The U.S. Supreme Court ruled on Tuesday that Chapter 13 debtors cannot take advantage of ownership-cost deductions for vehicles they own free and clear. The ruling was made after the Supreme Court reviewed the case of a Nevada man filing for Chapter 13 bankruptcy. Lower courts have disagreed on the interpretation of bankruptcy code in the past, but this week’s ruling will provide a more consistent formula for calculating a debtor’s disposable income.
When an individual chooses to file for bankruptcy protection, they have the option of filing Chapter 7 or Chapter 13. Filing under Chapter 13 allows the debtor to restructure their debt so that payments are affordable compared to their disposable income. Many times, debtors are able to keep their assets and payoff their debt if creditors agree to the payments and reductions in principal balances.
In 2005, Congress enforced a bankruptcy law that required people to pay part of their debt if they could afford to do so when filing for bankruptcy. Debtors fill out a worksheet that calculates income left over after deducting living expenses. Debtors are able to deduct expenses such as food, housing and car payments and maintenance.
In the Nevada man’s case brought forth before the Supreme Court, the credit card company he owed argued that the man was inaccurately calculating his disposable income. The credit card company did not agree to the man’s bankruptcy plan because he had calculated a $471 deduction under car expenses for a vehicle he owned. The man did not have a monthly lease or loan payment for the car. Without claiming the standard transportation ownership costs, the man would have $681 in disposable income versus only $210 per month.
An 8-to-1 vote decided that the man could not deduct a lease or loan expense for the vehicle because the vehicle is already paid for. However, one judge did disagree stating that any debtor who owns a vehicle should be entitled to the vehicle cost deduction when filing bankruptcy.
Bankruptcy lawyers in Florida understand the complex legal issues regarding bankruptcy protection. They are experienced with helping individuals and families work through their financial problems. Individuals who have questions regarding bankruptcy should seek guidance from someone experienced with the legal issues and different options.
The Washington Post: “Kagan delivers her first judicial opinion, in bankruptcy case,” Robert Barnes, 12 Jan. 2011
NPR: “Supreme Court Rules In Bankruptcy Case,” Nina Totenberg, 11 Jan. 2011