In re Ransom
| Decision Date | 27 December 2007 |
| Docket Number | BAP No. NV-07-1254-DBaMo.,Bankruptcy No. 06-11566-BAM. |
| Parties | In re Jason M. RANSOM, Debtor. Jason M. Ransom, Appellant, v. MBNA America Bank, N.A., Appellee. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Christopher P. Burke, Christopher P. Burke & Associates, Las Vegas, NV, for Appellant.
Jeremy T. Bergstrom, Esq., Miles, Bauer, Bergstrom & Winters LLP, Henderson, NV, for Appellee.
Before: DUNN, BAUM1 and MONTALI, Bankruptcy Judges.
In this interlocutory appeal, we face another interesting issue of statutory construction under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), this time concerning § 707(b)(2)(A)(ii)(I).2 Specifically, in calculating the projected disposable income of an above-median income debtor for purposes of chapter 13 plan confirmation, we must determine whether § 707(b)(2)(A)(ii)(I) permits the debtor to deduct a vehicle ownership expense for a vehicle owned free and clear of any liens and encumbrances. Based on the language of § 707(b)(2)(A)(ii)(I), we conclude that the debtor cannot take such a deduction and AFFIRM.
The facts are undisputed. On July 5, 2006, the debtor, Jason Ransom, filed for bankruptcy relief under chapter 13. Among his assets, he scheduled a 2004 Toyota Camry, which had no liens or encumbrances against it. Among his liabilities, he scheduled a total of $82,542.93 in general unsecured claims, with MBNA America Bank ("MBNA") holding a claim of $32,896.73. The debtor reported net monthly income of $504.15, based on a monthly income of $2,806.84, after payroll deductions, per Schedule I, and monthly expenses of $2,302.69, per Schedule J.
On his Statement of Current Monthly Income ("Form B22C"), the debtor reported current monthly income of $4,248.56 and an annualized income of $50,982.72, which was above the median income for a Nevada household of one.3 On his Form B22C, the debtor listed deductions totaling $4,038.01, including a $471 vehicle ownership expense. Based on these deductions and his current monthly income, the debtor calculated $210.55 in monthly disposable income.
In his chapter 13 plan, the debtor proposed to pay $500 per month over 60 months, providing approximately a 25% distribution on general unsecured claims.
MBNA objected to confirmation of the plan, arguing that the debtor was not devoting all of his projected disposable income to fund the plan pursuant to § 1325(b)(1)(B).4 As the debtor's income was above the median, § 707(b)(2)(A)(ii)(I), which incorporates expenses specified in the Internal Revenue Service ("IRS") Local Standards, sets the standards for determining his reasonably necessary expenses for purposes of calculating his disposable income.
Turning to the IRS's Internal Revenue Manual ("Manual") for guidance,5 MBNA contended that the debtor can only deduct a vehicle ownership expense when he makes lease or loan payments on the vehicle. As the debtor owned the car free of encumbrances or lease obligations, he could not deduct the $471 vehicle ownership expense from his current monthly income. Thus, MBNA concluded, the debtor's projected disposable income should be $681.55,6 all of which should be used to fund the plan.
The bankruptcy court agreed with MBNA, relying on its published decision, In re Slusher, 359 B.R. 290 (Bankr.D.Nev. 2007).7 On June 6, 2007, the bankruptcy court issued its memorandum decision and entered an order denying confirmation of the plan without prejudice.
The debtor timely moved for leave to appeal the bankruptcy court's interlocutory order. We granted leave to appeal.
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(1) and (b)(2)(L). We have jurisdiction under 28 U.S.C. § 158.
Whether, in determining projected disposable income for purposes of chapter 13 plan confirmation, the debtor can deduct a vehicle ownership expense pursuant to § 707(b)(2)(A)(ii)(I), notwithstanding that the debtor owns the vehicle free and clear of any liens or encumbrances.
We review de novo a bankruptcy court's conclusions of law. Nichols v. Birdsell, 491 F.3d 987, 989 (9th Cir.2007). We review de novo issues of statutory construction, including a bankruptcy court's' interpretation of the Bankruptcy Code. Towers v. United States (In re Pacific-Atlantic Trading Co.), 64 F.3d 1292, 1297 (9th Cir.1995); Trejos v. VW Credit, Inc. (In re Trejos), 374 B.R. 210, 214 (9th Cir. BAP 2007).
As observed by nearly all of the courts addressing this issue, there is a significant split in authority. We are asked in this appeal to cast our lot with one side or the other. Before we do, we first must set out the statutory context.
Under § 1325(b)(1)(B), if an unsecured creditor objects to confirmation of a chapter 13 plan which does not provide for payment of all allowed unsecured claims in full, the court may not confirm the plan unless the plan provides that all of the debtor's projected disposable income received during the applicable commitment period will be applied to pay unsecured creditors. Under § 1325(b)(2)-(3), for purposes of calculating disposable income, if the debtor's current monthly income (multiplied by twelve) is above the median income for households of like size in the forum state, then the debtor's reasonably necessary expenses are those allowed under § 707(b)(2)(A) and (B).
Section 707(b)(2)(A)(ii)(I) provides, in relevant 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. . . . (emphasis added).
The Local Standards, originally compiled by the IRS, consist of allowances in specific amounts for certain expenses within two general categories, "Housing and Utilities" and "Transportation."8 The category, "Transportation," is broken down further into two subcategories, "Operating Costs and Public Transportation Costs" and "Ownership Costs."
Both subcategories set out specific amounts of expenses allowable to the debtor, depending on the region where the debtor resides and/or the number of cars the debtor possesses. Neither subcategory, as set forth on the United States Trustee's website, includes an explanation or a definition of "ownership costs" or "operating costs and public transportation costs."
Other Necessary Expenses,9 as identified by the IRS, include charitable contributions and repayment of student loans. Form B22C enumerates some, but not all, of the expenses identified by the IRS in the Manual.10
Most courts on either side of the split base their respective positions on a plain meaning interpretation of § 707(b)(2)(A)(ii)(I). See In re Sawdy, 362 B.R. 898, 903 (Bankr.E.D.Wis.2007); In re Armstrong, 370 B.R. 323, 327 (Bankr. E.D.Wash.2007). The meaning of the phrase, "the debtor's applicable monthly expense amounts specified under the Local Standards," is the point of division between the courts that so far have addressed this issue.11
The courts allowing the deduction draw a sharp distinction between the meaning of the words "applicable" and "actual." For these courts, "applicable" is not synonymous with "actual." See, e.g., In re Farrar-Johnson, 353 B.R. 224, 230-31 (Bankr. N.D.Ill.2006); In re Fowler, 349 B.R. 414, 418 (Bankr.D.Del.2006); In re Demonica, 345 B.R. 895, 902 (Bankr.N.D.Ill.2006); In re Enright, No. 06-10747, 2007 WL 748432 at *5 (Bankr.M.D.N.C. March 6, 2007). They reason that "applicable" and "actual" must each have its own distinct meaning because each term, used in the same sentence, modifies a particular expense category. Enright, 2007 WL 748432 at *5.
These courts infer that the use of these two terms "indicates Congressional intent to distinguish between the two classes of expenses." In re Swan, 368 B.R. 12, 18 (Bankr.N.D.Cal.2007) (emphasis added). Accord In re Chamberlain, 369 B.R. 519, 524-25 (Bankr.D.Ariz.2007); In re Billie, 367 B.R. 586, 591 (Bankr.N.D.Ohio 2007); In re McIvor, No. 06-42566, 2006 WL 3949172 at *4 (Bankr.E.D.Mich. Nov.15, 2006); In re Wilson, 356 B.R. 114, 119 (Bankr.D.Del.2006); Farrar-Johnson, 353 B.R. at 230. That is, by using two different terms, Congress intended to "achieve two different results." Chamberlain, 369 B.R. at 525; Enright, 2007 WL 748432 at *5.
The court in Chamberlain states its rationale for interpreting the term "applicable" as follows: 369 B.R. at 524. See also In re Haley, 354 B.R. 340, 344 (Bankr.D.N.H.2006) ().
Accordingly, for these courts, "applicable" references the Local Standards that apply to the debtor as determined by his or her place of residence. See Chamberlain, 369 B.R. at 524; In re Briscoe, 374 B.R. 1, 10 (Bankr.D.D.C.2007); Enright, 2007 WL 748432 at *6; Haley, 354 B.R. at 344; McIvor, 2006 WL 3949172 at *4; In re Prince, No. 06-10328C-7G, 2006 WL 3501281 at *2 (Bankr.M.D.N.C. Nov.30, 2006); Wilson, 356 B.R. at 119; Farrar-Johnson, 353 B.R. at 230-31. Put another way, whether a monthly expense amount as specified under the Local Standards is applicable to the debtor depends on the number of vehicles he or she owns or leases and on where he or she resides. Haley, 354...
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