The US Supreme Court [official website] on Tuesday ruled [opinion, PDF] 8-1 in Ransom v. FIA Card Services, N.A. [SCOTUSblog backgrounder] that debtors who apply for Chapter 13 bankruptcy cannot use a car payment as a deduction from their repayment plan if the debtor has paid off the automobile. The opinion was the first authored by Justice Elena Kagan [JURIST news archive], who joined [JURIST report] the court in August after serving as solicitor general in the Obama administration and as Dean of Harvard Law School. The case dealt with Chapter 13 bankruptcy under 11 USC § 1301 [text] where a debtor repays creditors according to a court-approved plan. The US bankruptcy code [11 USC § 707(b)(2)] uses a statutory formula called the "means test" which allows debtors deduct "applicable" monthly expenses from their monthly income to determine a disposable income to repay creditors. The debtor in this case, Jason Ransom, had attempted to mark as a deduction the maximum amount allowed for car payments for a car that he owned outright. In the opinion of the court, Kagan interpreted the term "applicable" in the bankruptcy code to mean a deduction is allowed "only if that deduction is appropriate for him" preventing Ransom from marking the car as a deduction since he was no longer making payments on it.
The court's opinion upholds the decision of the US Court of Appeals for the Ninth Circuit, which ruled [opinion, PDF] that the bankruptcy court may not allow such deductions. The Supreme Court heard oral arguments [transcript, PDF; JURIST report] in October. Counsel for Ransom argued that, "[i]n 2005 when Congress passed the Bankruptcy Act, it made a policy decision to limit judicial discretion on a case-by-case basis in the area of reasonable and necessary expenses." Counsel for the respondent argued that, "[t]he Bankruptcy Code precludes an above-median income debtor like Petitioner from shielding from his creditors $471 a month for a car payment that he does not have." The US government argued as amicus curiae on behalf of the respondent.