Opinion
Case No. 07-21027.
February 28, 2008
Suzann L. Beckett, Esq. and Ryan A. Bauder, Esq., Beckett Law LLC, Hartford, CT, Counsel for Debtor.
Patrick Crook, Esq. Hartford, CT, Counsel for Chapter 13 Trustee.
Steven E. Mackey, Esq., Office of the U.S. Trustee, New Haven, CT, Counsel for United States Trustee.
RULING ON MOTION TO DETERMINE APPLICABLE TRANSPORTATION OWNERSHIP EXPENSES UNDER 11 U.S.C. § 707(B)(2)
I.
Sheila M. Roberts ("the debtor"), on July 27, 2007, filed a Chapter 13 bankruptcy petition, together with her proposed Chapter 13 p an and "Chapter 13 Statement of Current Monthly Income and Calculation of Commitmen: Period and Disposable Income" ("Form 22C"). Form 22C indicates that the debtor's income of $59,735.40 exceeds the median income of $53,553.00 for a one-person household in Connecticut. For an above-median Chapter 13 debtor, Form 22C applies the "means test" of Bankruptcy Code § 707(b)(2)(A)(ii)(I) to determine the disposable income available to pay unsecured creditors under the debtor's plan.
The court takes judicial notice of the documen ts filed with the court. A copy of the debtor's Form 22C is attached hereto.
The debtor owns one vehicle, a 1997 Nissan, which is not subject to any auto loan or lease payments. The issue presented is whether, under the means test, an above-median Chapter 13 debtor may deduct a transportation ownership expense for a vehicle she owns free and clear of any lease or encumbrances. The debtor maintains that she is so entitled and has completed her Form 22C accordingly. The Chapter 13 trustee ("the Trustee") has verbally objected and argues that such deduction is allowable only if the debtor is actually obligated to make lease or loan payments for the vehicle. The debtor, on September 24, 2007, filed the present motion to resolve this issue. None of the relevant facts are in dispute. The debtor has submitted initial and reply briefs in suppor of her position and the Trustee and the United States Trustee ("the UST") (together `the trustees") have submitted briefs in opposition thereto.
II.
The enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") made significant changes to the determination of the disposable income a Chapter 13 debtor with above mediar income must devote to the payment of unsecured creditors under her plan. Prior to BAPCPA, disposable income was a debtor's actual projected income less those expenditures reasonably necessary for the maintenance and support of the debtor and her family. Whether an expense was reasonably necessary was left to the discretion of the court, in light of a debtor's particular circumstances. BAPCPA left this system in place for debtors with incomes at or below the applicable median, but sought to limit the bankruptcy court's discretion in regard to the expenditures permitted for above-median debtors. The current version of § 1325 (Confirmation of plan) states, in relevant part:
(b)(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan —
(A) 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
(B) the plan provides that all of the debtor's projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.
(2) For purposes of this subsection, the term "disposable income" means current monthly income . . . less amounts reasonably necessary to be expended —
(A)(i) for the maintenance or support of the debtor or a dependent of the debtor . . .; and
(ii) for charitable contributions . . .;
. . . .
(3) Amounts reasonably necessary to be expended under paragraph (2), other than subparagraph (A)(ii) of paragraph (2) shall be determined in accordance with subparagraphs (A) and (B) of section 707(b)(2), if the debtor has current monthly income, when multiplied by 12, greater than —
(A) . . . the median family income of the applicable State for [based upon the size of the debtor's household]. . . .
Section 707(b)(2)(A)(ii)(I) ("the means test") specifies the expenses to be used both for the Chapter 7 means test and for the determination of disposable income for above-median Chapter 13 debtors as follows:
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).
The Internal Revenue Service (the "IRS" speriodically issues a series of Local and National Standards (the "IRS standards") for housing, transportation and miscellaneous (food, clothing, etc.) expenses. Form 22C, which is filed together with a Chapter 13 petition, sets forth the line-by-line procedure for calculating an above-median debtor's disposable income under § 1325(b)(3), referencing the relevant standards. The IRS standards for transportation expenses consist of two components: (1) Local Standards for vehicle operation/public transportation expenses ("operating" standards) and (2) Local Standards for vehicle ownership/lease expense ("ownership" standards).
At issue in this proceeding is whether the debtor may utilize the ownership deduction for a vehicle which she owns outright as of the petition date, i.e., on which she owes no future auto loan or lease payments. The debtor maintains that she may, and has included the $471 ownership standard as an expense deduction in determining her disposable income. The trustees argue that a debtor may deduct an expense for vehicle ownership only if she is making lease or loan payments for such vehicle.
III.
Courts that have considered the pending question are sharply divided with a small majority presently favoring the debtor's position. All the parties acknowledge that the issue presented is one of statutory construction. The debtor argues that the plain language of the statute (§ 707(b)(2)(A)(ii)(I)) supports her positior, while the trustees argue that the statutory language is ambiguous and that the ownership standards should be applied in accordance with IRS practices, as set forth in the Interna Revenue Manual — Financial Analysis Handbook ("the IRM"). Both sides cite numerous cases in support of their positions.
The debtor's reply brief, dated January 3, 2008, cited approximately fifty opinions concerning this issue. See also In re Canales, 377 B.R. 658, 662 (Bankr. D.Cal. 2007) (listing cases on both sides); In re Wilson, 373 E.R. 638, 640-641 (Bankr. W.D.Ark. 2007) (same).
Under well-settled principles of statutoly construction, "[t]he plain meaning of legislation should be conclusive, except in the rare cases in which the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters." United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290, 299 (1989) (citations and internal quotation marks omitted). "[W]e begin with the understanding that Congress `says in a statute what it means and means in a statute what it says there.'" Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942, 1947 (2000) (quoting Connecticut Nat. Bank v. Germain, 503 U.S. 249, 254, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992)).
Section 707(b)(2)(A)(ii)(1) provides that the debtor's expenses for transportation "shall be the debtor's applicable monthly expense amounts specified under the [IRS] standards." The trustees argue that the ownership standards are not "applicable" to a debtor who owns a vehicle for which she makes no loan or lease payments. The court finds the trustees' interpretation at odds with the plain language of the statute.
The most natural reading of § 707(b)(2)(A)(ii)(I) is that "applicable" modifies "the amounts specified" in the "Local Standards"; thus, "it references both the region of the country in which the debtor lives and the selection that must be made between the two columns that appear in the Local Standards, one for the first car and one for the second car." In re Chamberlain, 369 B.R. 519 (Bankr. D.Ariz. 2007) (stating that "[i]t takes a tortured reading to make `applicable' refer to anything else.").
In re Simms 2008 WL 217174, *15-16 (Bankr. N.D.W.Va. 2008). Such standards are independent of the amounts, if any, actually being paid under an auto loan or lease.
Nothing contained in Form [22C] or 11 U.S.C. § 707(b)(2)(A)(ii)(I) requires that the Debtors must have current automobile ownership expense as a prerequisite to claiming the Local Standards deduction amount specified by the IRS. Requiring an existing vehicle payment as a prerequisite to entitlement to the Local Standards deduc ion amounts to a rewriting of the statute. . . .
In re Wilson, 373 B.R. at 643-644.
The trustees argue that the IRS standards re ferenced in § 707(b)(2)(A)(ii)(I) implicitly incorporate the IRS's interpretive guidelines set forth in the IRM. This court concludes otherwise, First, the language of the statute makes no reference to the IRM. On the contrary, reference to the IRM was included in an earlier draft of BAPCPA, but was omitted from the bill that was actually enacted. See In re Fowler, 349 B.R. 414, 419 (Bankr. D.Del. 2006).
Even more dispositive, however, is that the purpose for which the IRS uses the standards differs significantly from, and in some instances is in direct conflict with, their purpose under BAPCPA.
The IRM and, in particular, the Financial Analysis Handbook portion of the IRM, provide guidance to IRS field agents working with taxpayers to resolve tax collection issues. See IRM 5.15.1.2. Presumably, the goal of the IRS employees using the IRM is to maximize revenue to the IRS without specific regard to taxpayers' other obligations to secured or unsecured creditors. Thus, the IRM and related Standards provide "caps" on the amount of secured debt payments which may be deducted when liguring what payments should be made to the IRS to pay delinquent taxes. IRM 5.15.1.7. These caps are set without regard to the actual amounts a taxpayer may be obligated to pay secured creditors. The IRM directs IRS field agents to allow the lesser of the capped amount-the Standard-or the actual amount of the secured debt payment in calculating a tax payment amingement. IRM 5.15.1.7(4).
Chapter 13 of the Bankruptcy Code, on the other hand, attempts to provide a structure for the repayment of all debts based on established priorities. Although certain tax debts receive prioriy, other tax debts may be paid as secured or unsecured claims and may also be discharged. 11 U.S.C. § 507(a)(8); 11 U.S.C. § 523(a)(1). For purposes of the Chapter 13 disposable income test and the Chapter 7 means test, all secured debt which is contractually due within the five-year peri od after filing may be deducted by debtors. 11 U.S.C. § 707(b)(2)(A)(iii); In re Carlton, 370 B.R. 188, 192 (Bankr. C.D.Ill. 2007). There are no caps on such expenditures included in the statutory formulae for calculating either Chapter 13 disposable income or the Chapter 7 presumption of abuse. Id.
In re Moorman 376 B.R. 694, 697 (Bankr. C.D.Ill. 2007); See, also In re Fowler, 349 B.R. at 417-419 (IRM treats standards as a cap; means test treats standards as a fixed allowance).
For IRS' purposes, the standards are a maximum allowable expense; a delinquent taxpayer may claim the smaller of her actual loan or lease payment or the standard. Id. For a delinquent taxpayer with a loan or lease payment of $0, it follows that the applicable ownership expense (the smaller of $0 and $471) is 0. In the bankruptcy context, however, a debtor may deduct as transportation ownership expenses under § 707(b)(2)(A)(ii) and (iii) the larger of her actual payments on the debt secured by her vehicle and the standard. Thus, it follows logically that a debtor with an auto loan or lease payment of $0 is entitled to an ownership expense deduction equal to the standard (the larger of $0 and $471). Therefore, adopting the IRS procedures set forth in the IRM is both unauthorized by the plain language of BAPCPA, and is at odds with its purposes. "[T]he better reasoned decisions considering this issue have permitted debtors to deduct the amounts specified for the transportation ownership expense allowance even if they do not have an obligation to make car loan payments. . . ." 6 Collier on Bankruptcy ¶ 707.05[2][c][i] (15th ed. rev. 2007). The court concludes that an above-median debtor's entitlenment to a transportation ownership expense deduction is based upon the IRS standard for the area in which the debtor resides, based upon the number of vehicles owned by the debtor, regardless of whether the debtor is contractually obligated to make any lease or loan payments therefor.
The full amount of any actual payments on debt secured by the debtor's vehicle are deducted on Form 22C at line 47. If the debtor's actual loan payments are less than the amount of the ownership standard of $471 at line 28(a), the excess of such standard over the debtor's actual loan payment (at line 28(b)) is deducted as an expense in line 28. Thus, the total of the vehicle deductions in lines 47 and 28 is the larger of the ownership standard and the actual loan payment. Debtors with a lease payment are entitled to a deduction of the ownership standard.
IV.
In accordance with the forgoing discussion, the court concludes that the debtor is entitled to a transportation ownership deduction of $471.00, and that the objections of the trustees are overruled. It is
SO ORDERED.