Chapter 13 requires a debtor's expense amounts to be "reasonably necessary." The Court reasoned that if a debtor will not pay a particular expense during the life of his plan, then an allowance for a wholly fictional expense is not reasonably necessary. Finally, the Court reminded that Congress purposed, in its 2005 amendments to the Bankruptcy Code (enacted as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005), to ensure that a debtor repays creditors the maximum affordable amount. Allowing the debtor to deduct an expense that he does not pay would, according to the Supreme Court, thwart this purpose.

This case, along with the Lanning decision by the Supreme Court last year, provides the framework for determining how to calculate a chapter 13 debtor's plan payments under BAPCPA. The combined effect is positive for unsecured creditors, and reinforces Congressional intent of having debtors repay as much as they can afford.

Becket & Lee served as counsel to FIA Card Services in this matter, briefing this case for the bankruptcy court and the Bankruptcy Appellate Panel, and briefing and arguing the matter before the Ninth Circuit Court of Appeals. At the Supreme Court, Becket & Lee served as co-counsel and assisted with the preparation of the brief and oral argument. Future editions of Bankruptcy Report will have a more detailed analysis of the impact of both the Ransom and Lanning decisions.

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