U.S. Supreme Court Issues a Decision in “Ransom”

The U.S. Supreme Court issued its ruling in Ransom v. FIA Card Services, N. A. today.  At issue is the circumstances in which an above-median debtor in Chapter 13 can take a $496 vehicle ownership deduction on the Means Test when calculating their projected disposable income for the benefit of unsecured creditors.  Specifically, whether this deduction can taken if there is no ownership expense (read: finance or lease payment).
Courts across the country have been split on this issue.  In the Eastern District of Wisconsin, we have been following the decision laid out in Ross-Tousey, which held the expense is allowable even when there is no lien on the vehicle.  However, the SCOTUS reversed that line of cases today by denying this deduction on the Means Test to anyone who does not have the ownership expense.
What does this mean for you?  If you are an above-median debtor filing for Chapter 13, there is some incentive to ensuring you have one vehicle with a lien on it.  If you are married filing joint, then two vehicles with liens on them.  If you have no financed vehicles, then you are missing a $496/mo deduction, which – over a 5 year plan – has the potential to amount to an extra $29,760 dividend being paid out to unsecured creditors, and the number is double for married couples who have no vehicles with liens.  Many debtors who might have been eligible for a discharge in the past might now end up paying 100% of unsecured claims, albeit at 0% interest.
The court does not seem to distinguish a debtor who files a Chapter 13, has a lien on his vehicle, but intends to surrender the vehicle and discharge the lien (or at least, I didn’t spot a distinction during my first read).  Based on the rationale set forth in Ransom, I would wager that taking the deduction in that scenario would be rejected.
I also did not notice a distinction for above-median debtors who are trying to rebut the presumption of abuse by taking this deduction to qualify for Chapter 7.  But with the Ransom decision in their back pockets, you can bet the U.S. Trustee will object to Chapter 7s with that deduction.  They might lose on the “snapshot” argument, but would likely win on a “totality of circumstances” argument, so my advice is to not take this deduction under any circumstance unless you have the loan or lease payment.
I also don’t recommend people running out to obtain a title loan just prior to filing for bankruptcy, that’s liable to incur a bad faith objection as well.For those of you keeping score, this was an 8-1 decision with Justice Antonin Scalia dissenting.  Justice Elena Kagan wrote the decision for the majority, and there were no concurring opinions.