Seventh Circuit Court of Appeals Allows Car Ownership Allowance

Neary v. Ross-Tousey (In re: Ross-Tousey), No. 07-02503, 2008 WL 5234070 (7th Cir. Dec. 17, 2008)

In Neary v. Ross-Tousey, the United States Trustee filed a motion to dismiss the debtors' Chapter 7 case, relying on the presumption of abuse that arose in the means test or, in the alternative, on the theory that the debtors' ability to pay their debts out of future income rendered their Chapter 7 case abusive based on the totality of the circumstances. The debtors objected.

The Seventh Circuit Court held that an above median income debtor who has no monthly vehicle loan or lease payment may claim a vehicle ownership expense deduction when calculating his disposable income.

Addressing an issue of apparent first impression for the federal circuit courts, the Seventh Circuit Court stated that this result was dictated by the plain language of the bankruptcy statute, the legislative history, and the underlying policies of the means test to use objective standards rather than actual expenses where the Bankruptcy Code does not specifically state that actual expences should be used.

This issue is being litigated in other circuits arounds the country. Still, debtors won an important victory with the Seventh Circuit's ruling that a debtor is entitled to claim a vehicle ownership allowance in the Section 707(b)(2) means test regardless of whether the debtor is currently making payments on a vehicle loan.

ABOVE MEDIAN INCOME CHAPTER 13 DEBTOR MUST COMPLETE 5 YEAR PLAN

Coop v. Frederickson (In re: Frederickson), No. 07-03391, 545 F.3d 652 (8th Cir. Oct. 27, 2008) (Wollman, J.)

In Coop v. Frederickson, the Eighth Circuit reversed the holding of the Bankruptcy Appellate Panel and the Bankruptcy Court.

The issues involved were:
1) whether an above median income Chapter 13 debtor must have a Chapter 13 plan for 5 years for the “applicable commitment period”; and
2) whether the Bankruptcy Court could confirm a Chapter 13 plan period shorter than the required “applicable commitment period” when the debtor has a negative “disposable income” as defined in 11. U.S.C. Section 1325(b)(2) and calculated on Form 22C.

11. U.S.C. Section 1325(b)(1) provides that if there is an objection to the confirmation of a Chapter 13 plan, the plan may still be approved but only if:
(i) the plan provides for 100% payment of claims, or
(ii) the plan provides that all of the debtor’s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.

The Eighth Circuit determined that the debtor’s “disposable income” calculation on Form 22C is a starting point for determining the debtor’s “projected disposable income” but the Bankruptcy Court can use its discretion in taking into consideration changes to the debtor’s financial circumstances and the debtor’s actual income and expenses are reported on Schedules I and J.

The Eighth Circuit further determined that the “applicable commitment period” is a temporal requirement that must be met in each Chapter 13 case.

Accordingly, all above median income Chapter 13 debtors will be required to complete a 5 year Chapter 13 plan. In addition, bankruptcy courts will determine the amount of Chapter 13 debtor's plan payments on a case-by-case basis after considering several aspects of the debtor's financial situation.