- Author: George Haines
- Published
Recently the United States Supreme Court resolved an ambiguity in the bankruptcy law that had the federal circuits split. The case, Ransom v. FIA Card Services, decided whether an above-median Chapter 13 debtor can take a $496 vehicle ownership deduction on the Bankruptcy Means Test when the debtor owns the vehicle free and clear. The Means Test calculates projected disposable income and presumptively determines the amount a Chapter 13 debtor must repay to unsecured creditors.
Some federal courts previously allowed the debtor to deduct this ownership expense even when there is no lien or payment on the vehicle. The Supreme Court’s ruling reverses this practice and resolves a split in the federal circuits.
This decision places some debtors in a difficult dilemma: whether to encumber their vehicle with a lien and loan payment prior to bankruptcy, or pay unsecured creditors over the course of the bankruptcy. For instance, a debtor who fails to qualify for the $496/mo vehicle ownership deduction may result in a payment of an extra $29,760 over a five year repayment plan. In other cases losing the vehicle ownership deduction may mean the difference between being eligible to file Chapter 7 and being forced to file Chapter 13.
If you own a vehicle outright and are experiencing financial trouble, speak with an experienced bankruptcy attorney and discuss your options. Do not get a title loan prior to filing bankruptcy without consulting your attorney as doing so may result in a bad faith objection from the bankruptcy trustee. Your attorney can explain your options and advise you as to your best course of action.
