Supreme Court Denies Bankruptcy Deduction To Car Owners

In Justice Elena Kagan’s first opinion for the court, the Supreme Court today ruled that debtors in bankruptcy who own their cars outright may not exempt “ownership costs” when calculating their disposable income. Chapter 13 bankruptcy laws allow debtors with car loan or lease payments to subtract a standard amount from their disposable income, meaning that amount is not available for repaying creditors.

James Ransom had argued that he was entitled to a $471-per-month exemption, just like someone who had a loan or lease, even though he owned his Toyota Camry outright. The deduction is separate from a $388 amount for operating costs.

The Supreme Court’s analysis focused on the statute’s provision that “the debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts” specified in various tables. Ransom had argued that the tables had a line item for car ownership, and therefore that amount was “applicable” to him, but the Supreme Court said that, in this context, “applicable” meant only costs that the debtor actually incurred.

Ransom had argued that it did not make sense for Congress to provide preferential treatment for people who took on debt to buy cars, but Justice Kagan responded that “[m]oney is fungible: The $14,000 that Ransom spent to purchase his Camry outright was money he did not devote to paying down his credit card debt.”

Only Justice Antonin Scalia dissented, arguing that the statutory text is not as clear as the majority made it out to be and that “applicable” in this case does not limit deductions to actual expenses.

The case was Ransom v. FIA.