In Chapter 7 Basics, I wrote briefly about the means test that was created in 2005 under BAPCPA where MBNA Bank, N.A. worked hard to make it more difficult for consumer debtors to qualify to file bankruptcy under Chapter 7 and created more disposable income to pay creditors under Chapter 13. It’s interesting to note that this same bank who help draft the bankruptcy rule changes is now the subject bank in the Ransom case, which is to be decided by the Supreme Court early next year.
The lower 9th Circuit Court ruled in Ransom v. MBNA Am. Bank, N.A. (In re Ransom), 577 F.3d 1026 (9th Cir., Aug. 14, 2009) that an above-median debtor could not claim the ownership deduction of a vehicle in a means test calculation even if that debtor owned his vehicles free and clear and was not making payments on a vehicle. Other lower courts, including the 8th Circuit ruled the exact opposite. It is this split of the lower courts that prompted the Supreme Court to hear the case.
The question presented before the Supreme Court is Whether, in calculating the debtor’s “projected disposable income” during the Plan period, the bankruptcy court may allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles. There are several compelling arguments to be presented as both common sense and following the letter of the law. A Note to Big Banks: The law is both a shield and a sword. Even though you did your best to make these changes to the law bend at your whim, we Consumer attorneys will continue to point out the error of your ways!