Treatment of Automobile Expenses under Bankruptcy Act of 2005

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. To date, most cases have focused on whether an above-median-income debtor may claim an ownership/lease expense for an owned vehicle on which the debtor is not contractually obligated to make a payment to the seller or the lessor. Since there has yet to be any consensus developed within this jurisdiction or others regarding this issue and those which relate to it, a review of the relevant statute, decisions and arguments presented and considered provides an overview of the vast nature of the issues raised in cases before the Court. Although the specific issue of the ownership/lease expense in above-median debtors has been the focus of most cases, a myriad of other related issues arise from the views of the Courts who have been faced with arguments by debtors, creditors and trustees in this area.

11 U.S.C. § 707(b)(2)(A)(ii)(I) & FORM B22C (22A)

Any discussion of this issue must begin with the law itself. The relevant provisions of 11 U.S.C. § 707(b)(2)(A)(ii)(I) provide:

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.

Whereas in most provisions of the Code, we might seek assistance in the meaning of the terms “applicable” and “actual”, §101 does not contain a definition of either of these terms. In fact, many of the cases which have addressed these issues involve attempts to determine Congress’ meaning of these terms. The inherent ambiguity in the terms coupled with an unclear relationship between the Code and provisions of the Internal Revenue Manual (IRM) regarding such expenses has been a great source of debate.

Most Courts agree that the terms “applicable” and “actual” have different meanings, although their interpretation of such meanings varies. A District Court in Minnesota, holding that the deduction was not appropriate, summarized its position on the definitions:

The Court agrees that, by using the two terms in the same sentence, Congress signaled its intention that “applicable” and “actual” have different meanings. However, “that does not mean that Congress, by using two different adjectives, meant that the two terms must have essentially opposite meanings.” In re Ross-Tousey, 368 B.R. 762, 765 (E.D. Wis. May 21, 2007). Rather, “it is true that the debtor’s ‘actual’ expense does not control the amount of the deduction, but the debtor must still have some expense in the first place before the Standard amount becomes ‘applicable.’ The term ‘applicable’ merely means, in this context, that when a debtor has an automobile ownership expense, his deduction is not based on that actual expense but on the applicable expenses listed in the Standards.” Id.

Fokkena v. Hartwick, 373 B.R. 645, 650 (D. Minn., Aug. 20, 2007)

However, when viewing the same terms, Courts finding that an above-median debtor may take the deduction regardless of whether such payments are due see a different meaning of the terms. See e.g. In re Moorman, 376 B.R. 694 (Bankr. C.D. Ill., Sept. 28, 2007), In re Hylton, 374 B.R. 579 (Bankr. W.D. Va., Aug. 22, 2007), In re Armstrong, 370 B.R. 323 (Bankr. E.D. Wash., June 12, 2007), In re Swan, 368 B.R. 12 (Bankr. N.D. Cal., April 18, 2007), In re Haley, 354 B.R. 340 (Bankr. D. N.H., Oct. 18, 2006), and In re Fowler, 349 B.R. 414 (Bankr. D. Del., Sept. 11, 2006).

FORM B22C (22A) provides:

Some of the Courts which have found that a debtor may deduct the ownership expense even though no such payments are required have found support in the forms. See In re Vesper, 371 B.R. 426 (Bankr. D. Alaska, June 28, 2007); In re Lynch, 368 B.R. 487 (Bankr. E.D. Va., May 8, 2007) (“[T]he language of Official Form B22C supports allowance of the ownership expense by directing debtors to consult either the clerk of the bankruptcy court or the office of the U.S. Trustee’s website for the appropriate IRS figures, rather than any other IRS source or manual”.); and In re Morgan, 374 B.R. 353, 20 Fla. L. Weekly Fed. B. 515 (Bankr. S.D. Fla., Aug. 8, 2007) (Allowing debtor to deduct housing expense).

Some commentators and Courts have also looked to the Advisory Committee Note to Forms 22A and 22C. A Bankruptcy Court in Ohio noted:

Furthermore, the Advisory Committee Note to Forms 22A, 22B, and 22C indicates: “The ownership/lease component [of the Local Standards for transportation] may involve debt payment.” The use of the word “may” implies that, for some debtors, the ownership/lease component may not involve debt payment. In re Crews, 2007 WL 626041 (Bankr. N.D. Ohio, Feb. 23, 2007) citing Accord Wedoff, 79 Am. Bankr.L.J. at 256 & n. 62.


The numerous cases which have addressed these issues provide guidance in the manner in which Courts have interpreted § 707(b)(2)(A)(ii)(I) and yet present more questions about a clear rule of law. Do we look to the highest Court (9th Cir. B.A.P.) or the District Courts who have ruled against allowance of the deduction? Do we consider the non-binding published opinions of Bankruptcy Courts in this Circuit who have universally ruled in favor of allowing the ownership deduction? What relevance or knowledge can we gain from the opinions which have been published by bankruptcy courts around the country?

Based on the number of decisions which have been rendered, the “majority” view is that the deduction for the ownership expense is allowable regardless of whether the debtor actually is required to make such payment. A commentator has published a Research Guide on the issue and has noted that as of February 15, 2008, 45 bankruptcy court judges have allowed the debtor to take the deduction and 24 have not. (This includes the decisions in half a dozen cases on the analogous issue of a mortgage/rent deduction where the debtor has no, or a lesser, actual expense.). BAPCPA Abstracts Research Guide, Means Test: Transportation Ownership/Lease Expense, Published by Robin Miller , March 16, 2008. (Available for subscribers at

The sole Circuit Court opinion which has been published on the issue of the ownership expense comes from the 9th Circuit B.A.P. In In re Ransom, 380 B.R. 799 (9th Cir. B.A.P., Dec. 27, 2007), Judge Dunn, writing for the Panel, conducted an exhaustive review of the variety of cases, opinions, and analyses which addressed this issue. In finding the “rationale of the courts disallowing the deduction more persuasive”, the Court placed emphasis on both the statutory and plain meaning of the term “applicable”.

Section 707(b)(2)(A)(ii)(I) provides, in relevant part, that “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under . . .the Local Standards.” As set forth in the statute, the adjective “applicable” modifies the meaning of the noun “monthly expense amounts;” it indicates that the deduction of the monthly expense amount specified under the Local Standard for the expense becomes relevant to the debtor (i.e., appropriate or applicable to the debtor) when he or she in fact has such an expense.

The ordinary, common meaning of “applicable” further impels us to this conclusion. “Applicable,” in its ordinary sense, means “capable of or suitable for being applied.” MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 60 (11th ed. 2005). Given the ordinary sense of the term “applicable,” how is the vehicle ownership expense allowance capable of being applied to the debtor if he does not make any lease or loan payments on the vehicle? In other words, how can the debtor assert a deduction for an expense he does not have? If we granted the debtor such an allowance, we would be reading “applicable” right out of the Bankruptcy Code.

Ransom at 807-808.

The 9th Circuit also rejected the Debtor’s argument in that case that equitable grounds supported the allowance of the deduction.

All four of the District Courts which have considered this issue have also found that the ownership deduction was not allowable where the debtor did not make such payments. See In re Ross-Tousey, 368 B.R. 762 (E.D. Wis. May 21, 2007), Fokkena v. Hartwick, 373 B.R. 645 (D. Minn., Aug. 20, 2007).

Although there have been no appellate opinions on the issue in the Third Circuit, the published opinions from Bankruptcy Courts in this Circuit are divergent. In the first published opinion on the issue, In re Fowler, 349 B.R. 414 (Bankr. D. Del., Sept. 11, 2006), Chief Bankruptcy Judge Mary F. Walrath, in allowing the deduction, rejected the argument of the U.S. Trustee in that case that because the Debtor had no car payment, she had no “applicable” monthly expense for car ownership and was not entitled to take the Local Standards deduction. The Court found that based on the plain language of the statute, legislative history, arguments in previous cases, and public policy considerations, the Debtor was entitled to take the deduction in the amount set forth in the Local Standards for her ownership of one car.

Subsequent bankruptcy courts have diverged. Most Courts have followed similar reasoning as the Court in Fowler in allowing the deduction. See e.g. In re Wilson, 356 B.R. 114 (Bankr. D. Del., Dec. 11, 2006). However, the most recently published opinion in this Circuit held that the deduction was not allowable. See In re Talmadge, 371 B.R. 96 (Bankr. M.D. Pa., June 28, 2007).

Although there have been no reported or published decisions in New Jersey on the specific issue of whether an above-median debtor is entitled to claim the ownership expense when no payment is made, Trustees and creditors have taken positions in cases involving similar issues that the deduction is not allowable and Courts have expressed opinions in other cases involving the application of the terms “actual” and “applicable” in both Chapter 7 and 13 cases. See In re Liverman, 2008 Bankr. LEXIS 776, Case No. 07-20590/JHW (Bankr. D.N.J. March 5, 2008). Although Liverman is particularly applicable to different circumstances, Chief Judge Wizmur noted:

On the question of whether a debtor can claim the vehicle ownership/ lease expense deduction under section 707(b)(2), for a vehicle that is unencumbered, the courts are split. Compare In re Ransom, 380 B.R. 799 (9th Cir.BAP 2007) (holding that a debtor may not claim an ownership expense deduction on a vehicle that is not subject to financing or lease payments) with In re Thomas, No. 06-21108, 2007 Bankr. LEXIS 3407, 2007 WL 2903201,(Bankr. D.Kan. Oct. 2, 2007) (holding that a debtor may claim an ownership expense deduction on a vehicle that is owned outright). We need not resolve the issue here, because the deduction of the vehicle ownership expense will not change the ultimate calculation of the debtors’ projected disposable income. For purpose of this analysis, I will assume that the vehicle ownership allowance would be disallowed, without prejudice to a full examination of the issue in the appropriate case.

Liverman at 28.

Therefore, although the cases which have been decided in this area provide further grounds for numerous arguments and positions on this issue, there is not yet a solid position that can be held as the rule in such cases.


The question presented for bankruptcy practitioners and Courts is where are we? One might take the positive view that the multitude of opinions and positions in these cases and by commentators provide ample grounds to argue both sides of the issue. A more cynical observer may be overwhelmed and confused by the lack of clarity. Counsel for debtors may wonder whether the lack of a clear rule places debtors in a difficult position in determining whether a “presumption of abuse” arises or whether a debtor is devoting all “disposable monthly income” to a plan of reorganization. Counsel for creditors and trustees may lack certainty as to whether debtors who claim the deduction in such circumstances should be pursued by way of objections. Further, the lack of clarity in these matters creates further questions:

1. Whether debtors who cannot claim the deduction for ownership expense are entitled to additional expense deductions for older or higher-mileage vehicles?

2. Whether a Chapter 13 debtor with a pre-petition auto loan/lease payment who proposes surrender of the asset is entitled to deduct the expense from “disposable income” under 11 U.S.C § 1325(b) and, if not, what is the effect of the “means test” in such cases?

3. If the IRM is the appropriate resource for determining whether the deduction is allowable, how does that affect a Court’s analysis of other provisions of BAPCPA which are less strictly tied to the IRM and how does a Court reconcile the fact that the BAPCPA does not specifically refer to the IRM as its basis?

4. Are Courts allowing the deduction encouraging above-median debtors to take a “phantom expense” to the detriment of creditors?

5. Are Courts disallowing the deduction encouraging otherwise insolvent debtors to incur expenses before filing a Petition?

6. How does the analysis in these cases apply to housing expenses in the means test?

7. May a debtor with a lease or debt payment greater than $0 but less than the IRS Standard amount deduct the entire amount of the IRS deduction or the actual amount of the payment?


Our bankruptcy lawyers are available for a free case review. Please fill out the contact form and we will get back to you as soon as possible. Thank you!

For a free consultation