In re Sawicki, Case No. 2-07-bk-343-CGC (Bankr.Ariz. 2/12/2008)
| Decision Date | 12 February 2008 |
| Docket Number | Case No. 2-07-bk-343-CGC. |
| Parties | PENNY MAE SAWICKI, Chapter 7, proceedings. Debtor. |
| Court | U.S. Bankruptcy Court — District of Arizona |
Larry Watson, Esq. OFFICE OF THE US TRUSTEE, Phoenix, AZ.
Diane Mann, Trustee, Scottsdale, AZ.
Peter Gustafson GUSTAFSON LAW OFFICE, P.L.L.C. Glendale, AZ, Attorney for the Debtor(s).
Debtor Penny Mae Sawicki filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code on July 23, 2007. Debtor owns one vehicle, a 2001 Chevrolet Malibu, free of liens and without a loan or lease payment. On Form 22A, Part V. Calculation of Deductions Allowed under § 707(b)(2), No. 23, Debtor included a $471.00 per month deduction for ownership expense. On October 29, 2007, the U.S. Trustee filed a Motion to Dismiss pursuant to 11 U.S.C. § 707(b)(2) claiming Debtor has primarily consumer debts and has net disposable income over a sixty-month period that exceeds $10,000. Debtor responded to the Motion to Dismiss on November 18, 2007, and the U.S. Trustee filed a Legal Memorandum in Support of the Motion to Dismiss on November 28, 2007. The determinative issue is whether Debtor may claim the $471.00 per month deduction.
Under 11 U.S.C. §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.. . ." (emphasis added). In this case, the U.S. Trustee argues that Debtor's vehicle ownership expense of $471.00 should not be included in her calculated monthly expenses because she has no loan or lease payment obligation. The U.S. Trustee relies on the Internal Revenue Manual (IRM), 5.8.5 Financial Analysis, for a determination that Debtor is entitled only to a $200.00 monthly allowance under the vehicle ownership expense rather than a $471.00 expense allowance. The $200.00 is allowed under IRM (Internal Revenue Manual) 5.8.5 for vehicles, such as debtor's, that are not encumbered with a loan or lease and are over six years old and/or have a reported 75,000 miles of usage. In keeping with the stated purpose of the Bankruptcy Abuse Prevention and Consumer Protection act of 2005 (BAPCPA) of rectifying perceived abuses, the U.S. Trustee concludes that allowing Debtor to deduct from her disposable income a fictional ownership gives her a windfall at the expense of her unsecured creditors.
Debtor counters the U.S. Trustee's argument by claiming that the literal words or plain meaning of §707(b) supports a conclusion that a debtor should be entitled to claim the full ownership expense of a vehicle, even though the vehicle is free and clear of any loan or lease. Debtor relies on Collier on Bankruptcy for the premise that the vehicle ownership allowance specified in the standards is the minimum amount to be deducted for the expense of car ownership, rather than any remaining car payments on a vehicle. Debtor also relies on Judge Randolph J. Haines' decision in In re Chamberlain, 369 B.R. 519 (Bankr. D. Ariz. 2007), for the basis of his argument that nothing in the Bankruptcy Code directs a debtor to any IRS publication, which is used by IRS employees to decide an amount owed in an outstanding tax debt, for an interpretation of how to apply §707(b) standards.
At least twenty-seven bankruptcy courts have found that debtors who have no car payments still are entitled to a vehicle ownership deduction1 with at least five courts within the Ninth Circuit finding in favor of the debtor on this issue.2 In analyzing §707(b) several courts have found that the term "applicable monthly expenses" cannot be interpreted to mean the same as "actual monthly expenses." In re Demonica, 345 B.R. 895 (Bankr. N.D. Ill. 2006); See also In re Swan, 368 B.R. 12 (Bankr. N.D. Cal. 2007); and In re Chamberlin, 369 B.R. 519 (Bankr. D. Ariz. 2007). Courts then turn to the statute to determine how and if to use the IRS's financial analysis. The Fowler court notes that in the text of BAPCPA Congress did not refer to the IRS's financial analysis for determining expense allowances as it had in previous versions of the bill and as a result finds the change shows Congress's intent that the courts not be bound by the IRM, but that they look only to the amounts set forth in the Local Standards. In re Fowler, 349 B.R. at 419. Other courts have reached a similar conclusion, determining that the IRM is not applicable. See In re Swan, 368 B.R. at 19; In re Armstrong, 370 B.R. at 33; and Chamberlin, 369 B.R. 519 at 525. Moreover, multiple courts have found that the statute contains no directive to use the Local Standards as a cap. See In re Naslund; In re Fowler, 349 B.R. at 418; and Chamberlin, 369 B.R. 524 at 525. In the end, these courts found that a debtor can own a vehicle free and clear and still claim a deduction under §707(b).
Conversely, at least sixteen bankruptcy courts and two district courts have found that a debtor is not entitled to the deduction if he owns a vehicle free and clear3 with at least four courts within the Ninth Circuit finding that a debtor is not entitled to a deduction if a vehicle is owned free and clear.4 In re Ross-Tousey, determined that simply because Congress used two different adjectives does not mean that the two terms "applicable" and "actual" must have opposite meanings. According to Ross-Tousey, the term "applicable" may mean that the ownership expense is only applicable if the debtor makes a loan or lease payment on a vehicle and the amount of the ownership deduction is to be determined by the applicable local standards. Ross-Tousey, 368 B.R. at 765. The court in In re Canales, 377 B.R. at 665, finds that the terms "applicable" and "actual" are not interchangeable, but rejects the conclusion that the two terms must be wholly exclusive of each other. The Canales court found that the term "applicable" requires that the debtor make some lease or loan payment to be entitled to a deduction for transportation ownership expenses. The court in In re Carlin determined that the use of the word "applicable" in §707(b)(2)(A)(ii)(I) limits the allowable vehicle operating expense to individuals who are making payments on a lease or secured debt relating to the vehicle. In re Carlin, 348 B.R. at 798; See also In re Slusher, 359 B.R. at 309; and In re Cole, 371 B.R. at 459. Under the rulings of these courts, a debtor must have either loan or lease payments on the vehicle to claim a deduction under §707(b).
The Bankruptcy Appellate Panel for the Ninth Circuit ("BAP") recently considered the issue in the context of a Chapter 13 plan confirmation rather than dismissal under Section 707(b). In re Ransom, 2007 WL 4625248 (9th Cir. BAP). The BAP held that in determining projected disposable income for purposes of Chapter 13 plan confirmation, a debtor is not able to deduct a vehicle ownership expense pursuant to § 707(b)(2)(A)(ii)(I) when a debtor owns the vehicle free and clear of any liens or encumbrances. (Although Ransom deals with the confirmation of a plan under Chapter 13, it is instructive in Chapter 7 cases because §1325 uses the means test under §707(b)(2)(A) to determine the debtor's projected disposable income.)
The BAP reasoned that although Congress has deemed the expense of owning a car to be a basic expense that debtors can deduct in calculating what they can afford to pay their creditors, in making the calculation what is important is not how many cars they own, but whether they have a payment and are able to make payments to the creditors. The BAP relied on In re Ross-Tousey, 368 BR. at 766, for the premise that the statute is concerned with protecting the debtor's ability to continue to own a car and that when a debtor has no expense there is no need for a deduction.
The BAP, however, failed to address the point made In re Fowler that Congress did not refer to the IRS's financial analysis (found in the Internal Revenue Manual (IRM)) in the final bill that passed under BAPCPA for determining expense allowances, as it had in previous versions of the bill. Fowler logically concluded that removal of the reference is indicative of Congressional intent that courts should not be bound by the IRM. The BAP does note in footnote 18 that Congress looked to the IRS Manual for definitions of certain terms including "necessary expenses" and that Congress also cited to the Manual in describing the Local Standards. As pointed out by In re Swan, 368 BR. at 19, there is a substantial difference between relying on the IRM for definitions and relying on the IRM, specifically § 5.8.5.5.2.3, for determining how an expense should be calculated under § 707(b)(2)(A)(ii)(I). To reach the BAP's conclusion in Ransom, a court would have to adopt the wholesale language of the IRM. Even the BAP in footnote 8 concedes that although the Manual is helpful in some contexts it does not give meaning to the statute itself.
The BAP further states in footnote 8 that the statutory language plainly read does not allow the debtor to deduct a vehicle ownership expense when he has no loan or lease payment. The BAP, without basis reads the term "applicable" as indicating that the deduction of the monthly expense under the Local Standard only becomes relevant when the debtor has such an expense. The BAP then provides a dictionary definition of the word "applicable" as "capable of or suitable for being applied." Based on the dictionary definition the BAP argues that if a debtor does not make a lease or loan payment the vehicle ownership expense allowance is not capable of being applied and then concludes that such an allowance would be reading "applicable right out of the Bankruptcy Code.
This court concludes that the BAP's analysis is flawed.5 The BAP has developed a definition for "applicable" that is without a principled basis and glosses over what has been the heart of the...
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