Thursday, December 31, 2009

Means Test Allows Vehicle Expense For Unencumbered Vehicles

Debtors seeking chapter 13 bankruptcy relief must propose and have confirmed a chapter 13 repayment plan. Debtors are subject to a “means test” if their household incomes are above the median income level for their state. Above-median-income debtors must proposed chapter 13 plans that devote all of their “projected disposable income” to the repayment of creditors. Problematically, the term “projected disposable income” is not defined by the US Bankruptcy Code.

In the case of In re Wisham, 416 B.R. 790 (Bankr. M.D.FL 2009), debtors were above-median-income earners who had proposed a repayment plan amount that was less than the amount the trustee believed was mandated by the Bankruptcy Code. Debtors had deducted from their “projected disposable income” calculation an amount debtors believed they were entitled to deduct pursuant to standards promulgated by the IRS for vehicle ownership.

The chapter 13 trustee objected to the plan’s confirmation alleging that the plan failed to provide the appropriate projected disposable income amount. Specifically, the trustee challenged debtors’ ability to take a vehicle ownership expense deduction for a motor vehicle that debtors owned free and clear of any liens. The trustee maintained that the projected disposable income amount provided in the chapter 13 plan should be increased by the amount of the deduction taken by debtors for the vehicle deduction.

The bankruptcy court rejected the trustee’s position and held that debtors could deduct a vehicle ownership expense when calculating the “projected disposable income.” The court allowed debtors to deduct the vehicle expense amount identified in standards promulgated by the Internal Revenue Service even though debtors owned the vehicle outright and had no lease or contract payments thereon.

Warmest Regards,

Bob Schaller

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By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm
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