In deciding whether a chapter 7 filing is presumptively abusive under Section 707(b)(2), a debtor can take an automobile “ownership” expense even though the debtor does not own or lease the car and has no legal obligation to pay the debt, according to a non-precedential opinion by the Ninth Circuit Bankruptcy Appellate Panel.
The debtor could not own a car given her credit rating. Her sister therefore purchased a car using her credit, on the understanding that the debtor would pay the note. The U.S. Trustee objected when the debtor claimed the $517 IRS local transportation deduction in the means test calculation.
The bankruptcy court agreed, disallowed the auto ownership expense, and dismissed the petition because the debtor had no legal obligation to pay the auto loan. The debtor appealed and won in the B.A.P.’s non-precedential memorandum opinion on Aug. 23, which relied on the debtor’s unrebutted testimony that the lender will repossess the car if she does not pay the note.
The B.A.P. said that “nothing in the Bankruptcy Code or in the IRS Collection Financial Standards suggests that debtors only may claim as local transportation expenses car loan or lease payments they make for which they are personally liable.” Indeed, the “language of the statute points in the opposite direction,” the court said.
The B.A.P. said that the “Local Standards’ reference to car ‘ownership’ expenses can and should be considered a misnomer.” The panel therefore held that debtors who make monthly car loan or lease payments “as a prerequisite to their continued use of the vehicle” may claim the expense under the means test “even if they do not own the vehicle.”