Chapter 13 Car Ownership Deduction

In an opinion authored by Justice Elena Kagan, the Supreme Court ruled a Chapter 13 debtor may not deduct “ownership costs” of a car under the means test when he owes no further payments on the car. The opinion affirmed a decision of the Ninth Circuit Court of Appeals. There was a dissent by Justice Scalia.

For a New Yorker, the means test involves calculating a person’s current monthly income, and comparing the amount to the median income for the size of the consumer’s household in New York. If the monthly income is higher than the New York median income, the bankruptcy filing will be presumed an abuse of bankruptcy laws, unless the bankruptcy debtor passes the means test.

To complete the means test the New Yorker averages income over the last six months before filing bankruptcy in NY. Then, compare the income with NY’s median income. If the annual income is lower than NY’s median income, the consumer does not have to pass the remaining of the means test. If the income is more than the median income, the debtor takes the full means test. The U.S. Trustee discusses median income figures at

A New Yorker who establishes expenses are more than current monthly income passes the means test and qualifies for Chapter 7. If after adding all expenses the New Yorker has disposable income left at the end of the month, it is presumed the New Yorker can pay back all or part of the debt to creditors.
The IRS National Standards for Allowable Living Expenses is available at the U.S. Department of Justice web site:

The case Justice Kagan authored involved the calculation of how much disposable income a Chapter 13 debtor had in which to pay off creditors. The debtor argued he should be allowed to take a $471/month deduction for the ownership costs of his car, even though he paid the vehicle off.

The Supreme Court ruled that the statutory language that “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards” uses the word “applicable” as a filter, and that the debtor may only take the deduction if “it is appropriate for him.” The court held that the deduction was appropriate where the debtor had not fully paid off the car.

Justice Scalia argued that the term “applicable” meant the debtor should be able to take the deduction based on the number of cars the debtor owns. Focusing on the Bankruptcy Code, Justice Scalia stated he found it “strange” Congress intended to so narrowly limit the vehicle ownership deduction by using the word “applicable.”