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.

New Bill Could Give Bankrupt College Grads A Break

By Laurel Brishel Prichard -University of New Mexico/ Talk Radio News Service

Some in the Senate are looking to give Americans struggling with bankruptcy a break on their student loans.

Under the current law students are not able to discharge their debt accumulated from private student loans during bankruptcy proceedings. New legislation, the Private Student Loan Bankruptcy Fairness Act of 2010, would take away the favored status of private loan companies and allow for the past due amounts to be forgiven, just like debt from credit cards.

Members of the Senate Judiciary Committee, who are looking into the issue, heard testimony Thursday from Valisha Cooks, a Los Angeles resident burdened by student loan payments.

“I don’t really have very many options,” said Cooks, who filed bankruptcy, due in part, she explained, to her large loan payments. “I continue to pay my loan, even though they are in default. I just can’t afford to pay what they are asking me to pay.”

The Fairness Act would make all loans, government or private, dischargeable during bankruptcy.

High Health Costs Forcing Americans To Go Bankrupt, Cut Back On Care

By Annie Berman - Talk Radio News Service

The current health care system is not bankrupting America; Rather, outrageously high medical bills, mounds of credit card debt and expensive mortgages are what cause Americans to file for bankruptcy, experts said Tuesday at a hearing before the House Subcommittee on Commercial and Administrative Law.

Elizabeth Edwards, the wife of one-time Democratic Presidential hopeful John Edwards, shared statistics with the committee regarding vast medical costs forcing Americans into declaring bankruptcy. Edwards explained that such costs force households into cutting back on what they spend on health care.

“According to a recent Kaiser Family Foundation survey, concerns about affording needed medical care led insured individuals to cut back on care due to cost. Responses included postponing care (34%), skipping a recommended medical visit or treatment (30%), not filling prescriptions (27%), and skipping doses or cutting pills (21%),” said Edwards.

University of Michigan Law Professor and bankruptcy expert John A. E. Pottow offered his definition of medical bankruptcy to the committee.

“It could mean someone whose medical debts exceed…a certain percentage of their income. Or it could mean someone who lost income or a job, or even had to mortgage his or her home, due to medical bills,” said Pottow.

Dr. Steffie Woolhandler, a physician and Harvard University medical professor, argued that only a single-payer system can make health care coverage available and affordable to all Americans, and would “save hundreds of billions we now waste on insurance overhead and bureaucracy”. Woolhandler also claimed that private insurance is fundamentally defective and the tremendous amount of over-treatment by doctors causes medical bills to go way up.

However, the committee’s ranking Republican member, Rep. Trent Franks (R-Ariz.), took issue with Woolhandler’s sentiments.

“Here’s my big concern, and that is that somehow the answer to medical bankruptcy is nationalized healthcare…If a [nationalized healthcare system] saves hundreds of billions of dollars, it would be a first in history for government to do something of this complexity and actually save money,” said Franks.

“If indeed private insurance is fundamentally defective…with all the crises that people face with healthcare, if you put it in government hands, even to a partial extent, you will diminish the dignity of the patient and the pressure will be on giving less healthcare…I am convinced that healthcare will become more expensive...Instead of having financial bankruptcy, we will have health bankruptcy,” said Franks.

Three Years Too Late for United Student Aid Fund

Today the Supreme Court announced it will hear the case of United Student Aid Fund v. Espinosa.  The case involves a question about procedures an individual most go through in order to reduce student loan debt as part of a bankruptcy proceeding.

Espinosa filed for Chapter 13 and the bankruptcy judge was able to reduce his loans from $17,823.15 to $13,250.  The Fund received notice of this plan and did not make any objections to it.

Three years after Espinosa’s filed for bankruptcy, the Fund claimed that Espinosa still needed to pay back the original loan of $17,823.15.  The Fund claims that they were allowed to revisit Espinosa’s case and ask for full payment because Espinosa never initiated a court hearing to settle the loan, but instead just asked the bankruptcy judge to reduce the amount.

Judge Kozinski, who wrote the opinion for the 9th Circuit, said that the Fund should have taken the opportunity to object to Espinosa’s bankruptcy plan when the Fund received notice three years ago.

The court will likely hear the case in November.

Auto-makers To Cut Off Dealerships

The U.S. financial crisis facing auto-makers has begun to take its toll on the dealers as well. Following the declaration of bankruptcy by both Chrysler and General Motors, two of the U.S.’s largest auto-manufacturers, the companies put forward a plan to restructure their dealership networks. Chrysler will terminate the contracts for 789 dealerships while General Motors plans on terminating over 1,100.

“This has been the most difficult business decision I’ve ever personally had to take, but the decisions had to be made. They were gut-wrenching, but absolutely necessary for Chrysler’s survival,” said James Press, Chrysler President, during a hearing with the Senate Committee on Commerce, Science, and Transportation today.

Dealers have cited a number of concerns over the restructuring. Many dealers were not told why their contracts will be cancelled as opposed to others and questions remain over the reasoning behind shutting down the franchises when the dealers cover all expenses.

Perhaps most distressing for the dealerships is the timeframe in which they have to close-shop. While General Motor’s is giving their franchises till October 2010 to gradually sell their inventory, Chrysler has ordered its dealerships to perform the same task within twenty-six days.

“You just can’t close a dealership in 3 weeks,” said Russell Whatley, a Chrysler dealer who appeared as a witness before the committee. “We have an 8 month supply of vehicles and only three weeks to clear them out.”