In re Ransom

• Decision Date: 14 August 2009
• Docket Number: No. 08-15066.,08-15066.
• Citation: 577 F.3d 1026
• Parties: In the Matter of Jason M. RANSOM, Debtor, Jason M. Ransom, Appellant, v. MBNA, America Bank, N.A., Appellee, Executive Office of United States Trustee, Trustee.
• Court: U.S. Court of Appeals — Ninth Circuit

577 F.3d 1026

In the Matter of Jason M. RANSOM, Debtor Jason M. Ransom, Appellant, v. MBNA, America Bank, N.A., Appellee Executive Office of United States Trustee, Trustee.

No. 08-15066.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 9, 2009.

Filed August 14, 2009.

Christopher P. Burke, Chris P. Burke & Associates, Las Vegas, NV, for the appellant.

Jeremy T. Bergstrom, Miles, Bauer, Bergstrom & Winters LLP, Henderson, NV; and William Andrew McNeal, Becket & Lee LLP, Malvern, PA, for appellee, MBNA, America Bank, N.A.

Catherine Bentley Sevcenko, Executive Office for the United States Trustees, for amicus curiae, United States of America.

Tara Twomey, San Jose, CA, for amicus curiae, National Association of Consumer Bankruptcy Attorneys.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel, Baum, Montali, and Dunn, Bankruptcy Judges, Presiding. BAP No. NV-07-01254-DBaMo.

Before STEPHEN S. TROTT, M. MARGARET McKEOWN and SANDRA S. IKUTA, Circuit Judges.

TROTT, Judge:

Does an above-median income debtor seeking bankruptcy relief under chapter 13 get to deduct from his projected disposable income (that otherwise would be available to unsecured creditors) a vehicle "ownership cost" for a vehicle he owns free and clear? Based upon our interpretation of the controlling statute, 11 U.S.C. § 707(b)(2)(A)(ii)(I), our answer is "no." Thus, we agree with the decision of our Bankruptcy Appellate Panel ("BAP"), see Ransom v. MBNA Am. Bank, N.A. (In re Ransom), 380 B.R. 799 (9th Cir. BAP 2007), and affirm the decision of the bankruptcy court.

I.

The facts in this case are undisputed and are taken from our BAP's decision. The debtor, Jason Ransom, filed for chapter 13 bankruptcy relief. Among his assets, he scheduled a 2004 Toyota Camry he owns free and clear of any loans or other encumbrances. In his liabilities, he scheduled a total of $82,542.93 in general unsecured claims, including a claim held by MBNA America Bank ("MBNA") in the amount of $32,896.73.

On his Statement of Current Monthly Income ("Form B22C"), Ransom reported a current monthly income of $4,248.56, and an annualized income of $50,982.72, which put him above the median income for his household size in his state of residence, Nevada. He claimed monthly expense deductions—including the vehicle "ownership cost" deduction at issue in this case—in the amount of $4,038.01, and a resulting monthly disposable income of $210.55.

In his chapter 13 plan, Ransom proposed paying $500.00 per month over sixty months, providing approximately a 25% distribution on general unsecured claims. MBNA objected to confirmation of the plan, arguing Ransom was not devoting all of his projected disposable income to fund the plan as required under 11 U.S.C. § 1325(b)(1)(B). Specifically, MBNA argued that Ransom could deduct a vehicle ownership cost only if he actually was making lease or loan payments on the vehicle and, because Ransom owned his vehicle free and clear of encumbrances and lease obligations, he was not entitled to the vehicle ownership cost deduction. Thus, MBNA argued, Ransom's projected disposable income should be $681.55 (the $210.55 he reported in disposable income plus $471.00, the amount of the vehicle ownership cost deduction to which MBNA objected).

The bankruptcy court agreed with MBNA, holding that Ransom could deduct a vehicle ownership cost only if he currently was making loan or lease payments on the vehicle. The bankruptcy court therefore entered an order denying without prejudice confirmation of the plan.

Ransom sought and obtained leave to appeal the bankruptcy court's interlocutory order to our BAP. BAP affirmed the bankruptcy court. See Ransom, 380 B.R. at 808-09. Concurrently with its opinion affirming the bankruptcy court, BAP certified its disposition of the case to this circuit for possible review of a non-final order. See id. at 809 n. 21. This circuit authorized this interlocutory appeal to go forward.

II.

A court may not approve a chapter 13 plan if the holder of an allowed unsecured claim (here, MBNA) objects to confirmation of the plan unless the debtor demonstrates (1) "the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim"; or (2) "the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment period ... will be applied to make payments to unsecured creditors under the plan." 11 U.S.C. § 1325(b)(1)(A), (B). Ransom seeks to defeat MBNA's objection to his plan under the second option by demonstrating that his plan provides that all of his projected "disposable income" will be applied to make payments to unsecured creditors.

"Disposable income" is defined as "current monthly income received by the debtor ... less amounts reasonably necessary to be expended ... for the maintenance and support of the debtor...." 11 U.S.C. § 1325(b)(2)(A)(i). Because Ransom is an above-median income debtor, the "amounts reasonably necessary to be expended," is to be determined "in accordance with" the means test set forth in 11 U.S.C. § 707(b)(2). See 11 U.S.C. § 1325(b)(3).

Under the "means test" in § 707(b)(2), a 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.... Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.

11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphasis added).

The National Standards and Local Standards referenced in § 707(b)(2)(A)(ii)(I) are located in the Internal Revenue Service's ("IRS") Financial Analysis Handbook, which is, in turn, contained in the IRS's Internal Revenue Manual ("IRM"). The IRS uses the IRM in determining a taxpayer's ability to pay a delinquent tax liability. See In re Fowler, 349 B.R. 414, 416 (Bankr.D.Del.2006).

The IRS's Local Standards include allowable transportation expenses. These transportation expenses are broken down into two categories: (1) operating costs and public transportation costs, and (2) "ownership costs."¹ It is the "ownership cost" deduction that is at issue here. Specifically, at issue is whether the ownership cost deduction is "applicable" under § 707(b)(2)(A)(ii)(I), and therefore allowed to a debtor who owns his vehicle free and clear and thus does not have any loan or lease payments on his vehicle.

As described by our BAP, there exists "a significant split in authority" on this issue. See Ransom, 380 B.R. at 803-06. Some courts have allowed the deduction of an "ownership cost" for a vehicle that is subject to neither secured debt nor a lease; other courts have not. Most recently, two of our sister circuits have joined the camp allowing the deduction, which puts us in the uncomfortable position of disagreeing with them. See Tate v. Bolen (In re Tate), 571 F.3d 423 (5th Cir.2009); Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148 (7th Cir.2008).

In Ross-Tousey, the Seventh Circuit adopted what has been referred to as the "plain language approach," and held that a vehicle not encumbered by a debt or lease qualified nonetheless for the "ownership cost" deduction. Ross-Tousey, 549 F.3d at 1157-58. The court was persuaded that § 707(b)(2)(A)(ii)(I)'s use of the adjective "applicable"—rather than "actual"—in relation to the "ownership cost" deduction refers "to the selection of an expense amount corresponding to the appropriate geographic region and number of vehicles owned by the debtor." Id. at 1157. "In other words, under [this] approach, the Local Standard vehicle ownership deduction `applies' to the debtor by virtue of his geographic region and number of cars, regardless of whether that deduction is an actual expense[ ]." Id. at 1157-58.

In Tate, the Fifth Circuit found the "plain language approach," as set forth by the Seventh Circuit in Ross-Tousey, to provide the "best reading of § 707(b)(2)(A)(ii)(I)," and therefore also adopted that approach. Tate, 571 F.3d at 427.

However, roughly half of the courts to address the issue, including our BAP and the Eighth Circuit BAP, have found a debtor is entitled to the ownership cost deduction only if the debtor actually has loan or lease payments on a vehicle. See, e.g., Ransom, 380 B.R. at 809; Babin v. Wilson (In re Wilson), 383 B.R. 729, 734 (8th Cir. BAP 2008); In re Coffin, 396 B.R. 804, 809 (Bankr.D.Me.2008); Grossman v. Sawdy, 384 B.R. 199, 203, 205 (E.D.Wis.2008); In re Slusher, 359 B.R. 290, 308-09 (Bankr.D.Nev.2007). These courts reason that the ownership cost deduction is "applicable" only if the debtor is in fact incurring such an expense in the form of a loan or lease payment on a vehicle, i.e., that "applicable" means that a debtor actually is making a loan or lease payment. See, e.g., Wilson, 383 B.R. at 732-33 ("[A] vehicle ownership expense is only applicable if a debtor is in fact incurring such an expense."); Grossman, 384 B.R. at 204 ("[T]he word `applicable' is meant to modify the term `monthly expenses.' Therefore, the deduction is to be used if and only if the debtor actually has the monthly expense of an actual car payment." (citation omitted)). In other words, these courts equate "ownership cost" with "loan or lease payments."

In reaching the conclusion that a debtor is entitled to the ownership cost deduction only if the debtor actually has loan or lease payments on a vehicle, some courts have adopted what has been referred to as the "IRM approach," which relies on the IRS's interpretation of "applicable" contained in the IRM. The courts employing the IRM approach reason that because Congress incorporated the IRS National and Local Standards into § 707(b)(2)(A)(ii)(I), it must have intended "courts to look at...