In re Warden, Case No.: 11-32340-svk

In re Jason J. Warden, Debtor.

Case No.: 11-32340-svk

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF WISCONSIN

Dated: April 23, 2012

MEMORANDUM DECISION AND ORDER

ON TRUSTEE'S OBJECTION TO CONFIRMATION

The Chapter 13 Trustee objected to confirmation of the Debtor's plan on the grounds that the Debtor failed to dedicate all projected disposable income to pay unsecured creditors as 11 U.S.C. § 1325(b)(1)(B) requires. Specifically, the Trustee takes issue with the Debtor's vehicle operating expense deductions. Although he is single, the Debtor claimed the operating expenses for two vehicles: a 1986 Chevrolet Camaro valued at $1,600 and a 2001 Cadillac Seville valued at $5,000. Both vehicles are free and clear of liens. Because of their age, the Debtor maintains both vehicles in case one becomes inoperable. The Trustee contends that two vehicles are not reasonably necessary expenses for a single debtor.

Since the Debtor's income exceeds Wisconsin's median family income for a single person, 11 U.S.C. § 1325(b)(3) governs the Debtor's allowable expense deductions. This provision mandates that the expenses shall be determined under Bankruptcy Code § 707(b)(2)(A) and (B). According to § 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, 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, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent.

As the Supreme Court explained, "The National and Local Standards referenced in this provision are tables that the IRS prepares listing standardized expense amounts for basic necessities. The IRS uses the Standards to help calculate taxpayers' ability to pay overdue taxes. . . . The Local Standards include an allowance for transportation expenses, divided into vehicle 'Ownership Costs' and vehicle 'Operating Costs.'" Ransom v. FIA Card Servs., N.A., 131 S. Ct. 716, 722 (2011). Ransom held that in order to claim an expense, the debtor must have an expense falling within that category. Id. at 725. Since the debtor in Ransom did not have an ownership expense for his vehicle, he could not claim the ownership expense deduction.

The bankruptcy court in In re Joest, 450 B.R. 381, 389-90 (Bankr. N.D.N.Y. 2011), relied on Ransom to allow a single debtor to claim ownership expenses for two vehicles:

In Ransom, the Supreme Court held that if a debtor qualifies for a deduction by actually incurring an expense under § 1325(b)(3), then under § 1325(b)(2) that expense can be deducted from CMI as an amount "reasonably necessary to be expended." Id. at 725 (emphasis added). Since Debtor is actually incurring an expense for the second vehicle under § 1325(b)(3), she may deduct it as a "reasonably necessary" expense under § 1325(b)(2). Since the IRS guidelines are at odds with the plain language of § 707(b)(2)(A)(ii)(I) as incorporated into § 1325(b)(3), and as instructed by the Supreme Court in Ransom, the IRS guidelines do not control.

Since the Debtor here is actually incurring the operating expenses for two vehicles, under Ransom and Joest, he should be able to deduct the operating expenses for them.

Pre-Ransom, other bankruptcy courts reached the same conclusion. After surveying the case law, the court in In re Styles, 397 B.R. 771, 774 (Bankr. W.D. Va. 2008), concluded that neither § 707(b)(2)(A)(ii)(I) nor Form B22C limits a debtor's deductions based on household size; instead, these provisions direct the debtor to claim all applicable expenses. In In re Zaporski, 366 B.R. 758, 769 (Bankr. E.D. Mich. 2007), the bankruptcy court rejected the argument that the Internal Revenue Manual did not permit a single debtor to deduct expenses fortwo vehicles and allowed the deduction because "[t]he form invites it and the statute allows it." See also In re Cole, 427 B.R. 467 (Bankr. C.D. Ill. 2010) (rejecting Internal Revenue Manual limitation and allowing single debtor to deduct operating and ownership expenses for two vehicles); In re Barrett, 371 B.R. 860 (Bankr. S.D. Ill. 2007) (size of household does not affect expense allowances; debtor could deduct ownership expenses for a car and a motorcycle).

The Trustee relies on two readily distinguishable cases - In re McGillis, 370 B.R. 720 (Bankr. W.D. Mich. 2007) and In re Winslett, 2010 Bankr. LEXIS 4587 (Bankr. D.S.C. Feb. 19, 2010). The McGillis case turned on expenses that the debtor did not intend to pay. To the extent McGillis suggests that the standards in § 707(b)(2)(A) merely are suggested guidelines for an above-median debtor's allowable expenses, this Court disagrees. For those debtors, Bankruptcy Code § 1325(b)(3) dictates that "amounts reasonably necessary to be expended" for the debtor's maintenance and support "shall be determined" in accordance with § 707(b)(2). 11 U.S.C. § 1325(b)(3) (emphasis supplied). Similarly distinguishable is the Winslett decision. There, the debtor claimed the ownership and operating expenses on vehicles driven by her adult children, and the court disallowed the deductions. In this case, the Debtor himself is using and incurring the operating expenses for the two vehicles.

The Trustee also cites In re Broers, 2007 Bankr. LEXIS 5017 (Bankr. E.D. Wash. Nov. 20, 2007). There, the debtor owned a 2006 KIA Rio automobile and a 1997 Ford 150 pickup. The bankruptcy court disallowed the deduction for the second vehicle, concluding that the KIA was "sufficient for all his transportation needs" and that it was "unreasonable" to ask his creditors to take less when no demonstrated need for the second vehicle was established. Broers, 2007 Bankr. LEXIS 5017, *19. By contrast, here the Debtor's vehicles are both over ten years old. As his attorney aptly noted: "This is not the first debtor I've seen who keeps two carspasted...