Ransom v. MBNA, America Bank, N.A.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In the Matter of: JASON M. 
RANSOM,
Debtor,
No. 08-15066
JASON M. RANSOM,
BAP No.

Appellant,
NV-07-01254-
v. DBaMo
MBNA, AMERICA BANK, N.A., OPINION
Appellee,
EXECUTIVE OFFICE OF UNITED STATES
TRUSTEE,
Trustee.

Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Baum, Montali, and Dunn, Bankruptcy Judges, Presiding
Argued and Submitted
June 9, 2009—San Francisco, California
Filed August 14, 2009
Before: Stephen S. Trott, M. Margaret McKeown and
Sandra S. Ikuta, Circuit Judges.
Opinion by Judge Trott
11125
IN THE MATTER OF RANSOM 11127
COUNSEL
Christopher P. Burke, Chris P. Burke & Associates, Las
Vegas, Nevada, for the appellant.
Jeremy T. Bergstrom, Miles, Bauer, Bergstrom & Winters
LLP, Henderson, Nevada; and William Andrew McNeal,
Becket & Lee LLP, Malvern, Pennsylvania, for appellee
MBNA, America Bank, N.A.
Catherine Bentley Sevcenko, Executive Office for the United
States Trustees, for amicus curiae United States of America.
11128 IN THE MATTER OF RANSOM
Tara Twomey, San Jose, California, for amicus curiae
National Association of Consumer Bankruptcy Attorneys.
OPINION
TROTT, Judge:
Does an above-median income debtor seeking bankruptcy
relief under chapter 13 get to deduct from his projected dis-
posable income (that otherwise would be available to unse-
cured creditors) a vehicle “ownership cost” for a vehicle he
owns free and clear? Based upon our interpretation of the con-
trolling statute, 11 U.S.C. § 707(b)(2)(A)(ii)(I), our answer is
“no.” Thus, we agree with the decision of our Bankruptcy
Appellate Panel (“BAP”), see Ransom v. MBNA Am. Bank,
N.A. (In re Ransom), 380 B.R. 799 (B.A.P. 9th Cir. 2007),
and affirm the decision of the bankruptcy court.
I.
The facts in this case are undisputed and are taken from our
BAP’s decision. The debtor, Jason Ransom, filed for chapter
13 bankruptcy relief. Among his assets, he scheduled a 2004
Toyota Camry he owns free and clear of any loans or other
encumbrances. In his liabilities, he scheduled a total of
$82,542.93 in general unsecured claims, including a claim
held by MBNA America Bank (“MBNA”) in the amount of
$32,896.73.
On his Statement of Current Monthly Income (“Form
B22C”), Ransom reported a current monthly income of
$4,248.56, and an annualized income of $50,982.72, which
put him above the median income for his household size in
his state of residence, Nevada. He claimed monthly expense
deductions—including the vehicle “ownership cost” deduc-
tion at issue in this case—in the amount of $4,038.01, and a
resulting monthly disposable income of $210.55.
IN THE MATTER OF RANSOM 11129
In his chapter 13 plan, Ransom proposed paying $500.00
per month over sixty months, providing approximately a 25%
distribution on general unsecured claims. MBNA objected to
confirmation of the plan, arguing Ransom was not devoting
all of his projected disposable income to fund the plan as
required under 11 U.S.C. § 1325(b)(1)(B). Specifically,
MBNA argued that Ransom could deduct a vehicle ownership
cost only if he actually was making lease or loan payments on
the vehicle and, because Ransom owned his vehicle free and
clear of encumbrances and lease obligations, he was not enti-
tled to the vehicle ownership cost deduction. Thus, MBNA
argued, Ransom’s projected disposable income should be
$681.55 (the $210.55 he reported in disposable income plus
$471.00, the amount of the vehicle ownership cost deduction
to which MBNA objected).
The bankruptcy court agreed with MBNA, holding that
Ransom could deduct a vehicle ownership cost only if he cur-
rently was making loan or lease payments on the vehicle. The
bankruptcy court therefore entered an order denying without
prejudice confirmation of the plan.
Ransom sought and obtained leave to appeal the bank-
ruptcy court’s interlocutory order to our BAP. BAP affirmed
the bankruptcy court. See Ransom, 380 B.R. at 808-09. Con-
currently with its opinion affirming the bankruptcy court,
BAP certified its disposition of the case to this circuit for pos-
sible review of a non-final order. See id. at 809 n.21. This cir-
cuit authorized this interlocutory appeal to go forward.
II.
A court may not approve a chapter 13 plan if the holder of
an allowed unsecured claim (here, MBNA) objects to confir-
mation of the plan unless the debtor demonstrates (1) “the
value of the property to be distributed under the plan on
account of such claim is not less than the amount of such
claim”; or (2) “the plan provides that all of the debtor’s pro-
11130 IN THE MATTER OF RANSOM
jected disposable income to be received in the applicable
commitment period . . . will be applied to make payments to
unsecured creditors under the plan.” 11 U.S.C.
§ 1325(b)(1)(A), (B). Ransom seeks to defeat MBNA’s objec-
tion to his plan under the second option by demonstrating that
his plan provides that all of his projected “disposable income”
will be applied to make payments to unsecured creditors.
[1] “Disposable income” is defined as “current monthly
income received by the debtor . . . less amounts reasonably
necessary to be expended . . . for the maintenance and support
of the debtor . . . .” 11 U.S.C. § 1325(b)(2)(A)(i). Because
Ransom is an above-median income debtor, the “amounts rea-
sonably necessary to be expended,” is to be determined “in
accordance with” the means test set forth in 11 U.S.C.
§ 707(b)(2). See 11 U.S.C. § 1325(b)(3).
[2] Under the “means test” in § 707(b)(2), a debtor’s
monthly expenses
shall be the debtor’s applicable monthly expense
amounts specified under the National Standards and
Local Standards, and the debtor’s actual monthly
expenses for the categories specified as Other Neces-
sary Expenses issued by the Internal Revenue Ser-
vice for the area in which the debtor resides . . . .
Notwithstanding any other provision of this clause,
the monthly expenses of the debtor shall not include
any payments for debts.
11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphasis added).
The National Standards and Local Standards referenced in
§ 707(b)(2)(A)(ii)(I) are located in the Internal Revenue Ser-
vice’s (“IRS”) Financial Analysis Handbook, which is, in
turn, contained in the IRS’s Internal Revenue Manual
(“IRM”). The IRS uses the IRM in determining a taxpayer’s
IN THE MATTER OF RANSOM 11131
ability to pay a delinquent tax liability. See In re Fowler, 349
B.R. 414, 416 (Bankr. D. Del. 2006).
[3] The IRS’s Local Standards include allowable transpor-
tation expenses. These transportation expenses are broken
down into two categories: (1) operating costs and public
transportation costs, and (2) “ownership costs.”1 It is the
“ownership cost” deduction that is at issue here. Specifically,
at issue is whether the ownership cost deduction is “applica-
ble” under § 707(b)(2)(A)(ii)(I), and therefore allowed, to a
debtor who owns his vehicle free and clear and thus does not
have any loan or lease payments on his vehicle.
As described by our BAP, there exists “a significant split
in authority” on this issue. See Ransom, 380 B.R. at 803-06.
Some courts have allowed the deduction of an “ownership
cost” for a vehicle that is subject to neither secured debt nor
a lease; other courts have not. Most recently, two of our sister
circuits have joined the camp allowing the deduction, which
puts us in the uncomfortable position of disagreeing with
them. See Tate v. Bolen (In re Tate), 571 F.3d 423 (5th Cir.
2009); Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d
1148 (7th Cir. 2008).
In Ross-Tousey, the Seventh Circuit adopted what has been
referred to as the “plain language approach,” and held that a
vehicle not encumbered by a debt or lease qualified nonethe-
less for the “ownership cost” deduction. Ross-Tousey, 549
F.3d at 1157-58. The court was persuaded that
§ 707(b)(2)(A)(ii)(I)’s use of the adjective “applicable”—
rather than “actual”—in relation to the “ownership cost”
deduction refers “to the selection of an expense amount corre-
sponding to the appropriate geographic region and number of
1
The Local Standards for Transportation for the West Census Region
(which includes Nevada), in effect when Ransom filed, can be found on
the U.S. Trustee’s website at: http://www.usdoj.gov/ust/eo/bapcpa/
20051017/bci_data/IRS_Trans_Exp_Stds_WE.htm.
11132 IN THE MATTER OF RANSOM
vehicles owned by the debtor.” Id. at 1157. “In other words,
under [this] approach, the Local Standard vehicle ownership
deduction ‘applies’ to the debtor by virtue of his geographic
region and number of cars, regardless of whether that deduc-
tion is an actual expense[ ].” Id. at 1157-58.
In Tate, the Fifth Circuit found the “plain language
approach,” as set forth by the Seventh Circuit in Ross-Tousey,
to provide the “best reading of § 707(b)(2)(A)(ii)(I),” and
therefore also adopted that approach. Tate, 571 F.3d at 427.
However, roughly half of the courts to address the issue,
including our BAP and the Eighth Circuit BAP, have found
a debtor is entitled to the ownership cost deduction only if the
debtor actually has loan or lease payments on a vehicle. See,
e.g., Ransom, 380 B.R. at 809; Babin v. Wilson (In re Wilson),
383 B.R. 729, 734 (B.A.P. 8th Cir. 2008); In re Coffin, 396
B.R. 804, 809 (Bankr. D. Me. 2008); Grossman v. Sawdy, 384
B.R. 199, 203, 205 (E.D. Wis. 2008); In re Slusher, 359 B.R.
290, 308-09 (Bankr. D. Nev. 2007). These courts reason that
the ownership cost deduction is “applicable” only if the
debtor is in fact incurring such an expense in the form of a
loan or lease payment on a vehicle, i.e., that “applicable”
means that a debtor actually is making a loan or lease pay-
ment. See, e.g., Wilson, 383 B.R. at 732-33 (“[A] vehicle
ownership expense is only applicable if a debtor is in fact
incurring such an expense.”); Grossman, 384 B.R. at 204(“[T]he word ‘applicable’ is meant to modify the term
‘monthly expenses.’ Therefore, the deduction is to be used if
and only if the debtor actually has the monthly expense of an
actual car payment.” (citation omitted)). In other words, these
courts equate “ownership cost” with “loan or lease pay-
ments.”
In reaching the conclusion that a debtor is entitled to the
ownership cost deduction only if the debtor actually has loan
or lease payments on a vehicle, some courts have adopted
what has been referred to as the “IRM approach,” which relies
IN THE MATTER OF RANSOM 11133
on the IRS’s interpretation of “applicable” contained in the
IRM. The courts employing the IRM approach reason that
because Congress incorporated the IRS National and Local
Standards into § 707(b)(2)(A)(ii)(I), it must have intended
“courts to look at how the IRS defines these categories, and
how the IRS calculates those expenses.” Slusher, 359 B.R. at
309; see Grossman, 384 B.R. at 204 (relying on the IRS’s
interpretation of the Local and National Standards in conclud-
ing that a debtor must have a car payment to take the owner-
ship cost deduction); Wilson, 383 B.R. at 733 (same).
Under this reading, “actual” and “applicable” do
mean two different things—one is a limitless deduc-
tion within the specified categories of Other Neces-
sary Expenses, and the other is a deduction limited
to the amount and type specified by the IRS. Had
Congress intended to indiscriminately allow all
expense amounts specified in the National and Local
Standards, it would have written 707(b)(2)(A)(ii)(I)
to read, “The debtor’s monthly expenses shall be the
monthly expense amounts specified under the
National Standards and Local Standards . . . ” rather
than “The debtor’s monthly expenses shall be the
debtor’s applicable monthly expense amounts speci-
fied under the National and Local Standards . . . .”
This distinction may not appear from the dictionary
definitions of both terms, but it did, and does, belong
to the IRS’ historical and practical use of those stan-
dards at the time Congress adopted BAPCPA. In
referring to such specialized standards, it would be
quite odd if Congress intended to preclude courts
from examining the context in which the authoring
agency, the IRS, used and employed those standards.
Slusher, 359 B.R. at 308-09 (citation omitted) (emphasis in
original).
11134 IN THE MATTER OF RANSOM
The IRS Collection Financial Standards, which are used in
calculating repayment of delinquent taxes, provide: “If a tax-
payer has a car, but no car payment, only the operating costs
portion of the transportation standard is used to figure the
allowable transportation expense.” See IRS Collection Finan-
cial Standards (March 1, 2009).2 The IRM similarly requires
a taxpayer to have a loan or lease payment to qualify for the
ownership cost deduction. See Internal Revenue Service Man-
ual, Financial Analysis Handbook, Pt. 5, ch. 15, § 5.15.1.9
(1.B) (May 29, 2008).3
This approach also is arguably supported by Congress’s
intent in implementing the means testing as part of BAPCPA
—”to ensure that debtors repay creditors the maximum they
can afford.” H.R. Rep. 109-31(I), at 1, reprinted in 2005
U.S.C.C.A.N. 88, 89.
III.
[4] As did our BAP, we decide this issue not on the IRS’s
manual, but instead on the “statutory language, plainly read,”
Ransom, 380 B.R. at 806 n.18, which we believe does not
allow a debtor to deduct an “ownership cost” (as distinct from
an “operating cost”) that the debtor does not have. An “own-
ership cost” is not an “expense”—either actual or applicable
—if it does not exist, period. Ironic it would be indeed to
diminish payments to unsecured creditors in this context on
the basis of a fictitious expense not incurred by a debtor.
Accordingly, we adopt the cogent reasoning of our BAP, as
follows:
2
The current IRS Collection Financial Standards for Local Transporta-
tion can be found at: http://www.irs.gov/businesses/small/article/
0,,id=104623,00.html.
3
The portion of the current Internal Revenue Service Manual, Financial
Analysis Handbook, discussing transportation cost deductions can be
found at: http://www.irs.gov/irm/part5/irm_05-015-001.html#d0e1005.
IN THE MATTER OF RANSOM 11135
Congress has deemed the expense of owning a car
to be a basic expense that debtors can deduct in cal-
culating what they can afford to pay to their credi-
tors. However, in making that calculation, what is
important is the payments that debtors actually
make, not how many cars they own, because the
payments that debtors make are what actually affect
their ability to make payments to their creditors.
The statute is only concerned about protecting the
debtor’s ability to continue owning a car, and if the
debtor already owns the car, the debtor is adequately
protected . . . . When the debtor has no monthly
ownership expenses, it makes no sense to deduct an
ownership expense to shield it from creditors.
Section 707(b)(2)(A)(ii)(I) provides, in relevant
part, that “[t]he debtor’s monthly expenses shall be
the debtor’s applicable monthly expense amounts
specified under . . . the Local Standards.” As set
forth in the statute, the adjective “applicable” modi-
fies the meaning of the noun “monthly expense
amounts;” it indicates that the deduction of the
monthly expense amount specified under the Local
Standard for the expense becomes relevant to the
debtor (i.e., appropriate or applicable to the debtor)
when he or she in fact has such an expense.
The ordinary, common meaning of “applicable”
further impels us to this conclusion. “Applicable,” in
its ordinary sense, means “capable of or suitable for
being applied.” Merriam-Webster’s Collegiate Dic-
tionary 60 (11th ed. 2005). Given the ordinary sense
of the term “applicable,” how is the vehicle owner-
ship expense allowance capable of being applied to
the debtor if he does not make any lease or loan pay-
ments on the vehicle? In other words, how can the
debtor assert a deduction for an expense he does not
11136 IN THE MATTER OF RANSOM
have? If we granted the debtor such an allowance,
we would be reading “applicable” right out of the
Bankruptcy Code.
The debtor also argues for allowance of the vehi-
cle ownership expense deduction on equitable
grounds. He claims that, due to the age of the car, the
likelihood of major repairs and the costs of such
repairs will increase. He further contends that the
allowable operating costs under the Local Standards
do not take into account the costs of major repairs.
However, as the court in [In re Carlin, 348 B.R. 795(Bankr. D. Or. 2006)] noted:
Numerous safeguards are in place to protect
both debtors and creditors. Debtors who
own old or high mileage cars “free and
clear,” are entitled to an extra $200 per
month operating expense. Also, a “free and
clear” owner is not “stuck” with the vehicle
operating expenses allowed under the IRS
Standards. Section 707(b)(2)(B) is also
available for “above the median” Chapter
13 debtors. Section 707(b)(2)(B), allows
additional expenses based on “special cir-
cumstances.”
348 B.R. at 798 (citations omitted). We agree with
the court in Carlin and conclude that the debtor’s
appeal to equity is unavailing.
Further, our interpretation of § 707(b)(2)(A)(ii)(I)
has a substantive effect that is consistent with the
underlying goals of BAPCPA. Cf. [United Sav. Ass’n
v. Timbers of Inwood Forest Assocs., 484 U.S. 365,
371 (1988)]. To interpret the statute otherwise is
counterintuitive to one of the main objectives of
IN THE MATTER OF RANSOM 11137
BAPCPA: to ensure that debtors repay as much of
their debt as reasonably possible. When viewed
within the larger context of BAPCPA, we believe the
statute can only be interpreted to “apply” expense
standards in cases where debtors in fact pay such
expenses.
Ransom, 380 B.R. at 807-08 (footnote and some citations
omitted).
IV.
[5] The “correct” answer to the question before us, which
the courts have been struggling with for years—at the unnec-
essary cost of thousands of hours of valuable judicial time—
depends ultimately not upon our interpretation of the statute,
but upon what Congress wants the answer to be. We would
hope, in this regard, that we the judiciary would be relieved
of this Sisyphean adventure by legislation clearly answering
a straightforward policy question: shall an above-median
income debtor in chapter 13 be allowed to shelter from unse-
cured creditors a standardized vehicle ownership cost for a
vehicle owned free and clear, or not? Because resolution of
this issue rests with Congress, we have taken the unusual step
of directing the Clerk of the Court to forward a copy of this
opinion to the Senate and House Judiciary Committees.
AFFIRMED.