The U.S. Supreme Court recently ruled that Chapter 13 bankruptcy debtors who own vehicles free and clear of any obligations cannot take the standard "ownership costs" deduction when calculating their projected disposable income. The Bankruptcy Code allows a debtor to deduct "applicable monthly expense amounts" in order to determine what resources are available to pay his creditors, newest Justice Elena Kagan pointed out yesterday in her first written decision for the high court. The key word is "applicable," she said.
"Because debtor Jason Ransom owns his car free and clear of any encumbrance, he incurs no expense," Justice Kagan wrote.
"Accordingly, the car-ownership expense amount is not 'applicable' to him."We must respectfully disagree with the statement by Justice Kagan, in this ruling. There are many ownership costs associated with vehicles which have nothing to do with loans. Used cars which are owned "clear and free" often require more maintenance and are not backed by dealership warranties.
To allow bankruptcy debtors who have car loans to take the "ownership cost" deduction while disallowing those who don't have car loans is unfair and inadvertently puts the bankruptcy debtor at a disadvantage because they wisely chose to have a vehicle with no debt. Justice Scalia was the lone dissenting voice in this ruling. He objected to the ruling saying that the logic was flawed because it would give the ownership cost deduction to any debtor with a loan or lease payment of any amount because there is no language that would allow the deduction for only "reasonably necessary" expenses."A debtor entering bankruptcy might purchase a junkyard car for a song plus a $10 promissory note payable over several years," Justice Scalia wrote. "He would get the full ownership expense deduction."