In the recent case of Ransom vs. FIA Card Services, N.A., the U.S. Supreme Court ruled that a consumer may not use the IRS "ownership expense" deduction for a vehicle when the consumer owns the vehicle but is not obligated, at the time of filing, to make any payments on the vehicle. In the 8-1 decision, the majority reasoned that such a deduction does not constitute an "applicable" expense under the Bankruptcy Code.
This decision will affect individuals wishing to file under both Chapter 7 and Chapter 13 who own their vehicle free-and-clear of any loan or lease obligation. In the context of Chapter 7, such individuals may now have more difficulty passing the "means test" because their "disposable income," a figure used to determine Chapter 7 eligibility, will now be higher as a result of the deduction being disallowed. In the context of Chapter 13, individuals may now be required to pay a larger amount to creditors in their repayment plan.