Maine Bankruptcy and Debt Relief Blog

Supreme Court Rules on Means Test

Posted on 02/01/2011 at 04:15 am by Molleur Law Offices
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The US Supreme Court recently decided the case of Ransom v. FIA Card Services in which the Court ruled on a debtor's ability to claim vehicle ownership expenses on the means test where the debtor has no loan on the vehicle.  The means test permits debtors to claim certain expenses for the operation of their vehicles, and other expenses for the ownership of their vehicles.  The ownership expense allowance provides a base amount of ownership expense, with a higher expense allowance if a debtor's vehicle loan is higher than the IRS permitted allowed expense.

In Ransom, FIA challenged a debtor's right to take the IRS ownership expense allowance on the means test where the debtor had no vehicle loan at the time of filing.  The IRS guidelines, known as the "Collection Financial Standards", are the backbone for the means test calculations.  The Bankruptcy Court and Court of Appeals both concluded that a debtor could not take the means test vehicle ownership allowance where the debtor had no vehicle loan on the vehicle at the time of filing.  The Supreme Court affirmed the lower courts, concluding that the IRS Collection Standards limiting a debtor's ability to claim the ownership expense must be read into the means test, since the Collection Standards provided the underpinning for many of the permitted expense categories in the test.

The effect of the Supreme Court's decision is to permit fewer expenses to debtors on the means test, with the likelihood that more debtors will fail the means test, and be forced to consider filing Chapter 13 instead of Chapter 7.