Supreme Court Considers Applicability of Auto Deduction

On the first day of argument for the term, the U.S. Supreme Court considered whether a consumer debtor in Chapter 13 could take an automobile expense deduction where he did not have a car loan or lease payment. In Ransom v. FIA Card Services, N.A., creditors want to disallow vehicle credits for those who own their cars, thereby, increasing monthly plan payments. There is a split among the circuits on the issue; the Fifth, Seventh, and Eighth Circuits have allowed the deduction where the Ninth (in this case) has outlawed it.

For consumers, the result could be a greatly increased monthly plan payment under Chapter 13. If the Supreme Court rules that the deduction is not available, the amount of the deduction, which is determined by the IRS would become "disposable income" under the plan and the debtor would be expected to pay that amount to creditors. Of course, this punishes thrifty debtors who pay off their cars and rewards spendthrifts who pay for their cars on credit or by lease.

We will watch for a ruling on this issue. A opinion is not due for several months.

Jason Ransom filed bankruptcy under Chapter 13 and claimed the standard deduction from disposable income under the law. In objecting to Mr. Ransom's proposed bankruptcy plan, the bankruptcy trustee claimed that the debtor could not take the deduction where he owned the vehicle outright and, therefore, had no monthly loan or lease payment. Mr. Ransom lost on the issue before the bankruptcy court and ultimately, before the Ninth Circuit Court of Appeals.