In re Enright

• Citation: 397 B.R. 272
• Decision Date: 06 March 2007
• Docket Number: No. 06-10747.,06-10747.
• Parties: In re Alicia Gayle ENRIGHT, Debtor.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Middle District of North Carolina

397 B.R. 272

In re Alicia Gayle ENRIGHT, Debtor.

No. 06-10747.

United States Bankruptcy Court, M.D. North Carolina, Greensboro Division.

March 6, 2007.

Jeffrey P. Farran, Greensboro, NC, for Debtor.

MEMORANDUM OPINION

THOMAS W. WALDREP, JR., Bankruptcy Judge.

This matter came on for hearing on November 30, 2006, on the Trustee's Objection to Confirmation of Plan and Recommendation Against Confirmation of Plan, filed by Anita Jo Kinlaw Troxler, the duly-appointed Chapter 13 trustee herein (the "Trustee"). Jeffrey P. Farran appeared on behalf of the above-referenced debtor (the "Debtor"), and Jennifer R. Harris appeared on behalf of the Trustee.

On June 30, 2006, the Debtor filed for Chapter 13 relief. On August 14, 2006, a Notice and Proposed Order of Confirmation was filed, and on August 29, 2006, the Trustee filed her Objection. The Trustee argues that the Debtor's proposed plan should not be confirmed because Section 707(b)(2)(A)(ii)(I) does not allow, as part of the disposable income calculation, a debtor to take the Local Standard expense deduction for transportation ownership expense related to a vehicle for which there is no lien or lease. The Debtor argues that the plain language of Section 707(b)(2)(A)(ii)(I) of the Bankruptcy Code dictates that the Debtor be permitted to deduct the car ownership expense even if the Debtor does not make a monthly car payment.

Based upon a review of the briefs submitted by counsel, the arguments of counsel at the hearing, and a review of the entire official file, the Court concludes that a Chapter 13 debtor who owns a car free of any liens or leases can claim the ownership allowance under the IRS Local Standard for transportation as a monthly expense for the purpose of computing disposable income under Section 1325(b)(2) of the Bankruptcy Code.

I. FACTS

Along with her petition, the Debtor filed a Statement of Current Monthly Income and Calculation of Commitment Period ("Form B22C") for purposes of determining her current monthly income, applicable commitment period, and disposable income. The Form B22C shows that the Debtor's annual current monthly income exceeds the applicable median family income for one person in the household, and it shows that her monthly disposable income is negative $244.00, after crediting all deductions allowed under Section 707(b)(2)(A) and (B). Included in the expenses that the Debtor used to calculate her monthly disposable income is a deduction on line 28 for the Local Standards transportation ownership/lease expense. The Debtor's proposed plan provides for a monthly payment of $110.00 per month for sixty months, which would provide a 9 percent return to allowed unsecured claims.

The Trustee argues that the Debtor took an impermissible deduction on line 28 of Form B22C for a vehicle for which the Debtor has no secured debt or lease payment.¹ On line 28 of Form B22C, the Debtor deducted an ownership cost of $471.00 for a 2000 Ford Mustang (the "Vehicle"), which has no lien against it. The Trustee argues that the monthly disposable income would be at least $277.00 if such deduction were disallowed. The Trustee believes that this would allow for a plan payment of $290.00 per month for sixty (60) months and a 33% return to general unsecured creditors.

II. ANALYSIS

In calculating disposable income under Section 1325(b), the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") distinguishes between debtors whose income falls above or below the median family income for similarly-sized households. 11 U.S.C. § 1325(b); In re Barr, 341 B.R. 181, 185 (Bankr.M.D.N.C.2006). To determine a disposable income figure, Section 1325(b)(3) requires "amounts reasonably necessary to be expended" under Section 1325(b)(2) to be determined in accordance with Section 707(b)(2)(A) and (B), and those amounts have been incorporated into Form B22C. 11 U.S.C. § 1325(b)(3); In re Girodes, 350 B.R. 31, 37 (Bankr.M.D.N.C. 2006). Thus, an above-median debtor calculates her expenses and deductions, pursuant to Section 707(b)(2)(A) and (B), using Form B22C. The issue before the Court concerns Section 707(b)(2)(A)(ii)(I), which provides, in part:

The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides, as in effect on the date of the order for relief[.]

11 U.S.C. § 707(b)(2)(A)(ii)(I).

The National Standards and Local Standards are "the Collection of Financial Standards used by the Internal Revenue Service (the `IRS') to determine a taxpayer's ability to pay a delinquent tax liability." In re Fowler, 349 B.R. 414, 416 (Bankr.D.Del.2006). The National Standards set forth amounts for five categories of expenses: (1) food, (2) housekeeping supplies, (3) apparel and services, (4) personal care products and services, and (5) miscellaneous. Internal Revenue Manual, § 5.15.1.8 (May 1, 2004). The Local Standards set forth amounts for housing and transportation expenses. Id. at § 5.15.1.9. The transportation expenses are divided into two categories, operating allowance and ownership allowance for up to two vehicles. Id. at § 5.15.1.7.

In this case, the Debtor took the ownership allowance for a vehicle that is owned free of any liens or leases. The Trustee asserts that to claim the ownership allowance, the Debtor must be making a loan or lease payment on the vehicle. The Debtor asserts that the plain language of Section 707(b)(2)(A)(ii)(I) provides that she can take the ownership allowance if she owns a vehicle, irrespective of whether or not the vehicle is owned free of any liens. A number of courts have considered this issue, and there is a split of authority. On one side are the courts that deny the use of the ownership allowance where the debtor owns a vehicle free and clear of liens. See In re Slusher, 359 B.R. 290, 309 (Bankr.D.Nev.2007); In re Devilliers, 358 B.R. 849, 867-68 (Bankr.E.D.La.2007); In re Harris, 353 B.R. 304, 309-10 (Bankr. E.D.Okla.2006); In re Oliver, 350 B.R. 294, 301 (Bankr.W.D.Tex.2006); In re Carlin, 348 B.R. 795, 797 (Bankr.D.Or.2006); In re Wiggs, No. 06-B-70203, 2006 WL 2246432, at *3 (Bankr.N.D.Ill. Aug.4, 2006); In re Lara, 347 B.R. 198, 201 (Bankr.N.D.Tex.2006); In re Barraza, 346 B.R. 724, 727-29 (Bankr.N.D.Tex.2006); In re McGuire, 342 B.R. 608, 613 (Bankr. W.D.Mo.2006); In re Hardacre, 338 B.R. 718, 728 (Bankr.N.D.Tex.2006). On the other side are the courts that permit a debtor who owns a vehicle free of liens to take the ownership allowance. See In re Sorrell, 359 B.R. 167, 187 (Bankr.S.D.Ohio 2007); In re Zak, 361 B.R. 481, 488-89 (Bankr.M.D.Ohio 2007); In re Crews, No. 06-10422C-13G, 2006 WL 3782865, at *1 (Bankr.M.D.N.C. Dec. 22.2006); In re Wilson, 356 B.R. 114, 119 (Bankr.D.Del.2006); In re Haley, 354 B.R. 340, 344 (Bankr. D.N.H.2006); In re Prince, No. 06-10328C-7G, 2006 WL 3501281, at *4 (Bankr.M.D.N.C. Nov.30, 2006); In re Grunert, 353 B.R. 591, 594 (Bankr. E.D.Wis.2006); In re Hartwick, 352 B.R. 867, 868-69 (Bankr.D.Minn.2006); In re Fowler, 349 B.R. at 419; In re Demonica, 345 B.R. 895, 905 (Bankr.N.D.Ill.2006); see also In re Farrar-Johnson, 353 B.R. 224, 230-31 (Bankr.N.D.Ill.2006)(using the same reasoning that would apply to the ownership allowance, the court held that a debtor may take the housing allowance under the Local Standards even if the debtor does not incur a rent or mortgage expense).

A. Cases Denying the Ownership Allowance for Vehicles Owned Free of Liens

1. Internal Revenue Publications

In the landmark decision on this issue, Judge Nelms looked to the Internal Revenue Manual (the "IRM") and the Collection Financial Standards to aid in the interpretation of Section 707(b)(2)(A)(ii)(I). In re Hardacre, 338 B.R. at 726. The court reasoned that "[b]ecause the Local Standards are issued by the Internal Revenue Service, it is instructive to refer to publications of that organization for guidance as to the types of `debt payments' that can reduce allowances under the Local Standards." Id. at 726. With respect to the Local Standard amounts, the Collection Financial Standards state that "[t]he ownership costs provide maximum allowances for the lease or purchase of up to two automobiles if allowed as a necessary expense." Id. at 728 (quoting Collection Financial Standards, www.irs.gov/ individuals/article/0,,id=96543, 00.html). The court then held that "[b]ecause the Local Standards only provide for a deduction for automobiles that are subject to lease or purchase, they do not permit a debtor to claim an ownership deduction for a vehicle owned free and clear by the debtor." Id. at 728.

Other courts agreed with the reasoning in Hardacre and also used IRS publications for guidance. See In re Oliver, 350 B.R. at 301; In re Carlin, 348 B.R. at 798; In re McGuire, 342 B.R. at 612. In McGuire, the court relied on the IRM, which provides that "`if a taxpayer has a car payment, the allowable ownership cost added to the allowable operating cost equals the allowable transportation expense,' but `if a taxpayer has no car payment, only the operating cost portion of the transportation standard is used to figure the allowable transportation expense.'" Id. at 613. (quoting IRM, Financial Analysis Handbook § 5.15.1.7(4)(b)). Based on the IRM language and Hardacre, the court held that the debtors could not take the ownership allowance because their vehicle was owned free of liens. Id. at 613-14.

2. Plain Language

In addition to using the IRS publications for guidance, courts have interpreted the plain language of the statute as prohibiting the use of the ownership allowance when the debtor owns a vehicle free of liens. In Wiggs, the court found it unnecessary to look to the IRM for guidance, and instead looked at the language of Section...