This case gives the Court the opportunity to interpret one portion of the means test that became part of the Bankruptcy Code with the 2005 BAPCPA amendments. The means test allows debtors to deduct from their “current monthly income” their “applicable monthly expense amounts specified under the [IRS] National Standards and Local Standards.” Among the local standards are vehicle ownership costs.
This means test calculation applies in chapter 13 to above-median debtors, who, in determining their disposable income for the purpose of a chapter 13 plan, must calculate their reasonably necessary expenses in accordance with the means test. At issue in Ransom is whether an above-median debtor can deduct from his projected disposable income a vehicle ownership cost when he owns his vehicle free and clear of liens and thus has no actual ownership expenses.
The U.S. Supreme Court held in Ransom v. F.I.A. Card Services, N.A. that a chapter 13 debtor who owns a car outright may not take a means testing ownership deduction. The 8-1 opinion by Justice Elena Kagan, with only Justice Antonin Scalia dissenting, focused on the statute's "text, context, and purpose." Jason Ransom attempted to take a standard $471 monthly car ownership deduction despite having no car payment. The Court upheld the decision of the U.S. Court of Appeals for the Ninth Circuit affirming the bankruptcy court's refusal to confirm Ransom's chapter 13 plan. The high court explicitly stated that it was not deciding whether a debtor who has a lower actual payment could deduct the full means testing allowance, only that a debtor with no payment could not take the deduction. In the wake of Ransom, lower courts will have to decide whether debtors with old, paid-off cars can buy new ones on credit before filing, thus gaining a means testing deduction. The Court did not explicitly state that its analysis applies in chapter 7, but it suggested that it did, in part by its "compare" citation of Fifth and Seventh Circuit decisions to the contrary in chapter 7 cases. However, the Court also relied on the "statutory context" that in chapter 13, means-testing deductions fill in "amounts reasonably necessary to be expended" by above-median-income debtors. The opinion noted that bankruptcy law has a "core purpose of ensuring that debtors devote their full disposable income to repaying creditors." Read the Supreme Court opinion.