By: Scott B. Riddle, Esq.

In re Moorman, 2007 Bankr. LEXIS 3269 (Bankr. C.D. Illinois, September 28, 2007).  The issue before the Court was –

… whether Chapter 13 debtors, calculating their disposable income pursuant to §1325(b)(2) and (b)(3) and §707(b)(2), may claim an ownership deduction for a vehicle they own free and clear of liens and for which they make no secured debt payment. This issue, which arises under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), has divided courts. At least 41 courts have issued written opinions on this issue or on the related issue involving the availability of the deduction under similar facts for the Chapter 7 means test calculation. Twenty-four courts have allowed the deduction while 17 courts, including two district courts, have denied the deduction. After considering many thoughtful, well-reasoned, and well-written opinions on both sides of the issue, this Court finds that the deduction should be allowed.

 The conclusions is as follows –

In view of these cases, this Court finds that a debtor’s "applicable" deductions are those that correspond to the debtor’s date of filing, family size, geographic location, number of vehicles, or other factors set forth in the Standard tables. In determining whether a debtor has properly claimed his "applicable" deductions, a Court must determine whether the debtor has correctly navigated through the tables. How a debtor’s actual expenditures correspond to the amount of a Standard deduction is not relevant in determining whether such Standard deduction is "applicable."

If Congress had wanted to limit vehicle ownership deductions to the amount actually expended for secured debt payment as the IRS does, albeit with a cap, it could have done so by allowing the secured debt payment in full and eliminating the ownership deduction altogether. But, Congress did not do that. Instead, the statute specifically provides for the deduction of both a secured debt payment and the balance of the related Standard to the extent that the secured debt payment does not exceed the Standard. A debtor can deduct a minimal secured debt payment – presumably as little as $ 1.00 – from the Standard vehicle ownership deduction, and then still receive the balance of the Standard as a deduction. Thus, with even the smallest of secured debt payments, the Standard deduction is still "applicable" regardless of a debtor’s actual ownership expenses. It does not logically follow that, if a debtor has no secured debt payment to deduct from the Standard, the Standard, for some reason, becomes no longer "applicable." In re Wilson, B.R. , 2007 Bankr. LEXIS 2530, 2007 WL 2199021 *5 (Bankr. W.D. Ark.). To the contrary, following the statutory formula, a debtor with no secured debt payment should receive the entire Standard deduction.

This Court is cognizant of the concerns expressed in In re Ross-Tousey, 368 B.R. 762 (E.D. Wis. 2007). There, the district court opined that, if a full ownership deduction is available to a debtor who has no secured debt payment on a vehicle, a debtor could claim the deduction even for an old, inoperable vehicle rusting away in the backyard. Id. at 768. This leads to the concern that a debtor might purchase such a vehicle for a few dollars for the purpose of qualifying for the deduction. Although that is certainly possible, it may be just as likely that a debtor faced with receiving no ownership deduction for a vehicle owned free and clear of liens would obtain a modest loan against the vehicle solely for the purpose of qualifying for the Standard deduction. Both scenarios are problematic, but that is the challenge of the required use of a Standard expense deduction rather than the actual, provable vehicle ownership expenses of a debtor. The remedy, if any is needed for this perceived problem, is legislative, not judicial.