• 23
  • January

Filing for Chapter 13 bankruptcy can be complicated, so complicated that the U.S. Supreme Court recently became involved in interpreting the instructions for calculating and creating a repayment plan. The Supreme Court justices ruled 8-1 that people filing for Chapter 13 bankruptcy who own their vehicles in full cannot take an "ownership costs" deduction when calculating how much money they have in disposable income each month available to pay debts.

The case involved a man who filed for Chapter 13 protection in 2006. When he calculated his disposable monthly income, he took the standard vehicle payment deduction allowed in the Bankruptcy Code, even though he owns his vehicle free and clear of debt. One of his creditors, FIA Card Services, brought him to court over his repayment plan.

His creditor said that since he owns his car, he shouldn't take a deduction and should use that money to pay creditors. A bankruptcy court and appeals court sided with the man, but the 9th U.S. Circuit Court of Appeals ruled against him. The Supreme Court upheld the reversal.

The majority of justices agreed that the section of the Bankruptcy Code added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 did not say that everyone with a car filing for Chapter 13 protection could take the vehicle deduction when calculating disposable income. They said that the process of creating a repayment plan does not allow for deducting debts and expenses that don't exist.


No car payments means no ownership-cost deduction, Supreme Court rules (WestLaw News & Insight)