The question sometimes arises if a person has their auto paid off can they still claim it under the appropriate ownership portion of the means test for bankruptcy. The following applies in the Fifth Circuit, always check to see if case law has been updated. Your attorney can do this for you.
This issue has been heavily litigated and there is a split among the courts that have addressed the issue. See Ransom v. NBNA Am. Bank, N.A. (In re Ransom), 380 B.R. 799, 803-06 (9th Cir. BAP 2007) (describing the split in authority). Only one circuit court has addressed this issue. As outlined by the Seventh Circuit in Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148 (7th Cir.2008), the courts have followed two basic approaches to this issue: (1) the ” plain language approach” , which allows the vehice ownership deduction even if the debtors have no monthly payment associated with the vehicle, and (2) the ” IRM approach,” which does not. Id. at 1157. Both approaches start from the text of the statute which states in part, ” The debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards.” 11 U.S.C. § 707(b)(2)(A)(ii)(I). The approaches differ, however. in how they read the word ” applicable” in the above sent In re Tate, 571 F.3d 423, 426 (5th Cir. 2009 Finally, the Seventh Circuit concluded that policy considerations supported their interpretation because costs are associated with vehicle ownership even when no lease or loan payments are due. Id. at 1160-61. Citing In re Clark, 2008 WL 444565, 2008 Bankr.LEXIS 427 (Bankr.E.D.Wis. Feb. 14, 2008), and Eugene Wedoff, Means Testing in the New 707(b), 79 Am. Bank. L.J. 231, 257 (2005), the court observed the well known fact debtors with no car payments may nonetheless need replacement transportation during the bankruptcy proceedings. Also, disallowing the deduction has arbitrary results, punishing a debtor who completes paying for their car before filing for bankruptcy and rewarding those who make purchases closer to the time of filing. Ross-Tousey, 549 F.3d at 1160 Based on our review of the statute and the case law interpreting it, we conclude that the plain language approach as set forth by the Seventh Circuit provides the best reading of § 707(b)(2)(A)(ii)(I). Therefore, we adopt that approach and reverse the judgment of the district court. In re Tate, 571 F.3d 423, 428 (5th Cir. 2009)