In re Ross-Tousey, 07-C-65.

• Decision Date: 21 May 2007
• Docket Number: No. 07-C-65.,07-C-65.
• Citation: 368 B.R. 762
• Parties: In the Matter of Marvin ROSS-TOUSEY and Deborah Tousey, Debtors, William T. Neary, United States Trustee, Appellant, v. Marvin F. Ross-Tousey and Deborah H. Tousey, Appellees.
• Court: U.S. District Court — Eastern District of Wisconsin

368 B.R. 762

In the Matter of Marvin ROSS-TOUSEY and Deborah Tousey, Debtors,

William T. Neary, United States Trustee, Appellant, v. Marvin F. Ross-Tousey and Deborah H. Tousey, Appellees.

No. 07-C-65.

United States District Court, E.D. Wisconsin.

May 21, 2007.

George B. Goyke, Byrne Goyke Tillisch & Higgins, Wausau, WI, for Debtors.

DECISION AND ORDER

WILLIAM C. GRIESBACH, District Judge.

In this bankruptcy appeal, the United States Trustee appeals a decision of the bankruptcy court denying the Trustee's motion to dismiss the case for abuse, pursuant to 11 U.S.C. § 707(b)(1). The Trustee argues that the bankruptcy court erred in allowing the debtors, in calculating their current monthly income, to deduct an "automobile ownership expense" despite the fact that the debtors did not finance their cars and thus had no "ownership expense." The Trustee also argues that even if the bankruptcy court was correct in its analysis of that issue, the court erred in failing to dismiss the case for abuse given the totality of the circumstances. For the reasons set forth below, the judgment of the bankruptcy court will be reversed.

ANALYSIS

I. Section 707(b)(2)'s Means Test

One of the centerpieces of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") was the introduction of a means test to distinguish between those debtors who could afford to repay a portion of their debt and those who could not. Under BAPCPA, if the debtor has sufficient disposable income to repay his unsecured creditors at least $166.67 per month ($10,000 over five years), he is steered towards Chapter 13 and must partly repay his debts. 11 U.S.C. § 707(b)(2)(A)(i)(II). Chapter 7 relief, which allows for the complete discharge of debt, is now presumptively considered an "abuse" if the debtor is able to pass the means test. See generally, Eugene Wedoff, Means Testing in the New Section 707(B), Am. Bankr.L.J. 231 (Spring 2005).

The means test uses an objective formula to determine a debtor's ability to pay. As applicable here, the means test starts with the debtor's current monthly income ("CMI") and reduces that number by certain allowable monthly expenses set forth in 11 U.S.C. § 707(b)(2)(A)(ii)-(iv). These include expenses for such things as supporting elderly or ill family members, health insurance, paying for a child's education, and the like. As relevant here, the statute also allows deductions of the broader category of expenses provided in § 707(b)(2)(A)(ii)(I):

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 ...

The Standards referred to are those used by the IRS to determine a taxpayer's ability to pay delinquent tax. These Standards allow a taxpayer to deduct an operating expense as well as an expense incurred due to the cost of leasing or purchasing a vehicle. In re Howell, 366 B.R. 153, 155, 156 (Bkrtcy.D.Kan.2007).

The debtors in this case were both longterm employees of the Mohican North Star Casino. In their Chapter 7 application, they reduced their current monthly income by $358 for "transportation vehicle operation" expenses. They also took deductions of $471 and $332 (nationally standard amounts) for "transportation ownership/ lease expenses" for their two cars, even though they owned the cars free and clear and thus did not have any actual monthly expenses associated with car ownership (e.g., leases or loans). With these ownership expenses subtracted from their current monthly income, the debtors "failed" the means test and were allowed relief under Chapter 7.

II. Analysis

At its core, the question is whether a debtor who has no "actual" monthly car payments — because he paid cash (or paid off) his car — may nevertheless receive credit for the automobile ownership expense. As all parties to this action have recognized from the outset, the issue presented has produced a split among the many bankruptcy courts that have considered it. See In re Enright, 2007 WL 748432 (Bkrtcy.M.D.N.C., March 6, 2007) (collecting cases). The question has also split scholarly commentators. Professor Gary Neustadter argues that the deduction should not be allowed: "a debtor who, at the time of the petition, owns free and clear an older vehicle possibly soon in need of replacement, or a debtor who, at the time of the petition, doesn't own a vehicle but needs to purchase one soon, may not claim any transportation ownership expense as part of the presumed monthly expenses." Gary Neustadter, 2005: A Consumer Bankruptcy Odyssey, 39 Creighton L.Rev. 225, 295 (2006). In contrast, Bankruptcy Judge Wedoff argues that "since the means test treats the Local Standards not as caps but as fixed allowances, it is more reasonable to permit a debtor to claim the Local Standards ownership expense based on the number of vehicles the debtor owns or leases, rather than on the number for which the debtor makes payments." Eugene R. Wedoff, Means Testing in the New § 707(b), 79 Am. Bankr.L.J. 231, 257-58 (2005). Under this "fixed allowance" view, the ownership expense deduction is allowed simply because the debtor owns a car.

1. "Applicable" Means Ownership Expenses Must Exist

The bankruptcy court allowed the deductions based on the rationale set forth in an earlier case before that court, In re Grunert, 353 B.R. 591, 594 (Bankr. E.D.Wis.2006). That decision, like others allowing similar debtors to take the automobile expense deduction, relies on a limited definition of the word "applicable." To repeat, the statute reads:

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 ...

11 U.S.C. § 707(b)(2)(A)(ii)(I) (italics added). Grunert and other courts perceive a salient contrast between the statute's use of the terms "actual" and "applicable." As one court put it:

the use of the word "applicable" in the first clause with regard to some expenses (which include both housing and transportation ownership), and the use of the word "actual" with regard to "Other Necessary Expenses", indicates Congressional intent to distinguish between the two classes of expenses, and to allow debtors to use the deductions found in the Local Standards for the first category. A debtor's actual expenses are only relevant with respect to expenses that fall into the "Other Necessary Expenses" category.

In re Swan, 368 B.R. 12, ____, 2007 WL 1146485, *5 (Bkrtcy.N.D.Cal.2007).

These courts reason that because the statute does not require reference to the debtor's "actual" expenses in calculating some monthly expenses, it does not matter whether such expenses are "actually" incurred or not. As Judge Wedoff put it, the auto ownership expenses are fixed allowances without any connection to whether the payments are actually made or not. Eugene R. Wedoff, Means Testing in the New § 707(b), 79 Am. Bankr.L.J. 257-58. Under this line of reasoning, it does not matter that the debtors in this case did not make any car payments — they were allowed the ownership expense deduction simply because they owned two cars.

Although this analysis has been adopted by several courts, I am not persuaded that Congress intended the distinction between "applicable" and "actual" to be so trenchant. It is easy to conclude that the statute's use of the term "actual" means that the expenses so described are to reflect the true (actual) state of the debtor's expenses. It also follows, certainly, that the statute's use of the term "applicable" suggests that the legislature intended it to have a meaning other than "actual." They are not the same. But though it is reasonable to conclude that "actual" and "applicable" have different meanings, that does not mean that Congress, by using two different adjectives, meant that the two terms must have essentially opposite meanings.

Instead of viewing "applicable" and "actual" as having virtually opposite meanings, another reading of the statute would allow a debtor to deduct the auto expense listed in the Standards if the debtor actually had an auto expense in the first place. This reading gives meaning to the distinction between "applicable" and "actual" without taking a further step to conclude that "applicable" means "nonexistent" or "fictional." Under this reading, it is true that the debtor's "actual" expense does not control the amount of the deduction, but the debtor must still have some expense in the first place before the Standard amount becomes "applicable." The term "applicable" merely means, in this context, that when a debtor has an automobile ownership expense, his deduction is not based on that actual expense but on the applicable expenses listed in the Standards. As another court has recently concluded, "[i]f a debtor does not own or lease a vehicle, the ownership expense is not `applicable' to that debtor." In re Howell, 366 B.R. at 157 Put another way,

Had Congress intended to indiscriminately allow all expense amounts specified in the National and Local Standards, it would have written 707(b)(2)(A)(ii)(I) to read, "The debtor's monthly expenses shall be the monthly expense amounts specified under the National Standards and Local Standards ..." rather than "The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National and Local Standards ..." (Emphasis added).

In re Slusher, 359 B.R. 290, 309 (Bkrtcy. D.Nev. 2007).

This reading — requiring an "actual" payment to be made before the expense becomes "applicable" — does not improperly equate...