Fifth Circuit Allows Deduction for Transportation Ownership for Debtor with No Loan Payment

A continuing issue in consumer bankruptcy cases in Chapter 7, 11 and 13, is the manner in which automobile expenses are treated in the calculation of “current monthly income”.   As with many aspects of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), practitioners and Courts have struggled with the question of determining the treatment of automobile expenses under the Code.     This is a particularly important issue in some cases in which the deduction is crucial to determining whether a debtor can file a Chapter 7 Bankruptcy case without the “presumption of abuse”.

On June 10, 2009, the Fifth Circuit Court of Appeals ruled that a Chapter 7 Debtor could claim the deduction and expense for transportation even if the Debtor used vehicles which were not subject to loans or leases.   See Opinion at http://www.ca5.uscourts.gov/opinions%5Cpub%5C08/08-60953-CV0.wpd.pdf

The Fifth Circuit noted the two basic approaches courts have followed: (1) the “plain language approach”, which allows the vehicle ownership deduction even if the debtors have no monthly payment associated with the vehicle, and (2) the “IRM approach,” which does not.  Adopting the “plain language” approach, the Court followed the lead and opinion of the Seventh Circuit on this issue.   See Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148 (7th Cir. 2008).

The Fifth and Seventh Circuits are the only two Circuit Courts to rule on this issue.   At the present time, there is no opinion in the Third Circuit which addresses this issue for bankruptcy cases in New Jersey.

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