JASON M. RANSOM, PETITIONER v. FIA CARD
SERVICES, N. A., FKA MBNA AMERICA
BANK, N. A.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT

[January 11, 2011]

This case reviewed language in the Bankruptcy Abuse Prevention and Consumer Protection Act which specified that the terms by which people in debt are to repay their obligations. This Act allowed consumers to exclude or deduct $471 per month from their disposable income for car payments.

In following the law’s means test for determining disposable income, and therefore how much one would have to pay creditors, Ransom included the monthly $471 car deduction for a Toyota Camry that he already owned.

Kagan’s decision affirmed, that since Ransom owned his car outright that he could not claim the ownership cost deduction. Kagan wrote: “Because Ransom owns his vehicle free and clear of any encumbrance, he incurs no expense in the ‘Ownership Costs’ category of the [law]”.

Justice Antonin Scalia was the only justice to dissent and he argued that a debtor should to be able to include the ownership cost allowance when calculating monthly installment payments to his creditor. The disagreement between Scalia and the rest of the court focused on the application of the word “applicable” in the language of the law.

Justice Scalia, one of the most conservative members on the court, was more sympathetic for the consumer than the other justices…

U.S. Supreme Court Issues a Decision in “Ransom”

Wisconsin Bankruptcy Blogspot – By Atty. Gregory A. Holbus

“The U.S. Supreme Court issued its ruling in Ransom v. FIA Card Services, N. A. today.  At issue is the circumstances in which an above-median debtor in Chapter 13 can take a $496 vehicle ownership deduction on the Means Test when calculating their projected disposable income for the benefit of unsecured creditors.  Specifically, whether this deduction can take the deduction is there is no ownership expense (read: finance or lease payment).

Courts across the country have been split on this issue.  In the Eastern District of Wisconsin, we have been following the decision laid out in Ross-Tousey, which held the expense is allowable even when there is no lien on the vehicle.  However, the SCOTUS reversed that line of cases today by denying this deduction on the Means Test to anyone who does not have the ownership expense.

What does this mean for you?  If you are an above-median debtor filing for Chapter 13, there is some incentive to ensuring you have one vehicle with a lien on it.  If you are married filing joint, then two vehicles with liens on them.  If you have no financed vehicles, then you are missing a $496/mo deduction, which – over a 5 year plan – has the potential to amount to an extra $29,760 dividend being paid out to unsecured creditors, and the number is double for married couples who have no vehicles with liens.

Many debtors who might have been eligible for a discharge in the past might now end up paying 100% of unsecured claims, albeit at 0% interest. The court does not seem to distinguish a debtor who files a Chapter 13, has a lien on his vehicle, but intends to surrender the vehicle and discharge the lien (or at least, I didn’t spot a distinction during my first read).  Based on the rationale set forth in Ransom, I would wager that taking the deduction in that scenario would be rejected.

I also did not notice a distinction for above-median debtors who are trying to rebut the presumption of abuse by taking this deduction to qualify for Chapter 7.  But with the Ransom decision in their back pockets, you can bet the U.S. Trustee will object to Chapter 7s with that deduction.  They might lose on the “snapshot” argument, but would likely win on a “totality of circumstances” argument, so my advice is to not take this deduction under any circumstance unless you have the loan or lease payment.

I also don’t recommend people running out to obtain a title loan just prior to filing for bankruptcy, that’s liable to incur a bad faith objection as well.

For those of you keeping score, this was an 8-1 decision with Justice Antonin Scalia dissenting.  Justice Elena Kagan wrote the decision for the majority, and there were no concurring opinions.”

Wiki: Antonin Gregory Scalia

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JUSTICE SCALIA, dissenting

I would reverse the judgment of the Ninth Circuit. I agree with the conclusion of the three other Courts of Appeals to address the question: that a debtor who owns a car free and clear is entitled to the car-ownership allowance. See In re Washburn, 579 F. 3d 934 (CA8 2009); In re Tate, 571 F. 3d 423 (CA5 2009); In re Ross-Tousey, 549 F. 3d 1148 (CA7 2008).

The statutory text at issue is the phrase enacted in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), “applicable monthly expense amounts specified under the National Standards and Local Standards,” 11 U. S. C. §707(b)(2)(A)(ii)(I).

The Court holds that the word “applicable” in this provision imports into the Local Standards a directive in the Internal Revenue Service’s Collection Financial Standards, which have as their stated purpose “to help determine a taxpayer’s ability to pay a delinquent tax liability,” App. to Brief for Respondent 1a. That directive says that “[i]f a taxpayer has no car payment,” the Ownership Cost provisions of the Local Standards will not apply. Id., at 3a.

That directive forms no part of the Local Standards to which the statute refers; and the fact that portions of the Local Standards are to be disregarded for revenue-collection purposes says nothing about whether they are to be disregarded for purposes of Chapter 13 of the Bankruptcy Code. The Court believes, however, that unless the IRS’s Collection Financial Standards are imported into the Local Standards, the word “applicable” would do no work,violating the principle that “‘we must give effect to every word of a statute wherever possible.’” Ante, at 8 (quoting Leocal v. Ashcroft, 543 U. S. 1, 12 (2004)). I disagree.

The canon against superfluity is not a canon against verbosity. When a thought could have been expressed more concisely, one does not always have to cast about for some additional meaning to the word or phrase that could have been dispensed with. This has always been understood. A House of Lords opinion holds, for example, that in the phrase “‘in addition to and not in derogation of’” the last part adds nothing but emphasis. Davies v. Powell Duffryn Associated Collieries, Ltd., [1942] A. C. 601, 607.

It seems to me that is the situation here. To be sure, one can say “according to the attached table”; but it is acceptable (and indeed I think more common) to say “according to the applicable provisions of the attached table.” That seems to me the fairest reading of “applicable monthly expense amounts specified under the National Standards and Local Standards.” That is especially so for the Ownership Costs portion of the Local Standards,which had no column titled “No Car.”

Here the expense amount would be that shown for one car (which is all the debtor here owned) rather than that shown for two cars; and it would be no expense amount if the debtor owned no car, since there is no “applicable” provision for that on the table. For operating and public transportation costs, the “applicable” amount would similarly be the amount provided by the Local Standards for the geographic region in which the debtor resides. (The debtor would not first be required to prove that he actually operates the cars that he owns, or, if does not own a car, that he actually uses public transportation.)

The Court claims that the tables “are not self-defining,” and that “[s]ome amount of interpretation” is necessary in choosing whether to claim a deduction at all, for one car, or for two. Ante, at 14–15. But this problem seems to me more metaphysical than practical. The point of the statutory language is to entitle debtors who own cars to an ownership deduction, and I have little doubt that debtors will be able to choose correctly whether to claim a deduction for one car or for two.

If the meaning attributed to the word by the Court wereintended, it would have been most precise to say “monthly expense amounts specified under the National Standardsand Local Standards, if applicable for IRS collection pur-poses.” And even if utter precision was too much to expect, it would at least have been more natural to say “monthly expense amounts specified under the National Standards and Local Standards, if applicable.”

That would make it clear that amounts specified under thoseStandards may nonetheless not be applicable, justifying (perhaps) resort to some source other than the Standardsthemselves to give meaning to the condition. The verynext paragraph of the Bankruptcy Code uses that formulation (“if applicable”) to limit to actual expenses the deduction for care of an elderly or chronically ill household member: “[T]he debtor’s monthly expenses may include, if applicable, the continuation of actual expenses paid by the debtor that are reasonable and necessary” for that purpose. 11 U. S. C. §707(b)(2)(A)(ii)(II) (emphasis added).

Elsewhere as well, the Code makes it very clear when prescribed deductions are limited to actual expenditures. Section 707(b)(2)(A)(ii)(I) itself authorizes deductions for ahost of expenses—health and disability insurance, for example—only to the extent that they are “actual . . .expenses” that are “reasonably necessary.” Additional deductions for energy are allowed, but again only if theyare “actual expenses” that are “reasonable and necessary.”

§707(b)(2)(A)(ii)(V). Given the clarity of those limitationsto actual outlays, it seems strange for Congress to limit the car-ownership deduction to the somewhat peculiar category “cars subject to any amount whatever of outstanding indebtedness” by the mere word “applicable,” meant as incorporation of a limitation that appears ininstructions to IRS agents.*

I do not find the normal meaning of the text undermined by the fact that it produces a situation in which a debtor who owes no payments on his car nonetheless gets the operating-expense allowance. For the Court’s more strained interpretation still produces a situation in which a debtor who owes only a single remaining payment on his car gets the full allowance. As for the Court’s imaginedhorrible in which “a debtor entering bankruptcy might purchase for a song a junkyard car,” ante, at 17: That is fairly matched by the imagined horrible that, under the Court’s scheme, a debtor entering bankruptcy might pur-chase a junkyard car for a song plus a $10 promissory note payable over several years. He would get the full owner-ship expense deduction.

Thus, the Court’s interpretation does not, as promised, maintain “the connection between the means test and the statutory provision it is meant to implement—the authorization of an allowance for (but only for) ‘reasonably necessary’ expenses,” ante, at 12. Nor do I think this difficulty is eliminated by the deus ex machina of 11 U. S. C. §1329(a)(1), which according to the Court would allow an unsecured creditor to “move to modify the plan to increase the amount the debtor must repay,” ante, at 17.

Apartfrom the fact that, as a practical matter, the sums involved would hardly make this worth the legal costs, allowing such ongoing revisions of matters specifically covered by the rigid means test would return us to “the pre-BAPCPA case-by-case adjudication of above-median-income debtors’ expenses,” ante, at 16. If the BAPCPA had thought such adjustments necessary, surely it would have taken the much simpler and more logical step of providing going in that the ownership expense allowance would apply only so long as monthly payments were due.

The reality is, to describe it in the Court’s own terms,that occasional overallowance (or, for that matter, under-allowance) “is the inevitable result of a standardized formula like the means test . . . . Congress chose to tolerate the occasional peculiarity that a brighter-line testproduces.” Ibid. Our job, it seems to me, is not to elimi-nate or reduce those “oddit[ies],” ibid., but to give theformula Congress adopted its fairest meaning. In myjudgment the “applicable monthly expense amounts” for operating costs “specified under the . . . Local Standards,”are the amounts specified in those Standards for either one car or two cars, whichever of those is applicable.

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*The Court protests that I misunderstand its use of the Collection Financial Standards. Its opinion does not, it says, find them to beincorporated by the Bankruptcy Code; they simply “reinforc[e] our conclusion that . . . a debtor seeking to claim this deduction must makesome loan or lease payments.” Ante, at 10. True enough, the opinionsays that the Bankruptcy Code “does not incorporate the IRS’s guide-lines,” but it immediately continues that “courts may consult this material in interpreting the National and Local Standards” so long as itis not “at odds with the statutory language.” Ibid.

In the presentcontext, the real-world difference between finding the guidelinesincorporated and finding it appropriate to consult them escapes me, since I can imagine no basis for consulting them unless Congress meant them to be consulted, which would mean they are incorporated. And without incorporation, they are at odds with the statutory language, which otherwise contains no hint that eligibility for a Car Ownershipdeduction requires anything other than ownership of a car.

Complete Decision (PDF)

SCOTUSblog Coverage

Briefs and Documents

Merits Briefs

Amicus Briefs

Certiorari-Stage Documents

“The canon against superfluity is not a canon against verbosity”

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