Means Test Deductions

The new 2005 bankruptcy law make the debtor undergo a Means Test Analysis.  If the debtor passes the means test, then he is eligible to file a Chapter 7 Bankruptcy or will not have to pay back his credit card debt in a Chapter 13 bankruptcy.

The Tate v. Bolen case in the 5th Circuit took a look at how vehicle expenses are treated in the Means Test whether or not there is any debt owed on the car.

A Chapter 7 debtor claimed vehicle ownership allowance in the amounts of $471 and $332 in the means test and $343 for operating expenses for the two vehicles they owned even though there was no money owed on these vehicles.  The trustee moved to dismiss the case for abuse challenging the ownership deductions.  The court dismissed the case, and the debtors appealed to the district court, which affirmed.

The Fifth Circuit analyzed the “plain language approach” versus the “Internal Revenue Manual approach.”  Under the IRM approach, the debtor is not allowed a vehicle ownership deduction if there is no debt payment.  However, under the plain language approach a debtor is allowed both the operation and ownership deductions regardless of whether there is a debt on the car.

Based on policy and case law on statutory interpretation, the court concluded that the plain language approach was the best interpretation.