§ 95.3     Local Standards: Housing and Transportation
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 95.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

To determine disposable income for purposes of § 1325(b), current monthly income (CMI)1 must be reduced by “amounts reasonably necessary to be expended—.”2 For a Chapter 13 debtor with CMI greater than applicable median family income,3 “amounts reasonably necessary to be expended—” are calculated in accordance with subparagraphs (A) and (B) of § 707(b)(2).4 Under § 707(b)(2)(A)(i), CMI is reduced by the debtor’s monthly expenses determined under clause (ii) of § 707(b)(2)(A).5 Among the 10 components of monthly expenses allowed by § 707(b)(2)(A)(ii)6 is the following:

The debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the . . . Local Standards . . . issued by the Internal Revenue Service for the area in which the debtor resides, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent.7
[2]

The Local Standards issued by the IRS are destined to be one of the most controversial elements of the monthly expenses allowed as “amounts reasonably necessary to be expended—” in the calculation of disposable income for a Chapter 13 debtor with CMI greater than applicable median family income. Forcing IRS Standards designed for a completely different purpose to work in the Chapter 13 context produces unintended consequences and many levels of difficult statutory interpretation. The problems of overlapping and duplicative expenses8 are particularly acute with respect to the Local Standards. Detailed below,9 in January 2011, in Ransom v. FIA Card Services, N.A.,10 the Supreme Court took a first cut at applying the Local Standards to determine disposable income in a Chapter 13 case, and the results are not comforting.

[3]

As explained above with respect to the National Standards11 and below with respect to Other [Necessary] Expenses,12 “Local Standards” is a term of art used by the Treasury Department in its Internal Revenue Manual.13 Part 5 of the Internal Revenue Manual addresses the process within the IRS for collecting delinquent taxes.14 Chapter 15 of Part 5 of the Internal Revenue Manual is titled “Financial Analysis,” and that chapter contains a “Financial Analysis Handbook.”15 The Financial Analysis Handbook contains detailed instructions for IRS agents about negotiating installment payment agreements with delinquent taxpayers and evaluating Offers in Compromise.

[4]

To estimate the ability of a delinquent taxpayer to pay taxes, the IRS developed “allowable expenses.”16 Based on what the Internal Revenue Manual describes as a “necessary expense test,”17 the IRS identified three types of necessary expenses:18 National Standards,19 Local Standards and Other Expenses.20

[5]

Subclause (I) of § 707(b)(2)(A)(ii) mandates that a debtor’s monthly expenses shall be the “monthly expense amounts specified under the . . . Local Standards.” The expense amounts specified under the Local Standards are issued by the IRS in “Allowable Living Expense Tables (Collection Financial Standards)” attached as an exhibit to the Financial Analysis Handbook.21 When you go looking for this exhibit, you will find that Allowable Living Expense Tables are “Web-based” and are located by following URLs specified by the IRS. At this writing, the search for the Local Standards tables begins at http://www.irs.gov/individuals/article/0,,id=96543,00.html.22 When you follow that link, you will be redirected to two different tables, the Local Standards: Housing and Utilities, at http://www.irs.gov/businesses/small/article/0,,id=104696,00.html, and Local Standards: Transportation, at http://www.irs.gov/businesses/small/article/0,,id=104623,00.html.

[6]

As the links attest, the Local Standards are internal guidelines issued by the Treasury Department and intended to bring some consistency to the collection practices of IRS agents. The Local Standards are not rules or regulations of the sort familiar to lawyers and judges. The Local Standards are not vetted through the Administrative Procedures Act and can be issued, changed or withdrawn altogether by the IRS without notice to anyone outside the Treasury Department.

[7]

This is exactly what has happened repeatedly since the enactment of BAPCPA in 2005—perhaps most notably on October 1, 2007. Detailed elsewhere,23 in the middle of the night, the IRS issued modified National Standards24 and Local Standards. The October 1, 2007, changes to the Local Standards were significant—the Local Standards Transportation were reconfigured to eliminate significant differences in the expense allowance for a first car and a second car, and almost all expense amounts for Housing and Utilities and Transportation changed.25

[8]

Physically, because the Local Standards Allowable Living Expense Tables are “Web-based,” the October 1, 2007, changes were accomplished by the IRS by simply overwriting the existing URLs with a new set of tables. This makes all good sense to the IRS because they have one set of Local Standards guidelines for all revenue agents and they intended for any changes to the Allowable Living Expense Tables to apply immediately and universally. If you followed the online access instructions on the IRS Web pages on September 30, 2007, at http://www.irs.gov/businesses/small/article/0,,id=104623,00.html, you would have found Allowable Living Expenses for Transportation Ownership Costs for a First Car of $471 and for a Second Car of $332. If you had consulted that same URL on October 2, 2007, you would have found different Allowable Living Expenses for Transportation in which Ownership Costs for a First Car were $478 and for two cars, $956.

[9]

The problems here for bankruptcy practitioners are daunting. The Local Standards tables issued by the IRS before October 1, 2007, simply disappeared on October 1, 2007, and were replaced, destructively—at the same URLs—with new Local Standards tables. The Local Standards issued by the IRS and “in effect on the date of the order for relief” control for disposable income test purposes in a Chapter 13 case.26 Chapter 13 practitioners and courts somehow have to keep track of changes to the Local Standards issued by the IRS to know what expense deductions are available based on when a case is filed.

[10]

Remember that the Local Standards tables are an Exhibit to the Internal Revenue Manual. The Manual itself is modified on a different schedule than the tables that are exhibits to the Manual. The Internal Revenue Manual was not modified on October 1, 2007, to reflect the many substantial changes to the Local Standards tables on that date. The Internal Revenue Manual itself was modified with a later revision date of May 9, 2008. In between October 1, 2007, and May 9, 2008, the Internal Revenue Manual discussed Local Standards that no longer existed, and the tables linked to the Internal Revenue Manual offered numbers, charts and organization that were not explained in the Internal Revenue Manual. Some parts of the Internal Revenue Manual were modified again on October 2, 2009. The changes in October 2009 appear to be more cosmetic than the substantive revisions in May of 2008.

[11]

Just to emphasize the point, the IRS modified its Local Standards table again on March 1, 2008. The changes were less extensive than in October of 2007, but on March 1, 2008, the Local Standards Transportation were raised just a bit in the online tables—the one-car Ownership Costs increased to $489, and Ownership Costs for two cars became $978. As was true in October 2007, the March 1, 2008, changes to the Local Standards were issued by the IRS without public notice or comment—without compliance with § 553 of the Administrative Procedures Act. The changes appear magically at the same Internet location as the previous Local Standards, overwritten to the same URLs.27 The effective date in bankruptcy cases for these successive versions of the Local Standards tables is even more mysterious.28

[12]

The pattern of changes has continued, more or less. The IRS issued changes to its Local Standards Transportation on March 1, 2009, March 1, 2010, and again, on March 1, 2011. For example, on March 1, 2010, the one-car ownership costs increased from $489 to $496. On March 1, 2011, that number stayed the same.

[13]

These events illustrate the fragile and poorly conceived relationship between tax collection guidelines internal to the IRS and expenses deductions allowed Chapter 13 debtors to determine projected disposable income. The bankruptcy community will have to consult administrative law experts to sort out the incorporation of IRS Standards into Chapter 13 practice.29 There are many issues here, not the least of which is whether changes to the Local Standards issued by the IRS are automatically effective in bankruptcy cases. Is it incumbent upon the Treasury Department to comply with the Administrative Procedures Act when it changes Local Standards that apply in bankruptcy cases?30 Can the Treasury Department time-shift the effective date of standards in bankruptcy cases?31

[14]

There will be important battles whether bankruptcy courts should consult the Internal Revenue Manual when interpreting and applying the “expense amounts specified under the . . . Local Standards.”32 It is relatively simple to follow the links and collect the applicable expense amounts specified in the Local Standards tables. There is temptation to delve further into the Financial Analysis Handbook for guidance through the innumerable places where tax collection standards are a poor fit or no fit with the disposable income test in Chapter 13 cases. The courts have fractured badly whether and to what extent it is appropriate to consider the IRS interpretation of its Local Standards for disposable income test purposes.33 In 2011, the Supreme Court scrambled this egg by ambiguously referring to parts of the Internal Revenue Manual in Ransom but with cautionary words that fail to enlighten the bench and bar.34

[15]

And there is the very practicable problem that the Internal Revenue Manual—like the Local Standards tables—changes whenever the IRS wants to change it. The tax-collection-focused commentary in the Internal Revenue Manual becomes a target that constantly moves out of sight for bankruptcy practitioners. For example, the Internal Revenue Manual commentary about the Local Standards changed significantly with the issuance of new § 5.15.1.9 on May 9, 2008. The IRS has never specified an effective date in bankruptcy cases for this revision to the Internal Revenue Manual.35 It is arguable that the May 1, 2004, version of the Internal Revenue Manual would be the version to consult for Chapter 13 cases filed before May 9, 2008. Then there is another version dated by the IRS on October 2, 2009.36 Archived editions of the superseded versions are not easy to find.37

[16]

The Local Standards issued by the IRS address two broad expense groups: Housing and Utilities, and Transportation. These standards are called “Local” Standards because expense amounts are established for some aspects of Housing and Utilities and Transportation based on geographically local factors. If you looked at the Internal Revenue Manual before May 9, 2008, you would have found the following description of the expense items the IRS included in its Local Standards:

5.15.1.9 - Local Standards (05-01-2004)
1. Local standards include the following expenses:
A. Housing and Utilities. The utilities include gas, electricity, water, fuel, oil, bottled gas, trash and garbage collection, wood and other fuels, septic cleaning, and telephone. Housing expenses include: mortgage or rent, property taxes, interest, parking, necessary maintenance and repair, homeowner’s or renter’s insurance, homeowner dues and condominium fees. Usually, this is considered necessary only for the place of residence. Any other housing expenses should be allowed only if, based on a taxpayer’s individual facts and circumstances, disallowance will cause the taxpayer economic hardship.
B. Transportation. Vehicle insurance, vehicle payment (lease or purchase), maintenance, fuel, state and local registration, required inspection, parking fees, tolls, driver’s license, public transportation. Transportation costs not required to produce income or ensure the health and welfare of the family are not considered necessary. Consider availability of public transportation if car payments (purchase or lease) will prevent the tax liability from being paid in part or full. Public transportation costs could be an option if it [sic] does not significantly increase commuting time and inconvenience the taxpayer.
Note: If the taxpayer has no car payment, or no car, question how the taxpayer travels to and from work, grocer, medical care, etc. The taxpayer is only allowed the operating cost or the cost of transportation.38
[17]

If you look at the Internal Revenue Manual after May 9, 2008, you will find the following very different description of the expense items the IRS then included in its Local Standards:

5.15.1.9 - Local Standards (05-09-2008)
1. Local standards include the following expenses:
A. Housing and Utilities. Housing expenses include: mortgage (including interest) or rent, property taxes, necessary maintenance and repair, homeowner’s or renter’s insurance, homeowner dues and condominium fees. The utilities include gas, electricity, water, heating oil, bottled gas, trash and garbage collection, wood and other fuels, septic cleaning, telephone and cell phone. Usually, these expenses are considered necessary only for the primary place of residence. Any other housing expenses should be allowed only if, based on a taxpayer’s individual facts and circumstances, disallowance will cause the taxpayer economic hardship.
• Generally the total number of persons allowed for determining family size should be the same as those allowed as exemptions on the taxpayer’s most recent year tax return. There may be reasonable exceptions, such as foster children or children for whom adoption is pending.
• An allowance for cell phone expenses has been included in the Housing and Utility standards. If a taxpayer claims a separate cell phone expense on the financial statement, the amount would be added to the housing and utility expense claimed and subject to the allowable amount for the Housing and Utility standards. Ensure the taxpayer is not duplicating this expense.
• Taxpayers are allowed the standard amount for housing and utilities or the amount actually spent, whichever is less. If the amount claimed is more than the total allowed by housing and utilities standards, the taxpayer must provide documentation to substantiate those expenses are necessary.
• When deciding if a deviation is appropriate, consider the cost of moving to a new residence; the increased cost of transportation to work and school that will result from moving to lower-cost housing and the tax consequences. The tax consequence is the difference between the benefit the taxpayer currently derives from the interest and property tax deductions on Schedule A to the benefit the taxpayer would derive without the same or adjusted expense.
• All deviations from the housing and utilities standards must be verified, reasonable and documented in the case history.
B. Transportation. This includes vehicle insurance, vehicle payment (lease or purchase), maintenance, fuel, state and local registration, required inspection, parking fees, tolls, driver’s license and public transportation. Public transportation includes mass transit fares for a train, bus, taxi, etc., both within and between cities.
• Transportation expenses are considered necessary when they are used by taxpayers and their families to provide for their health and welfare and/or the production of income. Employees are expected to exercise appropriate judgment in determining whether claimed transportation expenses meet these standards. Expenses that appear to be excessive should be questioned and, in appropriate situations, disallowed.
• When determining the allowable amounts, allow the full ownership standard amount, or the amount actually claimed and verified by the taxpayer, whichever is less. Allow the full operating standard amount, or the amount actually claimed by the taxpayer, whichever is less. Substantiation for the operating allowance is not required unless the amount claimed exceeds the standard.
• There is a single nationwide allowance for public transportation. This allowance is established as a floor for individuals with no vehicle. Taxpayers with no vehicle are allowed the standard, per household, without questioning the amount actually spent. The taxpayer is not required to provide documentation unless the amount claimed exceeds the standard.
• Consider availability of public transportation if car payments (purchase or lease) will prevent the tax liability from being paid in part or full. Public transportation could be an option if it does not significantly increase commuting time and its use is not unrealistic. You should also consider the age, health and needs of minor children when requesting the taxpayer use public transportation in lieu of vehicle expenses.
• If a taxpayer has a car, but no car payment, only the operating costs portion of the transportation standard is used to figure the allowable transportation expense.
• A single taxpayer is normally allowed ownership and operating costs for one vehicle. The taxpayer is allowed the standard for ownership and operating costs, or the amounts actually spent, whichever is less.
• If a husband and wife own two vehicles, they are allowed the amount claimed for each vehicle up to the maximum allowances for ownership and operating expenses. The taxpayers are allowed the standard for ownership and operating costs, or the amounts actually spent, whichever is less.39
[18]

If you looked again at the Internal Revenue Manual after October 2, 2009, you would find that the IRS added the following bullet point to the 2008 version of the Local Standards Transportation:

• If a taxpayer owns a vehicle and uses public transportation, expenses may be allowed for both, provided they are needed for the health and welfare of the individual or family, or for the production of income. However, the expenses allowed would be actual expenses incurred. Documentation would not be required unless the amount claimed exceeded the standards.40
[19]

Perhaps the most important thing to notice about these descriptions of the Local Standards from the Internal Revenue Manual is that none of the tax collection conditions or considerations quoted from the Manual are found in § 707(b)(2)(A)(ii)(I) of the Bankruptcy Code.41 The statute simply states that monthly expenses “shall be the debtor’s applicable monthly expense amounts specified under the . . . Local Standards . . . issued by the Internal Revenue Service.” The “individual facts and circumstances” considered by the IRS—including such things as the actual amount paid for housing or transportation—do not appear in § 707(b)(2)(A)(ii)(I). Strong canons of statutory interpretation counsel that the amount specified by the IRS is the amount allowed, without regard to the debtor’s actual housing or transportation expenses. Support for this construction appears elsewhere in § 707(b)(2)(A)(ii)(I) when the statute refers differently to “actual monthly expenses.”42 In defiance of this logic, in Ransom a majority of the Supreme Court looked to the Internal Revenue Manual for guidance to interpret the Local Standards Transportation Ownership Costs—at least to the extent the Manual was not “at odds” with § 707(b)(2)(A)(ii)(I).43

[20]

At many levels, bankruptcy practitioners will struggle with the many differences between the 2004, 2008 and subsequent versions of the Internal Revenue Manual quoted above. Even before Ransom, too many bankruptcy courts were unable to resist the temptation to consult the Internal Revenue Manual for interpretation of the Local Standards in Chapter 13 cases.44 In a court so inclined, how does a bankruptcy practitioner account for the fact that on May 9, 2008, the IRS decided that “parking” was no longer an expense available to a delinquent taxpayer through the Local Standards Housing and Utilities but decided to add “cell phone”?45 In 2008, tax collectors were instructed to consider whether a taxpayer should change residence to facilitate the payment of delinquent taxes—a consideration absent altogether in the 2004 version of the Local Standards—and hardly a tenant of bankruptcy law after BAPCPA.46 What does it mean that, after May 9, 2008, a single taxpayer is “normally allowed ownership and operating costs for one vehicle”? What does “normally” mean in this context, and who would exercise that discretion in a Chapter 13 case? On October 1, 2009, Chapter 13 debtors suddenly became eligible for both private vehicle ownership and operation costs and the public transportation expense allowance. Who in the bankruptcy community was aware of that $182 per month ($10,920 over a 60-month plan) change in the entitlement of unsecured creditors? This slope is not slippery; it is a precipice.

[21]

The obvious point of extended quotation from the Internal Revenue Manual is that the commentary in the Manual changes at random intervals in material ways unrelated to bankruptcy law or policy. Bankruptcy practitioners are at the mercy of invisible Treasury Department authors when bankruptcy courts make the mistake of consulting the Internal Revenue Manual. Notwithstanding Justice Kagan’s contrary observations in Ransom,47 the commentary reproduced above—especially the expanded May 9, 2008, version—is targeted at tax collection agents and has no obvious application in Chapter 13 cases. The IRS permits deviations from the Local Standards under circumstances that are not consistent with § 707(b)(2)(A)(ii)(I). What is the “applicable” amount if a bankruptcy court can allow variations from the Local Standards to avoid “taxpayer economic hardship”?

[22]

That § 707(b)(2)(A)(ii)(I) refers precisely to Local Standards issued by the IRS has special importance for Chapter 13 practitioners. You will find links to Local Standards for Housing and Transportation on the U.S. Trustee Program’s Web page.48 Be very careful here: there is a disagreement between the Department of Justice (the U.S. Trustee Program) and the Department of the Treasury with respect to use in bankruptcy cases of Local Standards issued by the IRS.49 Perhaps more importantly, the fake Local Standards for Housing and Transportation that you find on the U.S. Trustee Program’s Web page are different from and not accurate of the actual Local Standards issued by the IRS.50

[23]

When you follow the links to the IRS Web page,51 you will find that Local Standards Housing and Utilities Expenses are issued by the IRS by state, and by county within each state. For each state, the IRS has issued a table listing the “maximum monthly allowance” county by county for housing and utilities. Prior to October 1, 2007, there were three columns in each table: family of two or less; family of three; and family of four or more. Mentioned above,52 on October 1, 2007, the IRS posted new Local Standards to its Web page. The October 1, 2007, version of the Local Standards Housing and Utilities has five columns instead of three—added were columns for “Family of 1” and “Family of 5 or more.” There is a single dollar amount listed in each column for each county within each state. Those dollar amounts were adjusted by the IRS in the revised Local Standards posted on October 1, 2007. The Local Standards Housing and Utilities dollar amounts have been adjusted by the IRS on March 1 of each year since 2008. The IRS sometimes issues a warning that the Local Standards are scheduled to change.53

[24]

The single amount charted by the IRS is for “Housing and Utilities.” The amount specified by the IRS is not broken down by the components of Housing and Utilities quoted above from the Internal Revenue Manual. In other words, the Housing and Utilities expense allowance for a family of three in Anderson County, Tennessee, at this writing, is listed by the IRS as $1,242,54 and there is no way to determine what portion of that amount is for garbage collection or property taxes or mortgage/rent payment.

[25]

Notice that the revision date of the IRS table makes a difference. The Anderson County, Tennessee, Family of Three Housing and Utilities allowance in effect on September 30, 2007, was $1,064 per month.55 That amount became $1,165 in the Local Standards Housing and Utilities issued by the IRS on October 1, 2007, and increased again to $1,199 in the Local Standards issued on March 1, 2008.56 That $135 monthly difference translates into more than $8,000 of additional allowed expense over the life of a 60-month Chapter 13 plan.

[26]

Section 707(b)(2)(A)(iii)(I) specifies that the Local Standards “in effect on the date of the order for relief” control.57 Confusingly, the Local Standards Housing and Utilities tables issued by the IRS on October 1, 2007, contained a “Disclaimer” that the revised Local Standards “are effective on October 1, 2007 for purposes of federal tax administration only. . . . For bankruptcy purposes, the effective date for the standards will be January 1, 2008, to allow for the orderly administration of the bankruptcy laws.”58

[27]

Bankruptcy practitioners were left with a puzzler: were the Local Standards Housing and Utilities issued by the IRS on October 1, 2007, “in effect” in bankruptcy, or did the Disclaimer by the Department of the Treasury shift the effective date of the new Local Standards to January 1, 2008? Debtors with CMI greater than applicable median family income filing Chapter 13 cases between October 1, 2007, and January 1, 2008, have thousands of dollars of potential expense deductions riding on the answer to that question.

[28]

And compare the Disclaimer the IRS attached to the Local Standards issued on March 1, 2008. Differently, the IRS states: “These Housing and Utilities Standards are effective on March 1, 2008 for purposes of federal tax administration only. Expense information for use in bankruptcy calculations can be found on the website for the U.S. Trustee Program.”59 Does this Disclaimer mean that the March 1, 2008, Local Standards issued by the IRS were never effective in bankruptcy cases? If the March 1, 2008, changes are not effective for bankruptcy cases, are the October 1, 2007, Local Standards still effective notwithstanding that changed Local Standards were issued by the IRS on March 1, 2008? The same Disclaimer just quoted appears on the Local Standards Housing and Utilities issued by the IRS in March of 2009,60 201061 and 2011.62 When, if ever, were these changes effective in bankruptcy cases? Other than inconvenience, what do we make of the fact that the IRS erased its October 1, 2007, Local Standards tables on its Web page when it issued new Local Standards on March 1, 2008 and on each successive March 1?

[29]

Go to the U.S. Trustee Program Web page and the story just gets curiouser. You will indeed find fake Local Standards charts that contain some numbers issued by the IRS, but the charts created by the U.S. Trustee Program contain many numbers that appear nowhere in the Local Standards tables issued by the IRS, and the date ranges for the U.S. Trustee Program charts are different from the dates on which the IRS issued new Local Standards tables.

[30]

For example, in 2008 the U.S. Trustee Program Web page contained an “important notice[ ]” that the IRS Local Standards for Housing and Utilities expenses were “updated” and the revised standards “will apply to cases filed on or after March 17, 2008.”63 To locate the Housing and Utilities expenses table created by the U.S. Trustee Program, a drop-down menu provided a date range for “2/1/2008 to 3/16/2008, inclusive” and for “3/17/2008 to 9/30/2008, inclusive.”64 We know from the IRS Web page that the IRS issued new Local Standards Housing and Utilities Expenses on March 1, 2008, “for purposes of federal tax administration only.” The numbers on the March 17, 2008, table posted by the U.S. Trustee Program are not all the same as the numbers issued by the IRS on March 1, 2008, but some are the same and others appear mathematically related. Apparently, the U.S. Trustee Program believes that the March 1, 2008, Local Standards Housing and Utilities tables issued by the IRS were effective (more or less) in bankruptcy cases 17 days later—on March 17, 2008. We have a 17-day gap between the Local Standards issued by the IRS and the make-believe Local Standards posted by the Justice Department.

[31]

These gaps continue in subsequent years. The IRS issued new Local Standards charts for Housing and Utilities and for Transportation on March 1, 2009, 2010 and 2011. According to the U.S. Trustee Program Web page, those changes were effective in bankruptcy cases on March 15, 2009, March 15, 2010, and March 15, 2011, respectively.65 We can speculate that it just takes the Department of Justice a couple of weeks to change its Web page to reflect new Local Standards issued by the IRS. This practical problem is not responsive to the statutory directive that debtors in Chapter 13 cases must use the Local Standards issued by the Treasury Department. Debtors filing in the gap between the issuance of new Local Standards by the IRS and the posting of changes to the Department of Justice Web page have a strong argument that the Treasury Department’s numbers control during the gap period.

[32]

There is no suggestion in BAPCPA that any Executive Branch agency other than the IRS can issue Local Standards that are effective in bankruptcy cases. There is no evidence that the IRS has or can delegate rule-making control over the Local Standards to the U.S. Trustee Program in the Department of Justice. If the March 1, 2008, Standards issued by the IRS are only effective for tax purposes—and the IRS says exactly that—then on what authority does the Justice Department presume to create look-alike Standards that apply to bankruptcy cases filed on or after March 17, 2008? If the Local Standards issued by the IRS are found on the IRS Web page, by what authority does the Treasury Department direct debtors in bankruptcy to apply (different) look-alike standards created by the Department of Justice? Does anyone need more proof that the incorporation of tax collection guidelines into bankruptcy cases was a colossal mistake?

[33]

To determine the Local Standards Housing and Utilities amount, the debtor must pick the applicable state and county. The applicable state is probably the state in which the debtor resides. If the debtor’s dependents or the debtor’s spouse (in a joint case) do not live in the same county as the debtor, the statute is unclear how to use the Local Standards Housing and Utilities issued by the IRS. If the debtor maintains more than one household, the statute could be interpreted to allow more than one Housing and Utilities amount under the Local Standards. In a joint case, if spouses maintain separate households, two Housing and Utilities allowances may be particularly appropriate. Married debtors filing separate cases would each claim Housing and Utility Expenses under the appropriate Local Standards.

[34]

The IRS Local Standards Housing and Utilities tables are in columns based on family size. Section 707(b)(2)(A)(ii)(I) does not describe the Local Standards in terms of family size but instead speaks of monthly expenses for the debtor, the dependents of the debtor and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent. The statute would count dependents who are not family members toward the size of the debtor’s “family” for purposes of the Local Standards Housing and Utilities. The count would include a nonfiling spouse if the nonfiling spouse is a dependent.

[35]

Section 707(b)(2)(A)(ii)(I) contains this enigmatic limitation on the monthly expenses described in clause (ii) of § 707(b)(2)(A): “Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.”66 “Payments for debts” in this sentence is of uncertain meaning.67 In Ransom, the Supreme Court declined to interpret the “notwithstanding” sentence in the context of applying the Local Standards Transportation Ownership Costs expense when a Chapter 13 debtor owned an unencumbered car.68

[36]

The “notwithstanding” sentence could be read to exclude from the Local Standards any Housing and Utilities component that is “payments for debts.” As indicated above, the Local Standards Housing and Utilities include mortgage, rent, property taxes and condominium fees—all of which are “debts” that many Chapter 13 debtors will want to pay. This interpretation threatens to nullify the first sentence of § 707(b)(2)(A)(ii)(I), which mandates that monthly expenses shall be the expense amounts specified under the Local Standards issued by the IRS. The Local Standards issued by the IRS for Housing and Utilities are not broken down into the various components listed above. It is impossible to determine what portion of the Local Standards Housing and Utilities allowance constitutes “payments for debts.”

[37]

There is a “sense of Congress” in an uncodified provision of BAPCPA that the Secretary of the Treasury “has the authority to alter the Internal Revenue Service Standards . . . to set guidelines for repayment plans as needed to accommodate their use under § 707(b) of Title 11.”69 At this writing, the Secretary of the Treasury has not acted to alter the Local Standards to accommodate their use in bankruptcy cases—unless you consider the delayed effective date in the October 1, 2007, Disclaimer to be an “accommodation.”

[38]

In contrast, the Department of Justice through the U.S. Trustee Program has not hesitated to alter Local Standards Housing and Utilities issued by the IRS. On the U.S. Trustee Program Web page, state-by-state tables appear conspicuously (and confusingly) labeled “Bankruptcy Allowable Living Expenses—Local Housing and Utilities Standards.”70 The U.S. Trustee Program lists Local Housing and Utilities Standards by “Family Size and Expense Type”—adding columns for “Expenses Type” found nowhere in the IRS tables for Local Standards Housing and Utilities. With respect to each state and each county, the U.S. Trustee Program has fabricated “Non-Mortgage” and “Mortgage/Rent” amounts in columns using the same format as the IRS but dividing the total amount shown by the IRS into expense components not issued and not specified by the IRS.

[39]

The U.S. Trustee Program charts seem purposefully designed to be confused with the IRS Local Standards Housing and Utilities tables. There is a “Note” on the U.S. Trustee Program Web page: “The IRS expense figures posted on this Web site are for use in completing bankruptcy forms. They are not for use in computing taxes or for any other tax administration purpose. Expense information for tax purposes can be found on the IRS web site.”71 The U.S. Trustee Program Web page then selectively quotes the Treasury Department’s commentary on the Local Standards for Housing and Utilities and Transportation from the Internal Revenue Manual.72

[40]

It is apparently the litigation position of the U.S. Trustee Program that the Local Standards Housing and Utilities must be deconstructed into Mortgage/Rent and Non-Mortgage components to implement the U.S. Trustee Program’s interpretation of the exclusion of “payments for debts” in § 707(b)(2)(A)(ii)(I).73 The forms drafters bought into this legerdemain in Official Form B22C at Lines 25A, 25B and 26. The Official Form instructs debtors to consult the Department of Justice Web page rather than the IRS Web page for Local Standards information about Housing and Utilities expenses.

[41]

The U.S. Trustee Program is not the IRS. The Local Standards “issued by the Internal Revenue Service” are the Local Standards that must be applied under § 707(b)(2)(A)(ii)(I). The publication of fake Local Standards by the U.S. Trustee Program that are easily mistaken for the real Local Standards issued by the IRS is not a service to the bankruptcy community.

[42]

Unfortunately, Official Form B22C acts as if the Department of Justice, not the Department of the Treasury, produced the correct Local Standards. At Line 25A, the December 2010 version of Official Form B22C directs the debtor to list “non-mortgage expenses” for the applicable county and family74 size drawn from the information available at the U.S. Trustee Program Web site. The debtor is then instructed at Line 25B to separately enter the mortgage/rent expense allowed by the Department of Justice chart and to then subtract from that amount the “Average Monthly Payments for any debts secured by your home.” This instruction requires Chapter 13 debtors to forfeit the Local Standards Housing and Utilities allowance to the extent of average monthly payments for all debt secured by a house.75

[43]

Ironically, subtracting secured debt from the applicable Local Standards amount for Housing and Utilities actually issued by the IRS has the overstated effect of forfeiting more than just the “debt” components of the Local Standards. As described above, the Local Standards Housing and Utilities issued by the IRS include some items that might be characterized as “payments for debts” but also include many postpetition expenses that are not “debts” at the petition. For example, a prepetition mortgage might be characterized as a “debt” for purposes of the exclusion of debt in § 707(b)(2)(A)(ii)(I), but the same can hardly be said for postpetition utility bills, a periodic postpetition septic tank cleanout and the like. If the Chapter 13 debtor follows the statute and uses the Local Standards for Housing and Utilities issued by the IRS, subtracting mortgage debt in the manner instructed at Line 25B of Official Form B22C threatens to wipe out the debtor’s utility expenses as well as anything that might be characterized as payments for debt. Perhaps this inspired the U.S. Trustee Program to fabricate the Local Housing and Utilities Standards that are not issued by the IRS, but this misguided effort is inconsistent with the bankruptcy statute.

[44]

Even if the IRS were to break down the Local Standards Housing and Utilities into debt and nondebt components, it is only “payments for debts” that are not included in the monthly expenses of the debtor for purposes of clause (ii) of § 707(b)(2)(A). In bankruptcy, the Local Standards Housing and Utilities are an “allowance” not related to debt repayment. In a negotiation with a taxpayer, the IRS would consider mortgage debt and the amount actually paid by the taxpayer for housing and utility expenses—with the Local Standards amount being a maximum monthly “allowance.” There are no similar conditions or limitations in § 707(b)(2)(A)(ii)(I).

[45]

Elsewhere in § 707(b)(2)(A)(ii), Congress demonstrated that it knew how to require a reduction in an allowable monthly expense based on actual expenses of the debtor.76 For example, with respect to the categories of Other [Necessary] Expenses specified by the IRS, a debtor’s monthly expenses include only “actual monthly expenses.”77 In § 707(b)(2)(A)(ii)(IV), the debtor’s monthly educational expenses for dependent children are allowable up to $1,65078 per year per child only if “such expenses are not already accounted for in the National Standards, Local Standards or Other Necessary Expenses referred to in subclause (I).”79 The phrase “payments for debts” is not the same as the phrase “not already accounted for in the . . . Local Standards.” The U.S. Trustee Program and the drafters of Official Form B22C have rewritten the statute with respect to the Local Standards Housing and Utilities.

[46]

There is a historical explanation for the “notwithstanding” sentence that makes sense of the phrase “shall not include any payments for debts” in the context of clause (ii) of § 707(b)(2)(A).80 There are specific “payments for debts” allowed as categories in the Other [Necessary] Expenses issued by the IRS.81 Earlier drafts of the legislation that became BAPCPA physically associated the “shall not include any payments for debts” with the Other [Necessary] Expenses categories issued by the IRS.82

[47]

The forms drafters have acknowledged at Line 26 of Official Form B22C that the “process set out in Lines 25A and 25B” may not accurately compute the Local Standards Housing and Utilities issued by the IRS. Debtors can use Line 26 to claim the full monthly amount allowed by the IRS in the Local Standards for the state, county and family size of the debtor.

[48]

To date, the reported decisions accept—typically without analysis—the reconstruction of § 707(b)(2)(A)(ii) that uses the U.S. Trustee Program’s version of the Local Housing and Utilities Standards. For example, in In re Edmondson,83 the Local Standards Housing and Utilities issued by the IRS for a family of two or less in Bernalillo County, New Mexico, indicated a monthly allowance of $1,123. The reconstructed Local Standards posted on the U.S. Trustee Program Web page showed Bankruptcy Allowable Living Expenses for Local Housing and Utility Standards for Bernalillo County, New Mexico, as $300 for “Non-Mortgage” and $823 for “Mortgage/Rent” for a family of one or two persons. The debtors in Edmondson had an average monthly mortgage payment of $1,765.06. Using the U.S. Trustee Program’s Local Housing and Utilities Standards, the bankruptcy court required the debtors to net the $1,765.06-per-month mortgage payment against the $823 Mortgage/Rent component, leaving a zero dollar amount at Line 25B of Official Form B22C.84

[49]

The assumption buried in this outcome is problematic: there is no Mortgage/Rent component of the Local Standards Housing and Utilities issued by the IRS. The Edmondson court could determine the Mortgage/Rent component only by accepting the U.S. Trustee Program’s guess(?), calculation(?) or invention(?) of that amount in its look-alike Local Housing and Utilities Standards.

[50]

Edmondson also holds that mortgage debt repayment excluded from the Local Standards Housing and Utilities deduction comes back into the disposable income calculation as an allowable deduction for average monthly payments on account of secured debts under § 707(b)(2)(A)(iii).85 In Edmondson, the debtors’ monthly mortgage payment of $1,765.06 zeroed out the Local Standards housing allowance at Line 25B of Form B22C, but the entire $1,765.06 was allowed as secured debt at Line 47. The Edmondson court held that the mortgage debt component it found in the U.S. Trustee Program’s version of the Local Housing and Utilities Standards did not limit the amount that a Chapter 13 debtor can deduct as a contractual secured claim under § 707(b)(2)(A)(iii).86

[51]

Prior to the Supreme Court’s decision in Ransom, a significant number of courts recognized that a Chapter 13 debtor with CMI greater than applicable median family income was allowed the Local Standards Housing and Utilities expense amount without regard to whether the debtor had actual rent or mortgage payment and even if the debtor’s actual rent or mortgage was less than the Local Standards amount. Many of these courts acknowledged that the Internal Revenue Manual limits the Local Standards Housing and Utilities expense amount to the lesser of a taxpayer’s actual rent or mortgage or the allowance in the tables.87 These courts refused to apply the Internal Revenue Manual interpretation of the Local Standards Housing and Utilities because to do so would be inconsistent with § 707(b)(2)(A)(ii)(I).

[52]

For example, in In re Farr-Johnson,88 the debtors lived in military housing and scheduled no home mortgage or rent expense. On Form B22C, the debtors deducted from CMI the Local Standards Housing and Utilities amount from the tables issued by the IRS. The bankruptcy court held the “applicable” monthly expense amount specified by the IRS was the allowable expense—notwithstanding contrary guidance in the Internal Revenue Manual—based on the following sound statutory interpretation:

[T]he debtors are entitled to deduct a housing expense under the IRS standards even though the debtors live in military housing and so have no such expense. . . . Section 707(b)(2)(A)(ii)(I) defines monthly expenses not only as a debtor’s “applicable monthly expense amounts” under the “National and Local Standards” but also as the debtor’s “actual monthly expenses” for the categories the IRS specifies as “Other Necessary Expenses.” . . . Congress drew a distinction in the statute between “applicable” expenses on the one hand and “actual” expenses on the other. “Other Necessary Expenses” must be the debtor’s “actual” expenses. Expenses under the “Local Standards,” in contrast, need only be those “applicable” to the debtor—because of where he lives and how large his household is. It makes no difference whether he “actually” has them. . . . Congress recognized that employing the IRS expense standards would be “‘rigid and inflexible’”. . . . Eliminating flexibility was the point: the obligations of chapter 13 debtors would be subject to “clear, defined standards,” no longer left “to the whim of a judicial proceeding.” . . . Section 707(b)(2)(A)(ii)(I) . . . deems the debtor’s expenses to be the “amount specified” in the Local Standards. . . . It nowhere incorporates wholesale all IRS criteria for tax collection matters.89
[53]

After Ransom, debtors with no actual mortgage or rent expenses are at risk of forfeiting, in whole or in part, the Local Standards Housing and Utilities allowance. Detailed below,90 in Ransom the Supreme Court held that a debtor with CMI greater than applicable median family income could not deduct Local Standards Transportation Ownership Costs with respect to a car owned free of debt or lease. Justice Kagan explained in Ransom that a Chapter 13 debtor may claim a deduction from a Local Standards table “if but only if that deduction is appropriate . . . that is, only if the debtor will incur that kind of expense during the life of the plan.”91 The debtor in Ransom owned a car but did not pay a car note or car lease. The Supreme Court allowed Operating Costs from the Local Standards Transportation tables issued by the IRS, but the Supreme Court refused the Transportation Ownership Costs portion of the Local Standards. Along the way, the Supreme Court rejected the statutory construction arguments analogous to those quoted above from Farr-Johnson.92

[54]

A debtor like the debtor in Farr-Johnson would be hard pressed to prove actual mortgage or rent expenses. After Ransom, such a debtor might have utility expenses for purposes of the Local Standards Housing and Utilities allowance, but what about the “housing” part? Is the absence of rent or mortgage analogous to the absence of debt or lease in Ransom? Keep in mind that the IRS issued and specified separate Ownership and Operating Costs in its Local Standards Transportation. In contrast, the IRS does not issue or specify a separate mortgage or rent component for its Local Standards Housing and Utilities. Only the U.S. Trustee Program has presumed to create separate allowances of that sort.

[55]

A huge issue looms here. In the absence of separate accounting for rent/mortgage by the IRS, will Ransom be read to forfeit the Local Standards Housing and Utilities allowance for a debtor living without rent or mortgage? If so, will the entire allowance be lost or will someone—the U.S. Trustee Program? the bankruptcy court?—concoct a formula to allow parts but not all of the Local Standards Housing and Utilities amount?

[56]

The majority in Ransom declined to address whether a debtor was entitled to the entire Local Standards Transportation Ownership Costs allowance when actual car debt or lease expense was less than the IRS allowance amount.93 If actual mortgage or rent expense is less than the Local Standards Housing and Utilities allowance, will Ransom inspire the courts to both identify the portion of the IRS allowance that is not utilities and other items and to then net the actual mortgage/rent against that amount? A form of this is happening now based on the make-believe tables created by the U.S. Trustee Program and the instructions at Lines 25 and 26 of Official Form B22C. Perhaps this is where the chickens will come to roost with respect to the fake Local Standards tables produced by the Department of Justice. If any amount of mortgage debt entitles a Chapter 13 debtor with CMI greater than applicable median family income to the entire Local Standards Housing and Utilities allowance, isn’t the Justice Department’s creation of mortgage and nonmortgage portions both contrary to the statute and unnecessary?

[57]

In dicta, in Ransom, the majority did address whether the Local Standards specified by the IRS might function as a cap on expense deductions by a Chapter 13 debtor. Justice Kagan stated: “If a debtor’s actual expenses exceed the amounts listed in the tables . . . the debtor may claim an allowance only for the specified sum, rather than for his real expenditures.”94 The Supreme Court in Ransom was talking about the Local Standards Transportation Ownership Costs, but the same logic would render the Local Standards Housing and Utilities allowance a cap when a debtor has actual housing and utilities expenses that are greater. On the other hand, if the debtor has housing “debt” and if housing debt is not precluded by the “notwithstanding” sentence in § 707(b)(2)(A)(ii),95 the debtor will be allowed the entire Local Standards Housing and Utilities deduction and will then also deduct any excess mortgage debt as contractually scheduled secured debt separately allowed by § 707(b)(2)(A)(iii).96 This outcome was not acknowledged by the Supreme Court in Ransom with respect to a car encumbered with more debt than the Local Standards Ownership Costs would otherwise account for.

[58]

But this thought leads to a difficult problem for renters. If Chapter 13 debtors are not allowed Local Standards Housing and Utilities expenses in excess of the amount specified by the IRS—notwithstanding that a debtor’s actual rent/mortgage and utilities expense is greater97—there is a nasty bias against renters in § 707(b)(2)(A).

[59]

Consider the difference in outcome between In re Renicker98 and Edmondson. As explained above, in Edmondson, the debtors’ average monthly mortgage payment was $1,765.06 and the Mortgage/Rent housing allowance concocted by the U.S. Trustee Program was $823. This $823 amount was zeroed out at Line 25B on Official Form B22C by subtracting the $1,765.06 mortgage payment.99 But because § 707(b)(2)(A)(iii) separately allows a Chapter 13 debtor to reduce CMI by the average monthly payments on scheduled, contractually due secured debts,100 the debtors in Edmondson were allowed to expense the entire $1,765.06-per-month mortgage payment at Line 47 on Official Form B22C.

[60]

In contrast, the debtors in Renicker moved from Missouri to Colorado shortly before filing Chapter 13. The debtors were renting a home in Colorado for $1,445 per month. That rent exceeded the $898 “Mortgage/Rent” component of the Local Housing and Utilities Standards invented by the U.S. Trustee Program by $547 per month. This “excess rental expense” was not separately deductible under § 707(b)(2)(A)(iii) because rent is not secured debt.101 If the $1,445 monthly rent in Renicker had been a mortgage payment, it would have been fully deductible at Line 47 of Official Form B22C.

[61]

No obvious bankruptcy policy is served by allowing an unlimited deduction for secured housing debt but capping rental housing expense at the Local Standards Housing and Utilities amount. This bias against renters results from the unwholly incorporation of IRS expense standards into consumer bankruptcy practice by BAPCPA. Although perhaps questionable after Ransom, one reported decision allows actual rental expense in excess of the Local Standards Housing and Utilities allowance based on findings that the high rent was reasonable and necessary under the circumstances.102

[62]

Notice also that the Justice Department’s magical breakdown of the Local Standards Housing and Utilities issued by the IRS is inconsistent with other guidance in the Internal Revenue Manual. As quoted above, the housing and utilities standards issued by the IRS “include mortgage or rent, property taxes, interest, insurance, maintenance, repairs, gas, electric, water, heating oil, garbage collection, telephone and cell phone.”103 According to the Internal Revenue Manual, a taxpayer is “allowed the standard amount for housing and utilities or the amount actually spent, whichever is less. If the amount claimed is more than the total allowed by the housing and utilities standards, the taxpayer must provide documentation to substantiate those expenses are necessary living expenses.”104

[63]

Two things are interesting about these quotes from the Internal Revenue Manual. The IRS does not require a taxpayer to differentiate between mortgage/rent and other aspects of the Housing and Utilities Standards—the taxpayer gets the total Housing and Utilities Standards allowance based on any combination of the listed expenses. In contrast, the U.S. Trustee Program would disallow portions of mortgage/rent and nonmortgage expense that exceed the artificial apportioning on its Web page. A debtor with higher utilities and/or lower mortgage/rent than provided by the U.S. Trustee Program is penalized in bankruptcy under circumstances that would escape scrutiny by the IRS.

[64]

Also, the IRS allows a taxpayer to prove that combined housing and utility expenses exceed the table amount. The dicta in Justice Kagan’s opinion in Ransom threatens that outcome. The case is just around the corner in which a debtor will challenge the mortgage/rent and nonmortgage numbers concocted by the U.S. Trustee Program because use of those numbers disallows a housing and/or utilities expense deduction that would be allowed by the IRS. The lower federal courts will be challenged to figure out whether the Supreme Court meant its dicta in Ransom.

[65]

And then there are problems of overlapping and duplicative housing expenses. As detailed above, the Local Standards Housing and Utilities allowance issued by the IRS includes property taxes.105 Also mentioned above, § 707(b)(2)(A)(iii) allows a Chapter 13 debtor with CMI greater than applicable median family income to deduct average monthly payments on account of secured debts that are scheduled as contractually due during the 60 months of the plan—including mortgage debt on a home.106 Chapter 13 debtors with CMI greater than applicable median family income are also allowed actual monthly expenses in the category Taxes specified as Other [Necessary] Expenses by the IRS.107 In other words, there are three separate statutory deductions that include an expense allowance for real estate taxes: the Local Standards Housing and Utilities; Taxes included in home-mortgage-secured debts scheduled as contractually due during the plan; and property taxes included in the Taxes category of Other [Necessary] Expenses specified by the IRS.

[66]

The Bankruptcy Code provides no instructions with respect to managing these overlapping and duplicative expense deductions for property taxes. There is no way to determine the portion of the Local Standards Housing and Utilities allowance that is allocable to property taxes. Line 30 of Official Form B22C instructs debtors to enter the average monthly expense for federal, state and local taxes “other than real estate and sales taxes”108—signaling that at least the forms drafters believe the Local Standards amount trumps the separate expense allowance for property taxes in the category specified by the IRS. One of the few bankruptcy courts to address this duplication of expense allowances for property taxes concluded that the debtors were not entitled to a separate expense deduction for property taxes because property taxes (and insurance) were included in the Local Standards Housing and Utilities allowance.109

[67]

The Local Standards Transportation issued by the IRS present related but slightly different issues. As explained above with respect to the Local Standards Housing and Utilities, the Local Standards Transportation are found in tables that are a Web-based exhibit to the Financial Analysis Handbook.110 Prior to October 1, 2007, the “Allowable Living Expenses for Transportation” issued by the IRS had two components: Ownership Costs and Operating Costs and Public Transportation Costs. Ownership Costs were stated nationally for a First Car ($471)111 and for a Second Car ($332).112 Operating Costs and Public Transportation Costs were listed regionally, and within regions, some Metropolitan Statistical Areas had separate entries. Amounts were given for “No Car,” for “One Car” and for “Two Cars.”

[68]

The IRS issued revised Local Standards Transportation on October 1, 2007. As explained above,113 the new Local Standards Transportation were either effective when issued by the IRS on October 1, 2007, or became effective on January 1, 2008, as stated in a “Disclaimer” on the IRS Web page.114

[69]

The October 1, 2007, revised Local Standards Transportation had three components: Public Transportation, Ownership Costs and Operating Costs. Ownership Costs were stated nationally for “One Car” and for “Two Cars.”115 But there was an important change from the pre–October 1, 2007, Local Standards Transportation: now a first and second car each carry the same Ownership Costs allowance.

[70]

The Ownership Costs allowance issued by the IRS on October 1, 2007, was $478 for One Car and $956 for Two Cars. Depending on your view of the Disclaimer, those amounts became effective in bankruptcy cases either on October 1, 2007, or on January 1, 2008. Those numbers changed again when the IRS issued new Local Standards Transportation Ownership Costs amounts on March 1, 2008. The “One Car . . . Two Car” allowances increased to $489 and $978, respectively. The Disclaimer issued by the IRS on March 1, 2008, states that the Transportation Standards were effective on March 1, 2008, “for purposes of federal tax administration only.”116 The Local Standards Transportation Ownership Costs remained $489 for One Car and $978 for Two Cars until March 1, 2010, when the IRS issued adjustments to $496 for One Car and $992 for Two Cars.117 Those numbers—$496 for One Car and $992 for Two Cars—did not change when the IRS issued new Local Standards on March 1, 2011.118 In every year since 2009, the IRS changes to the Local Standards Transportation Ownership Costs included the disclaimer that “these standards are effective . . . for purposes of federal tax administration only.” The IRS did the same thing with respect to its Web-based Local Standards Transportation expense information that it did with its Web-based Local Standards Housing and Utilities tables: with each change, the new tables overwrite the previous versions at the same URLs—the prior numbers are no longer available on the IRS Web page.

[71]

The separate component for Public Transportation listed by the IRS on October 1, 2007, was a single national amount, $163.119 That number did not change on March 1, 2008. The Public Transportation allowance increased to $173 on March 1, 2009, and then to $182 on March 1, 2010.120 The Public Transportation allowance remained $182 nationwide in the Local Standards Transportation issued by the IRS on March 1, 2011.121

[72]

Both before and after October 1, 2007, Operating Costs are listed regionally and by Metropolitan Statistical Areas for some cities. The Metropolitan Statistical Areas separately listed in the October 1, 2007, Local Standards Transportation are fewer than in earlier versions.122

[73]

For all of the reasons discussed above with respect to the Local Standards Housing and Utilities,123 it is inappropriate to consult the U.S. Trustee Program Web page for Local Standards Transportation allowances issued by the IRS. But if you venture there, be prepared for a Twilight Zone experience.

[74]

Beginning on the U.S. Trustee Program’s main Web page,124 there is a link to “Means Testing Information.” Following that link, you are instructed to select a time period from a drop-down list to find the appropriate Local Standards Transportation data. You will immediately notice that the list of date ranges available on the U.S. Trustee Program Web page are not the same as the dates on which the IRS issued new Local Standards. Some of you are not surprised.

[75]

Picking a date range on the U.S. Trustee Program’s “Means Testing Information” page will lead you to data for that date range that claims to be “IRS data.” Of course, this is the Justice Department’s restatement of the Treasury Department’s data. The links on the U.S. Trustee Program Web page aren’t links to Local Standards Transportation issued by the IRS.

[76]

To get from the U.S. Trustee Program’s “Means Testing Information” page to the Local Standards Transportation, you also have to select a Census region. Once you do, the link will carry you to a U.S. Trustee Program Web page with the heading “IRS Local Transportation Expense Standards”—with the regional designation and the date range you selected. Once again, the Justice Department has chosen to call the data on this Web page “IRS Local Transportation Expense Standards,” further confusing the point that these are not Local Standards Transportation issued by the IRS.

[77]

For all date ranges prior to December 31, 2007, the U.S. Trustee Program’s (fake) Local Transportation Expense Standards tables show the One Car/Two Cars differential that the IRS eliminated on October 1, 2007. Apparently, the U.S. Trustee Program believes that the Disclaimer on the IRS Web page that time-shifted the effective date in bankruptcy of the October 1, 2007, changes to the Local Standards Transportation was effective in bankruptcy cases.

[78]

Perhaps more telling is the U.S. Trustee Program’s treatment of the March 1, 2008, Local Standards Transportation Ownership Costs issued by the IRS. As mentioned above, on March 1, 2008, the IRS increased Local Standards Transportation Ownership Costs to $489 per car from $478. The Disclaimer on the IRS Web page states that this change was effective for purposes of federal tax administration only. The U.S. Trustee Program Local Transportation Expense Standards tables show that $478 was the Ownership Costs allowance between January 1, 2008, and March 16, 2008. On March 17, 2008, the U.S. Trustee Program shows the Local Transportation Expense Standards Ownership Costs to $489.

[79]

The U.S. Trustee Program created a 17-day gap between March 1 and March 17, 2008, which has no foundation in the Bankruptcy Code or in any action by the IRS. A debtor filing during the 17-day gap period who mistakenly consulted the U.S. Trustee Program Web page understated Two Car Local Standards Transportation Ownership Costs by $1,320 over the 60-month life of a Chapter 13 plan.

[80]

The same goofy gaps appear on the U.S. Trustee Program Web pages for Local Standards Transportation changes by the IRS in March of 2009, 2010 and 2011. For example, on March 1, 2009, the IRS increased Public Transportation Costs from $163 per month to $173 per month. According to the U.S. Trustee Program, this change took place with respect to Chapter 13 cases filed on or after March 15, 2009. The Local Standards Transportation Ownership Costs that increased from $489 per car to $496 per car on March 1, 2010, was effective, according to the U.S. Trustee Program, on March 15, 2010. These 15-day gap periods manufactured by the Treasury Department penalize Chapter 13 debtors by reducing the expense deductions to which they are entitled to calculate projected disposable income. It is not obvious why the Justice Department would want to do this or why they persist in doing it year after year.

[81]

As quoted above from the Internal Revenue Manual, when the IRS negotiates with a taxpayer, the Ownership Costs component of the Local Standards Transportation is allowed only if the taxpayer owns a car and has a car payment for debt or lease. If the taxpayer has no car or no car payment, the IRS does not allow any Ownership Costs and, after the October 1, 2007, revisions, only permits a single Public Transportation deduction per household.125

[82]

The Bankruptcy Code contains none of these conditions or limitations with respect to the Local Standards Transportation. Section 707(b)(2)(A)(ii)(I) states that monthly expenses “shall be” the debtor’s applicable monthly expense amount specified under the Local Standards issued by the IRS for the area in which the debtor resides on the date of the order of relief for the debtor, the dependents of the debtor and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent. That’s it. Had Congress intended a debtor’s actual Ownership Costs for debt or lease payments to be relevant, it would have worded the Local Standards expense deduction differently.126 The statute does not condition a Chapter 13 debtor’s entitlement to Transportation Ownership Costs that the debtor have debt or any particular amount of debt secured by the car.

[83]

That said, the courts have tumbled into what will likely be a long slog to determine whether and to what extent Local Standards Transportation expenses are allowed in Chapter 13 cases. In January 2011, the Supreme Court decided Round One in Ransom when it held that a debtor with CMI greater than applicable median family income cannot deduct Local Standards Transportation Ownership Costs for a car owned free of debt or lease. The run-up to Ransom remains relevant because it reveals much about how the courts will make sense (or not) of the unnatural relationship BAPCPA forged between the projected disposable income test in Chapter 13 cases and IRS collection practices.

[84]

Notwithstanding the absence of ambiguity in § 707(b)(2)(A)(ii)(I), there was much disagreement before Ransom whether a Chapter 13 debtor with CMI greater than median family income could deduct Local Standards Transportation Ownership Costs when the debtor owned a car free of debt or lease. More than 50 decisions addressed the issue and, for those who count such things, the cases were closely split—a bit more than half the courts allowed a Chapter 13 debtor to deduct Local Standards Transportation Ownership Costs for a vehicle free of debt or lease;127 somewhat less than half of the decisions prohibited a Local Standards Transportation Ownership Costs deduction when the vehicle was unencumbered.128

[85]

Appellate decisions before the Supreme Court decided Ransom reflected the depth of this split. Both camps claimed the high ground of “plain meaning.” Representative of the appellate courts holding that debt or lease was not prerequisite to allowance of the Local Standards Transportation Ownership Costs, the Bankruptcy Appellate Panel for the Sixth Circuit gave this persuasive explanation in Hildebrand v. Kimbro (In re Kimbro):129

[Section] 707(b)(2)(A)(ii)(I) states that a debtor’s means test deductions “shall be” the amounts specified in the local standards and there is nothing explicit in that statutory language that requires a debtor to have a debt or lease payment . . . . Section 707(b)(2)(A)(ii)(I) does not incorporate the [Internal Revenue Manual] into the bankruptcy means test. . . . The legislative history demonstrates that Congress intended to incorporate only the specific IRS expense standards and not the IRM. . . . The substantial discretion allowed to a revenue officer under the IRM is inconsistent with the purpose of the means test . . . . [E]very debtor who owns a vehicle incurs expenses arising from the ownership of the vehicle regardless of whether the debtor incurs a debt or lease payment . . . . Congress explicitly excluded the National and Local Standards from the set of deductions that are based only on actual expenses. . . . [T]he statute further explicitly states, “Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.” This provision alone establishes beyond doubt that Congress intended to allow an ownership expense even when a debtor has no debt payment on a vehicle. . . . “[A]pplicable” expenses is a different concept than “actual” expenses . . . . “[A]pplicable” modifies the phrase “monthly expense amounts specified under the National Standards and Local Standards.” . . . It does not modify the statutory phrase “debtor’s monthly expenses.” . . . [I]n 2005, the reference to the Internal Revenue Service financial analysis was removed. . . . The chapter 13 trustees repeatedly made their concerns known to Congress, but to no avail. . . . [T]he process of applying the guidelines of the IRM for tax collection purposes is a highly discretionary process for a revenue officer. . . . [T]hat process is much like the highly discretionary process that bankruptcy judges had utilized before the 2005 amendments . . . . There is, however, nothing to suggest that Congress intended that highly discretionary process to continue after the 2005 amendments. To the contrary, all of the evidence suggests that Congress intended quite otherwise. . . . Because the ownership of a vehicle always involves an expense, it was neither absurd nor irrational for Congress to allow a uniform deduction in the bankruptcy means test for an ownership expense even when there is no debt or lease payment.130
[86]

On the dark side, the Bankruptcy Appellate Panel for the Ninth Circuit in Ransom v. MBNA America Bank, N.A. (In re Ransom)131 gave this explanation why the Local Standards Transportation Ownership Costs allowance is not available to a Chapter 13 debtor with an unencumbered car:

Congress has deemed the expense of owning a car to be a basic expense that debtors can deduct in calculating what they can afford to pay to their creditors. 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. . . . When the debtor has no monthly ownership expenses, it makes no sense to deduct an ownership expense to shield it from creditors. . . . Given the ordinary sense of the term “applicable,” how is the vehicle ownership expense allowance capable of being applied to the debtor if he does not make any lease or loan payments on the vehicle? . . . [A] debtor has no right to deduct a vehicle ownership expense when he or she makes no lease or loan payments on the vehicle.132
[87]

This debate was a referendum on use of the Internal Revenue Manual as an interpretive aid for application of the Local Standards in bankruptcy. Decisions allowing Chapter 13 debtors with CMI greater than applicable median family income to deduct Local Standards Transportation Ownership Costs without regard to debt or lease rejected the proposition that bankruptcy courts are constrained by the Internal Revenue Manual. As explained by Judge Haines in In re Chamberlain,133 the Bankruptcy Code plainly supports allowance of the Local Standards Transportation Ownership Costs without regard to debt or lease and the contrary provisions of the Internal Revenue Manual are not appropriately consulted to reach a different conclusion:

Nothing in the statutory language refers to the debtor’s actual transportation expenses of any kind . . . . And nothing in the statutory language makes any reference to the [Internal Revenue Manual, § 5.8.5.5.2 (09-01-2005) (available at www.irs.gov/irm/part5/ch08s05.html#d0e74647; Internal Revenue Service Collection Financial Standards (available at www.irs.gov/individuals/article/0..id=96543.00.html).]. Nor does the statutory language suggest the amounts specified in the Standards are to be used only as maximums, rather than as the expense amounts to be deducted. . . . Not only would it take at least one more key word for this language to refer to a maximum limit rather than a specified amount, but it would require an additional concept or definition—the amount or number to which that limit should be applied. . . . [S]ome courts have ostensibly found an ambiguity in the word “applicable.” . . . The simple answer is that it references both the region of the country in which the debtor lives and the selection that must be made between the two columns that appear in the Local Standards . . . . Moreover, “applicable” is an adjective that modifies the “amounts specified” in the Standards. It does not modify “debtor’s monthly expenses,” which appears at the beginning of § 707(b)(2)(A)(ii)(I). The adjective functions to narrow the reference to “amounts specified”; it does not refer to, modify nor restrict the debtor’s actual monthly expenses. . . . [T]hat the phrase “actual” monthly expenses is used in the same clause as “applicable” also suggests that Congress did not mean “applicable” to be “actual.” . . . Since Congress used “actual” to modify a different expense in the same provision, it would make little sense to interpret “actual” and “applicable” as meaning the same thing. . . . Nothing in the statute, Bankruptcy Rules or official forms refers a debtor to any IRS publications for additional rules or interpretation. The IRS is not an administrative agency that administers the Bankruptcy Code, so there is no basis for a Court to defer to its administrative expertise. In § 707(b) Congress adopted the Standards, not other IRS publications interpreting or applying them. Nor did it instruct courts to allow expense deductions in the amount an IRS field agent would allow in deciding whether to settle a tax debt for less than the amount owed . . . . Congress’ use of the word “specified” could not be much clearer in indicating the Standards govern, not what the IRS would allow. . . . A number of opinions have identified illogical or unfair results . . . . None of these, however, reaches the level of the absurd—something no rational person could have intended, or a result demonstrably at odds with the fundamental purpose of the legislation.134
[88]

In In re May,135 Judge Walter offered a particularly strong statement of the problems with reference to the Internal Revenue Manual:

Neither the standard nor the language of the statute requires a debtor to do anything more than own a vehicle to take the vehicle ownership costs deduction. . . . [R]eliance on the IRM to interpret how the IRS standards should be used in bankruptcy is not authorized by the language of the statute. . . . [T]he IRM was drafted for a completely different purpose . . . . [T]he IRM is an internal IRS manual intended to provide revenue officers with a flexible and discretionary system of calculating expenses for negotiating with delinquent taxpayers. . . . Congress adopted the IRS standards in bankruptcy to provide a fixed set of expense allowances to debtors in order to level the playing field and to eliminate judicial discretion as to what expenses are reasonable. . . . Permitting courts to comb through the voluminous IRM to pick and choose what provisions make sense to apply and which to reject in bankruptcy is not statutorily authorized and injects great uncertainty into the process of determining a debtor’s expenses, something Congress sought to avoid when adopting these fixed standards.136
[W]hen the IRS updates its tables, which it does on a regular basis, there is no methodology in place for deciding when and if those updates become applicable to bankruptcy cases. Also unclear is whether the appropriate place for a bankruptcy practitioner to find the applicable tables is the IRS’s website or the U.S. Trustee’s website with its unofficial tables organized based on internal decision-making as to when IRS updates become applicable to newly filed bankruptcy cases. Even more troubling, the IRS tables mandated for use in bankruptcy cases have not been subject to the rigors of § 553 of the Administrative Procedure Act including its notice and comment provisions . . . . [T]he only method by which this court was able to locate historical IRS standards applicable on a specific bankruptcy filing date was to search the unofficial tables on the U.S. Trustee’s website. This poses a problem. . . . [T]he labeling of the table and how the allowances are figured has [sic] been modified on the U.S. Trustee’s website. . . . Based on these current differences and the inability of the court to search historical tables on the IRS’s website, it remains unclear exactly what the official IRS’s Transportation Standards looked like on the date the debtors filed their bankruptcy petition. . . . [T]he IRS updates its standards regularly and the standards are modified further when transferred to the U.S. Trustee’s website for use in bankruptcy cases. None of these updates and modifications is subject to any clear regulatory controls or oversight which this court finds disturbing given the serious impact these standards now have on the bottom line in a chapter 13 bankruptcy case—i.e. how much income a debtor in bankruptcy may retain to pay monthly expenses and how much must be paid over to creditors each month over the lifetime of a three or five year plan.137
[89]

The bankruptcy court in In re Sawdy added that an earlier version of what became BAPCPA contained an explicit reference to the Internal Revenue Manual that was eliminated in favor of naked incorporation of the Local Standards allowance:

“A prior version of the BAPCPA which was never passed defined ‘projected monthly net income’ for the means test to require a calculation of expenses as follows: (A) the expense allowances under the applicable National Standards, Local Standards, and Other Necessary Expenses allowance (excluding payments for debts) for the debtor . . . in the area in which the debtor resides as determined under the Internal Revenue Service financial analysis for expenses in effect as of the date of the order for relief. H.R. 3150, 150th Congress (1998) (emphasis added). The reference to the Internal Revenue Service financial analysis was replaced by the language currently in section 707(b)(2)(A) which simply states that a debtor gets the ‘applicable monthly expense amounts specified under the National and Local Standards.’ 11 U.S.C. § 707(b)(2)(A)(ii)(I). The change from the prior version evidences Congress’ intent that the Courts not be bound by the financial analysis contained in the IRM and lends credence to the Court’s conclusion that it should look only to the amounts set forth in the Local Standards.”138
[90]

Courts prohibiting Chapter 13 debtors with CMI greater than applicable median family income from deducting Local Standards Transportation Ownership Costs for an unencumbered car read “applicable” in § 707(b)(2)(A) to require an “actual” debt or lease. These courts were certain that Congress intended bankruptcy courts to embrace the tax collection guidance in the Internal Revenue Manual. As explained by Judge Markell in In re Slusher,139 a debtor without car loan or lease forfeited the Local Standards for Transportation Ownership allowance because the IRS said so:

[Congress] incorporated into the Bankruptcy Code an existing, administrative system that the IRS had long had in place. See Announcement 95-37, 1997-35 I.R.B. 9 (1997) (announcing that long standing collection financial standards would be placed on the World Wide Web). That system had and has a purpose similar to Section 707(b): to assess the ability of a debtor to pay his or her outstanding obligations. The issue presented is whether in incorporating this IRS system, Congress intended to incorporate only the static numbers identified by the statutory reference to applicable “National Standards and Local Standards,” or whether the language Congress used indicates that Congress incorporated the IRS’ logic and rationale . . . . Part of the problem in resolving this issue lies in the level of informality of the standards; they are not statutory, nor are they promulgated by regulation. . . . [T]he standards are part of the tax collection process . . . . They are part of an internal administrative process “used to help determine a taxpayer’s ability to pay a delinquent tax liability.” . . . [T]he published position of the IRS . . . indicates that “[u]nlike the National Standards, the taxpayer is allowed the amount actually spent or the standard, whichever is less” for expense items such as cars covered by the Local Standards. This is backed by a statement in the Internal Revenue Manual . . . . “If a taxpayer has no car payment only the operating cost portion of the transportation standard is used to figure the allowable transportation expense.” . . . A natural reading of the statute would indicate that the juxtaposition of “actual” with the term “applicable” means that there may be situations in which these modifiers limit the deductions in different ways. . . . For better or worse, Congress referred to the IRS National and Local Standards in Section 707(b)(2)(A). To understand what requirements this incorporation imposes would seem to require courts to look at how the IRS defines these categories, and how the IRS calculates those expenses. . . . Congress’ decision to use the IRS standards within the Bankruptcy Code strongly suggests that courts should look to how the IRS determined those standards; that is, as to how the IRS would have applied them in similar circumstances. . . . [I]f guidance is sought on the meaning of the IRS standards Congress incorporated into the Bankruptcy Code, practical reason would suggest that courts should consider the full manner by which the IRS uses these standards. . . . [A]s interpreted by the IRS, the concept of ownership expenses is inextricably linked to the requirement for payments on a vehicle loan or lease. . . . [T]he debtor in this case cannot take a vehicle ownership deduction under the Local Standards for a vehicle for which he is making no loan or lease payments; that would be inconsistent with the manner in which the IRS calculated and created the Local Standards.140
[91]

Courts refusing the Local Standards Transportation Ownership Costs in the absence of debt or lease failed to make sense of the almost adjacent “notwithstanding” sentence in § 707(b)(2)(A)(ii)(I), which directs that monthly expenses “shall not include any payments for debts.”141 These courts read the word “applicable” to require debt before transportation ownership expenses are allowed, when the statute seems to specifically prohibit any monthly expense deduction that is payment for debt. This ascribes to Congress an almost incomprehensible use of words and circular legislative intent.

[92]

In January 2011, this robust debate made its way to the Supreme Court in Ransom.142 An eight-to-one majority of the Supreme Court held that a Chapter 13 debtor with CMI greater than applicable median family income cannot deduct Local Standards Transportation Ownership Costs with respect to a car owned free of debt or lease. In her debut opinion, Justice Elena Kagan ranged broadly through the discussion above, answering some important questions about how the bankruptcy courts should fix the mess that Congress made of consumer bankruptcy in BAPCPA. Other important questions were left unanswered by Ransom, and several were further clouded.

[93]

Ransom began in the bankruptcy court in Nevada. Bankruptcy Judge Bruce Markell held that Jason Ransom could not deduct Transportation Ownership Costs because he was not making car payments at plan confirmation. The Bankruptcy Appellate Panel for the Ninth Circuit affirmed,143 and the Ninth Circuit agreed: “an ‘ownership cost’ is not an ‘expense’—either actual or applicable—if it does not exist, period.”144 The Supreme Court granted certiorari to resolve a split in the circuits. Three courts of appeals had read § 707(b)(2)(A)(ii)(I) contrary to the Ninth Circuit’s view—to allow the statutory deduction for Transportation Ownership Costs when a consumer debtor owned a car without regard to debt or lease.145

[94]

As if to tell the whole story in the first sentence, Justice Kagan began with a quote from Milavetz, Gallop & Milavetz, P.A. v. United States:146 “Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA or Act) to correct perceived abuses of the bankruptcy system.”147 She continued with a quote from the House Report that accompanied BAPCPA, “Congress adopted the means test . . . to help ensure that debtors who can pay creditors do pay them.”148

[95]

Before offering the facts, Justice Kagan cited the “Supplemental Guidelines known as the Collection Financial Standards” prepared by the Internal Revenue Service that describe how the National and Local Standards—referenced in § 707(b)(2)(A)(ii)(I)—are interpreted by the IRS to collect overdue taxes. Justice Kagan quoted the Collection Financial Standards: “‘[i]f a taxpayer has no car payment, . . . only the operating costs portion of the transportation standard is used to come up with the allowable transportation expense.’”149

[96]

Moving to the Bankruptcy Code, Justice Kagan focused on “applicable” in § 707(b)(2)(A)(ii)(I).150 Citing dictionaries, “‘[a]pplicable’ means ‘capable of being applied: having relevance’ or ‘fit, suitable, or right to be applied: appropriate.’ . . . [A]n expense amount is ‘applicable’ within the plain meaning of the statute when it is appropriate, relevant, suitable, or fit.”151 An expense amount is applicable when the debtor passes this “filter”:

A debtor may claim a deduction from a National or Local Standard table (like “[Car] Ownership Costs”) if but only if that deduction is appropriate for him. And a deduction is so appropriate only if the debtor has costs corresponding to the category covered by the table—that is, only if the debtor will incur that kind of expense during the life of the plan. . . . Identifying these amounts requires looking at the financial situation of the debtor and asking whether a National or Local Standard table is relevant to him.152
[97]

Backtracking to the projected disposable income test in § 1325(b)(2) and (3), Justice Kagan then juxtaposed “reasonably necessary” and “applicable” in this way:

Because Congress intended the means test to approximate the debtor’s reasonable expenditures on essential items, a debtor should be required to qualify for a deduction by actually incurring an expense in the relevant category. If a debtor will not have a particular kind of expense during his plan, an allowance to cover that cost is not “reasonably necessary” within the meaning of the statute.153
[98]

Repeating the opening reference to the House Report, Justice Kagan found support for this interpretation of “applicable” in Congressional intent:

Congress designed the means test to measure debtors’ disposable income and, in that way, “to ensure that [they] repay creditors the maximum they can afford.” This purpose is best achieved by interpreting the means test, consistent with the statutory text, to reflect a debtor’s ability to afford repayment. Requiring a debtor to incur the kind of expenses for which he claims a means-test deduction thus advances BAPCPA’s objectives.

[W]e conclude that a person cannot claim an allowance for vehicle-ownership costs unless he has some expense falling within that category[.]154

[99]

Quoting again from the Collection Financial Standards issued by the IRS, because there are separate “Operating Costs” tables, the “ownership category encompasses the costs of a car loan or lease and nothing more.”155 Quoting further from the Collection Financial Standards: “A person who owns a car free and clear is entitled to claim the ‘Operating Costs’ deduction for all these expenses of driving . . . . But such a person is not entitled to claim the ‘Ownership Costs’ deduction, because that allowance is for the separate costs of a car loan or lease.”156 Parrying a point by Justice Scalia in dissent, Justice Kagan put this circular limitation on the use of IRS commentary in bankruptcy cases:

Although the statute does not incorporate the IRS’s guidelines, courts may consult this material in interpreting the National and Local Standards; after all, the IRS uses those tables for a similar purpose—to determine how much money a delinquent taxpayer can afford to pay the Government. The guidelines of course cannot control if they are at odds with the statutory language. But here, the Collection Financial Standards’ treatment of the car-ownership deduction reinforces our conclusion that, under the statute, a debtor seeking to claim this deduction must make some loan or lease payments.157
[100]

The balance of the majority opinion refutes arguments by the debtor. In this process, Justice Kagan addressed two questions not actually presented in Ransom. “If a debtor’s actual expenses exceed the amounts listed in the tables . . . the debtor may claim an allowance only for the specified sum, rather than for his real expenditures.”158 With respect to “Other Necessary Expenses” specified by the IRS and separately allowed as deductions by § 707(b)(2)(A)(ii)(I), “the debtor may deduct his actual expenses, no matter how high they are.”159 In a footnote, the majority declined to address “the proper deduction for a debtor who has expenses that are lower than the amounts listed in the Local Standards.”160

[101]

Then there is the confounding “notwithstanding” sentence in § 707(b)(2)(A)(ii)(I) that reads: “Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.”161 The parties and amici curiae briefed the point that requiring a debt or lease obligation as a precondition to the Transportation Ownership Costs deduction would be inconsistent with the “notwithstanding” sentence and could perversely deny all debtors the Ownership Costs deduction—whether there was or wasn’t debt or lease. Justice Kagan described any “friction” between the “notwithstanding” sentence and the meaning of “applicable” as “a lack of attention to how an across-the-board exclusion of debt payments would correspond to a particular IRS allowance.”162 But again, in a footnote, “[W]e need not and do not resolve how the ‘notwithstanding’ sentence affects the vehicle-ownership deduction when a debtor has a loan or lease expense.”163

[102]

Finally, the majority rejected the debtor’s argument that requiring debt or lease as a precondition to Transportation Ownership Costs produces “senseless results” by disproportionately rewarding debtors for any amount of car debt and encouraging debtors to incur car loans before filing Chapter 13 cases. Justice Kagan answers by positing modification of the plan after confirmation:

[C]reditors may well be able to remedy Ransom’s “one-payment left” problem. If car payments cease during the life of the plan, just as if other financial circumstances change, an unsecured creditor may move to modify the plan to increase the amount the debtor must repay. 164

The final tally:

[W]e hold that the Local Standard expense amount for transportation “Ownership Costs” is not “applicable” to a debtor who will not incur any such costs during his bankruptcy plan. Because the “Ownership Costs” category covers only loan and lease payments and because Ransom owns his car free from any debt or obligation, he may not claim the allowance. In short Ransom may not deduct loan or lease expenses when he does not have any.165
[103]

There is a wonderful tit-for-tat in Ransom between Justice Kagan and Justice Scalia with respect to use of the IRS Collection Financial Standards. Quoted above, Justice Kagan claims support in the IRS’s interpretation of its Local Standards. Justice Scalia accuses the majority of inappropriately incorporating those IRS guidelines into bankruptcy law. The truth is perhaps somewhere in between. Ransom will be cited for the proposition that bankruptcy courts can consult the Collection Financial Standards to divine the intent of Congress in the use of the IRS Standards in bankruptcy cases—at least when the IRS’s interpretation is not “at odds” with the language of the Bankruptcy Code, whatever that means.

[104]

It is harder to be charitable toward Justice Kagan’s observation that tax collection by the Treasury Department and paying creditors in a Chapter 13 case are similar endeavors. There are too many good reasons to doubt that equivalence. “Fresh start” forms no part of the vocabulary of a revenue agent. “Fresh start” is ominously missing from Ransom. Ransom is reason to fear that “fresh start” has disappeared from the principles for interpretation of BAPCPA.

[105]

It is at least interesting that Justice Kagan quotes extensively from the Local Standards tables and from the Collection Financial Standards without once mentioning the “Disclaimer” that appears prominently: “IRS allowable expenses are intended for use in calculating repayment of delinquent taxes. Expense information for use in bankruptcy calculations can be found on the website for the U.S. Trustee Program.” The Treasury Department insists that the Allowable Living Expenses for Transportation were promulgated with only tax collection in mind. That the IRS changes its tables and rewrites its Collection Financial Standards without compliance with the Administrative Procedures Act awaits consideration in some future bankruptcy case.

[106]

That debate will eventually be informed by experts outside the bankruptcy community who deal more regularly with issues of administrative law and the use of agency materials. One early offering in this regard points out that the Local Standards Transportation are a full step removed from Rules or Regulations and the Internal Revenue Manual is itself a full second step removed from there in the pantheon of guidance and interpretations of guidance by government agencies.166 Reference to—much less, deference to—interpretations internal to an agency driven by policies, history and imperatives that are different than those in the disposable income test counsels much caution as this inquiry matures.

[107]

How far into the Collection Financial Standards must the bankruptcy community go to find the meaning of the Local Standards? As the Ransom majority notes, the Internal Revenue Manual instructs a revenue agent to disallow Transportation Ownership Costs to a taxpayer with an unencumbered car. Elsewhere, the Internal Revenue Manual contemplates that transportation expenses can be allowed for the purchase or lease of more than two cars.167 That same Manual instructs a revenue agent to “consider availability of public transportation” if car payments will interfere with payment of tax liability.168 Is “debt” in Ransom’s analysis different from the “availability of public transportation”? Who is the revenue agent in this picture? Is this exercise of discretion “at odds” with the Bankruptcy Code?

[108]

These questions will multiply exponentially with respect to the National Standards169 and Other [Necessary] Expenses.170 Every “category” of the National Standards cited by Justice Kagan encompasses a basket of expenses that will vary in content from debtor to debtor. For example, the National Standard for “personal care products and services” includes everything from hair care products to “feminine hygiene products.”171 How is the absence of expense for a component of the “personal care products and services” category of the National Standards different from a car with no debt? The individualized calculation of disposable income that Justice Kagan says BAPCPA intended to eliminate is exactly the protocol Ransom requires.

[109]

Ransom broadly endorses the concept that modification after confirmation under § 1329172 provides a foil to some of the impenetrable changes BAPCPA made to the tests at confirmation. Justice Kagan cites § 1329 as the way for creditors to capture money that becomes available when a debtor pays off a car loan during the plan. Justice Kagan cites § 1329 as the way for debtors without car debt to acquire or replace a car after confirmation. The Ransom majority ascribes to Congress the perverse intent to punish debtors with unencumbered cars by requiring them to pay their attorneys twice to manage the cost of owning a car.

[110]

Bankruptcy practitioners know there is much controversy whether § 1329 requires “changed circumstances” to modify a Chapter 13 plan.173 There is “changed circumstances” dicta in Justice Kagan’s opinion. Loose uses of the phrase “changed circumstances” in connection with § 1329 will fuel the debate over the conditions for modification after confirmation.

[111]

The reference to modification as a “solution” to the Ransom debtor’s hypothetical about a small balance car loan is curious for another reason. Barely six months before Ransom, the Supreme Court decided Hamilton v. Lanning.174 Justice Alito in Lanning made clear that “known or virtually certain” changes in income or expenses are properly accounted for at confirmation for debtors with CMI greater than applicable median family income.175

[112]

Would it be a “known or virtually certain” change in expenses that a debtor with only $500 left on a car note will not need a $496 per month Transportation Ownership Costs deduction for 60 months? What do we infer from the absence of any relevant citation to Lanning in Ransom?

[113]

Ransom does cite and quote from Hildebrand v. Kimbro (In re Kimbro), discussed above, a decision by the Bankruptcy Appellate Panel for the Sixth Circuit. In a sequel to Kimbro, Hildebrand v. Thomas (In re Thomas),176 the Sixth Circuit BAP made just the point missed in Ransom: expense allowances granted by § 707(b)(2)(A)(ii)(I) may be trumped by “forward-looking” analysis of disposable income.177 The obvious interaction(s) of Lanning and Ransom are very important to consumer bankruptcy practice and are not illuminated in Ransom.

[114]

There are layers of trouble hidden here. Knowingly or not, Justice Kagan talks about “changed circumstances” as the trigger for modification after confirmation under § 1329. Have circumstances changed when a debtor with a known balance of $500 on a car loan confirms a plan based on the full 60-month Local Standards Transportation Ownership Costs deduction? Would a Chapter 13 trustee be obligated to move to modify such a plan immediately after confirmation? Could the trustee prove a “change” for Lanning purposes or “changed circumstances” for § 1329 purposes?178

[115]

Ransom creates quite a mess by declining to address the debtor’s argument about the “notwithstanding” sentence in § 707(b)(2)(A)(ii)(I). The Supreme Court’s interpretation of “applicable” in another sentence of the same clause produces a huge inconsistency if the “notwithstanding” sentence means that no monthly expense of the debtor includes payment for debt. If the “notwithstanding” sentence means that no IRS allowance is available that includes debt, how can it be said that IRS “guidance” that requires debt before a debtor can deduct Transportation Ownership Costs is “not at odds” with bankruptcy law? In other words, the majority in Ransom declined to decide the predicate question to its conclusion that IRS guidance supports its interpretation of § 707(b)(2)(A)(ii)(I).

[116]

Flippantly suggesting that Congress wasn’t paying attention to IRS Standards that include debt when it drafted the “notwithstanding” sentence two sentences later teases the bankruptcy community with uncertainty with respect to the basic mathematics of the “means test.” Refusing to address the “notwithstanding” clause foretells another round trip to the Supreme Court that now must untangle the further complications created by the interpretation of “applicable” in Ransom itself.

[117]

Justice Kagan dangerously observed that the Local Standards Ownership Costs allowance is a cap when a debtor’s actual car debt is greater. This dicta was no more necessary to the outcome in Ransom than the related question that the majority refused to answer—whether a debtor with debt less than the Local Standards Ownership Costs amount gets all of the Local Standards amount. The majority in Ransom seems unaware that there is “guidance” in the Internal Revenue Manual that a taxpayer can claim housing and transportation expenses that exceed the Local Standards if the taxpayer “provide[s] documentation to substantiate those expenses are necessary living expenses.”179 Is the Internal Revenue Manual “at odds” with the Bankruptcy Code when transportation or housing expenses exceed the Local Standards?

[118]

The majority in Ransom also seems not aware that § 707(b)(2)(A)(iii) separately allows every debtor with CMI greater than applicable median family income to deduct 100 percent of the debt secured by a car.180 Coupled with the refusal to address the “notwithstanding” sentence, Ransom leaves undisturbed that Chapter 13 debtors with CMI greater than applicable median family income who have car notes (but not leases) larger than the Local Standards Ownership Cost amount will deduct both the table amount and the balance of the entire debt to determine disposable income. In other words, the Ransom majority missed altogether what the bankruptcy community has known since 2005: BAPCPA rewards over-median debtors with large motor vehicle debts—precisely contrary to the policies the majority claims to nourish.

[119]

Left undecided in Ransom is the question whether an over-median debtor with a car note smaller than the Local Standard Ownership Costs allowance can deduct the larger amount. The logic of Ransom leans heavily toward the conclusion that only the lesser amount “actually incurred” is allowed. The Collection Financial Standards indicate that a revenue agent would not allow the entire Local Standards Transportation Ownership Costs deduction if the debtor’s actual car note is less.181

[120]

Ransom demands that consumer bankruptcy attorneys find permissible ways to inform their clients that car debt favorably changes the mathematics of the means test. After Milavetz, attorneys must explain Ransom in a way that doesn’t violate the proscription against advising debtors to incur new debt in contemplation of bankruptcy. Of course, it would be professional negligence to omit to explain that the Supreme Court will not allow the Local Standards Ownership Costs deduction unless the debtor owns a car that is subject to debt or lease. And loss of the Local Standards Ownership Costs deduction means that the debtor could have to pay that $30,000 to unsecured creditors in a Chapter 13 case. Debtors must understand the choice: buy a car or pay VISA. The Magic World of BAPCPA.

[121]

After Ransom, the courts will struggle in many other contexts to determine whether the Internal Revenue Manual is “at odds” with the Bankruptcy Code. For example, the debtor in In re Barrett182 was unmarried but claimed Ownership Costs for two cars. Had the court looked to the Internal Revenue Manual, it would have found that the Treasury Department instructs its agents that “a single taxpayer is normally allowed ownership and operating costs for one vehicle.”183 Use of the word “normally” suggests that an IRS agent has discretion to allow a single taxpayer more than one Transportation Ownership Costs allowance when circumstances are abnormal. In Barrett, the court looked only to the Bankruptcy Code and found no statutory differentiation with respect to Local Standards Transportation Ownership Costs based on the size of a debtor’s family. The unmarried debtor was allowed Ownership Costs for two cars.184

[122]

In contrast, in In re Aprea,185 the debtor leased a car that was driven by the debtor’s fiancé. Citing the IRS Collection Financial Standards, the court concluded that the leased car was not “necessary” and not “reasonable.” The debtor forfeited the Local Standards Transportation Ownership Costs notwithstanding that the debtor was liable on the lease of the fiancé’s car.186

[123]

The reintroduction in Aprea of the reasonable and necessary test is ironic with respect to the Local Standards Transportation. Section 1325(b)(3) mandates that “amounts reasonably necessary to be expended—” shall be determined in accordance with § 707(b)(2)(A) and (B) for Chapter 13 debtors with CMI greater than applicable median family income.187 To reintroduce the reasonable and necessary standards from the Internal Revenue Manual substitutes the discretion afforded tax collection agents for the statutory discretion that was squeezed out of the disposable income calculation by the cross-reference to § 707(b)(2)(A) in § 1325(b)(3). It was a stated intent of BAPCPA to reduce the discretion exercised by bankruptcy courts.188

[124]

But the court in Aprea did nothing more than what Justice Kagan did in Ransom—with the same problematic result. If the reasonableness or necessity of deducting Ownership Costs for a car used by a fiancé or for a car owned free of debt determines whether an expense deduction is “in accordance with” § 707(b)(2)(A), then the bankruptcy court must assess reasonableness and necessity with respect to every challenged expense in every Chapter 13 case. Did Congress rewrite critical portions of the projected disposable income test in 2005 only to signal continuation of the pre-BAPCPA reasonableness and necessity standards?

[125]

In an interesting twist, one of the courts that looked to the Internal Revenue Manual for guidance applying the Local Standards Transportation Ownership Costs concluded that the phrase “amount actually spent” in the Internal Revenue Manual was ambiguous.189 To avoid complete confusion, this court held that “applicable monthly expense amount” meant the allowance in the Local Standards table even if that amount exceeds the amount actually spent:

This court agrees with In re Slusher [, 359 B.R. 290 (Bankr. D. Nev. Jan. 17, 2007) (Markell),] that inasmuch as Congress itself referred to the standards in section 707(b)(2)(A)(ii)(I), “it would be quite odd if Congress intended to preclude courts from examining the context in which . . . the IRS used and employed those standards.” . . . [T]he IRS’s own interpretation of the standards are [sic] “instructive,” . . . and, thus, may be used for “guidance,” . . . . “The taxpayer is allowed the amount actually spent, or the standard, whichever is less.” . . . [T]he phrase “the amount actually spent [on car payments]” introduces significant ambiguity. . . . [I]t could be argued that the “amount actually spent” refers to the debtors’ actual car payments when they filed their petition in bankruptcy. . . . Alternatively, at the commencement of the case, “the amount actually spent” by the debtors could be an adequate protection payment. . . . [T]he phrase “the amount actually spent” has no precise counterpart when it comes to applying the means test. . . . When . . . overriding goals conflict with each other, the court will adopt the one that is most easily achieved by and consistent with a plain reading of the statute. For these reasons, the court concludes that the “applicable monthly expense amounts” under section 707(b)(2)(A)(ii)(I) are the amounts found in the Local Standards’ [sic] tables, even if those amounts arguably exceed “the amount actually spent.”190
[126]

This outcome is not consistent with dicta in Ransom, but the case illustrates that reference to the Internal Revenue Manual will never be simple at many levels. Selective references to the Internal Revenue Manual in Ransom left the Court without the “benefit” of IRS guidance with respect to actual Transportation Ownership Costs in excess of the table amount.

[127]

Struggling further with “applicable” in § 707(b)(2)(A)(ii)(I), what happens to Local Standards Transportation Ownership Costs when the debtor intends to surrender the car? Is a Transportation Ownership Costs “applicable” when the plan surrenders the car? Does it matter whether surrender is voluntary or whether there is debt or lease with respect to the car that will be surrendered?

[128]

These questions have vexed the courts in the related context whether a debtor can deduct amounts scheduled as contractually due to a secured creditor under § 707(b)(2)(A)(iii) when the collateral will be surrendered through the plan. Prior to the Supreme Court decision in Lanning, the courts fractured badly on that question.191 After Lanning and Ransom, it seems unlikely that Chapter 13 debtors will be allowed Transportation Ownership Costs with respect to any car that will be surrendered—without regard to whether the car is subject to debt or lease. Surrenders that occur after confirmation that are not contemplated by the plan might be dealt with by modification under § 1329.192

[129]

Notice that “lease expenses” are considered “ownership costs” by the IRS and by the drafters of Official Form B22C. Of course, a debtor who leases a car is not the “owner” in any ordinary sense. What the debtor owns is a contract right. If a contract right is sufficient indicia of ownership to entitle the debtor to the Ownership Costs component of the Local Standards Transportation, then it certainly makes sense that the debtor’s name on the title or personal liability to a lessor would be sufficient as well.

[130]

But the bias against renters193 reappears with respect to car leases. A car lease payment that exceeds the Local Standards Transportation Ownership Costs is not an allowable expense deduction to the extent of the excess. In contrast, a car debt payment that exceeds the Ownership Costs allowance comes back into the disposable income calculation as a reduction of CMI for scheduled, contractually secured debt under § 707(b)(2)(A)(iii).194 No obvious bankruptcy policy is served by allowing over-median debtors a virtually unlimited expense deduction for car debt payments while “capping” car lease expense at the Local Standards Transportation Ownership Costs amount.

[131]

The Judicial Conference Committee that drafts Official Forms will have to take a new look at Official Form B22C in light of Ransom. The current form of Official Form B22C at Lines 27A, 27B, 28 and 29 accepts the position that the debtor is allowed Transportation Ownership Costs for each vehicle for which the debtor has a “claim” of “ownership/lease expenses.” In other words, Form B22C permits a Chapter 13 debtor to claim ownership/lease expense for up to two vehicles without regard to whether the debtor has debt or lease payments related to that ownership. After Ransom, only debtors with some amount of debt or lease expense are entitled to Transportation Ownership Costs.

[132]

Once again, the “notwithstanding” sentence comes into play.195 Lines 28 and 29 of Official Form B22C instruct the debtor to subtract from the Ownership Costs component of the IRS Local Standards Transportation the average monthly payments for any debts secured by a vehicle. Discussed above with respect to the Local Standards Housing and Utilities,196 this is one interpretation of § 707(b)(2)(A)(ii)(I). In Ransom, the Supreme Court declined to decide the meaning of the “notwithstanding” sentence. To date, all reported decisions addressing the issue conclude that Local Standards Transportation Ownership Costs allowed a Chapter 13 debtor with CMI greater than applicable median family income is net of debt secured by a car.197

[133]

The instructions at Lines 28 and 29 of Official Form B22C requiring Chapter 13 debtors to net or subtract debt secured by a car from the Local Standards Transportation Ownership Costs have an odd effect when the debtor has financed other items as part of a car note. It is, of course, quite common for car buyers to buy life insurance or disability insurance and to finance the payoff of other debt at the time of acquisition of a car.198 If a debtor financed other items as part of a car purchase, that amount would be included in the secured debt subtracted from the car ownership allowance under the Local Standards. In other words, netting all payments for debt secured by a car against the Local Standards Transportation Ownership Costs forfeits transportation expenses based on financial accommodations that have little or nothing to do with transportation. Non–purchase money debt secured by a car would be an extreme example of this perhaps unintended consequence.199

[134]

Prior to October 1, 2007, one consequence of netting debt against Local Standards Transportation Ownership Costs was that debtors were advantaged to pay attention to the order in which cars were scheduled. As mentioned above, the IRS Local Standards for Transportation Ownership Costs were different for a First Car than for a Second Car. Prior to October 1, 2007, the First Car ownership allowance was $471 and the Second Car allowance was $332.200 The instructions at Lines 28 and 29 of Official Form B22C require Chapter 13 debtors to list vehicle one and vehicle two separately and to separately deduct the “average monthly payment for any debts secured by” vehicle one or vehicle two. Prior to October 1, 2007, debtors typically were better off to list a less expensive car subject to less debt as the First Car when to do so left a (larger) balance of Ownership Costs after subtraction. This choice was tested with inconsistent results in reported cases.

[135]

In In re Casey,201 the debtor owned a motorcycle with an average monthly contractual secured debt payment of $219.64 and a pickup with an average contractual secured debt payment of $855.19. The debtor listed the motorcycle as the First Car to maximize the balance of the Local Standards Transportation Ownership Costs for a First Car. Had the debtor listed the pickup as the First Car, a larger portion of the larger debt secured by the pickup would have been netted against the Transportation Ownership Costs allowance.

[136]

The bankruptcy court in Casey rejected the debtor’s choice, requiring that the more expensive car be the First Car for purposes of the Local Standards Transportation. The court explained this rule not by reference to the Bankruptcy Code but rather by simply saying, “It is difficult to believe that a motorcycle would be the most important or frequently used vehicle for a two-person family living in [Washington state]. . . . [T]he form itself requires that the more expensive vehicle be considered the first car.”202

[137]

In contrast, in In re Carlton,203 the bankruptcy court concluded that neither § 707(b)(2)(A)(ii)(I) nor Official Form B22C imposes on debtors any particular order for cars with respect to Ownership Costs allowed by the Local Standards Transportation. This lack of guidance led the court to hold that debtors were free to order cars as they pleased at Lines 28 and 29 of Official Form B22C:

[M]athematically, it does make a difference which vehicle is dealt with at which line when calculating disposable income. . . . [N]o guidance or direction is provided on this issue by § 707(b)(2) or any other provision of the Code. . . . [T]his Court will not read into the statute a requirement that they designate the vehicles in a manner that minimizes their available deductions.204
[138]

This car-ordering issue evaporated on October 1, 2007, or on January 1, 2008, depending on how you weigh the effective date “Disclaimer” on the IRS Web page.205 The version of the Local Standards Transportation Ownership Costs issued by the IRS on October 1, 2007, eliminated the “one car . . . two car” distinction and now allows the same Ownership Costs for each of two cars.206

[139]

The car-ordering issue did not evaporate with respect to debtors who own more than two cars when each car is subject to debt or lease. Official Form B22C at Lines 28 and 29 does not invite Chapter 13 debtors to claim Transportation Ownership Costs for more than two cars—notwithstanding that an IRS agent can allow more than two vehicle ownership expense deductions.207 In In re Stallings,208 debtors with four cars—one unencumbered and three with various amounts of debt and debt payments—organized the deductions on Form B22C to maximize the allowable expenses. The bankruptcy court found nothing in the Bankruptcy Code to require otherwise.209

[140]

Joint debtors ran into a related problem when both debtors owned cars. In In reLara,210 each debtor in a joint case owned a vehicle and each debtor claimed a First Car Ownership Costs allowance under the pre–October 1, 2007, Local Standards Transportation. This species of the problems with spouses after BAPCPA211 was dealt with by the bankruptcy court in Lara by treating the joint debtors as a “unit” that could not claim two First Car Ownership Costs allowances:

11 U.S.C. § 707(b)(2)(A)(ii)(I) . . . does not permit each debtor in a joint case to take a one vehicle expense allowance. Rather, the debtor and the spouse of the debtor in a joint case are considered a unit for means-testing purposes, and they are entitled to take the vehicle expense allowance applicable to their household—here, the two vehicle expense allowance.212
[141]

Arguably, the statute allows Transportation Ownership Costs for a car owned or leased by the debtor even if the car is used by a dependent or by the debtor’s spouse (in a joint case). Section 707(b)(2)(A)(ii)(I) states that the debtor’s monthly expenses shall be the expenses specified under the Local Standards for the dependents of the debtor and the spouse of the debtor in a joint case. If a debtor and a debtor’s spouse were a “unit” for purposes of the pre–October 1, 2007, Local Standards Transportation, then separate cases would have produced a substantially larger Ownership Costs deduction when each spouse owned a car.

[142]

Mentioned above, Operating Costs and Public Transportation Costs are separately allowed by the IRS as part of the Local Standards Transportation. Prior to October 1, 2007, Operating Costs and Public Transportation Costs were issued by the IRS in a single table with columns for “no car . . . one car . . . two cars.” A taxpayer with “no vehicle” was allowed one “no car” Public Transportation expense per household. The amount varied by region and by Metropolitan Statistical Area within regions.

[143]

If the debtor owned one car or two cars, the debtor was allowed the amounts shown as Operating Costs in the geographical table issued by the IRS. It was important to consult the Metropolitan Statistical Area Listings underneath the Census Regions in the Local Standards Transportation tables issued by the IRS. The amounts allowed within an MSA were sometimes higher than the regional allowances.

[144]

The October 1, 2007, version of the Local Standards Transportation issued by the IRS had separate charts for Public Transportation and for Operating Costs. The Public Transportation allowance was a single nationwide amount ($163).213 Operating Costs were in a geographical table by region and by MSAs within regions, with columns for “one car” and “two cars.” After March 1, 2011, the Public Transportation Costs allowance issued nationally by the IRS was $182.214 It remains important to claim the Operating Costs provided for the MSA in which the debtor lives because the operating expense amounts specific to an MSA are often substantially different from the regional amount.

[145]

For tax collection purposes, the Department of the Treasury states that a single Public Transportation allowance is available for a taxpayer with no vehicle on a “per household” basis and “without questioning the amount actually spent.”215 Families with multiple users of public transportation will be hard-pressed to confine transportation costs to the meager Public Transportation allowance in the Local Standards Transportation. Curiously, the IRS states on its Web page, “If a taxpayer owns a vehicle and uses public transportation, expenses may be allowed for both, provided they are needed for the health and welfare of the taxpayer or family, or for the production of income.”216

[146]

There is no statutory requirement that the debtor have actual operating expenses for the debtor to claim Operating Costs under the Local Standards Transportation. It is not appropriate to dissect the debtor’s actual expenses for things like car insurance, registration, parking or licensing to determine whether the amount specified for Operating Costs is correct. The debtor gets the allowance without regard to actual operating costs. Absent proof of “special circumstances,”217 Chapter 13 debtors with CMI greater than applicable median family income have been limited to the Operating Costs specified in the IRS tables even when actual operating expenses are greater.218

[147]

After Ransom, “some” operating expenses for a car would seem to qualify a debtor for the entire operating costs allowance specified by the IRS. Ransom could be read to suggest that Operating Costs specified by the IRS are a cap when actual operating costs are greater. Ransom clearly supports the view that a debtor is allowed Operating Costs with respect to a car without regard to whether there is debt or lease to qualify the debtor for Transportation Ownership Costs.219

[148]

As mentioned above, a debtor with no car gets Public Transportation Costs allowance without regard to whether the debtor actually uses public transportation. This is consistent with the language of § 707(b)(2)(A)(ii) and adds emphasis to the point that subtracting debt from the allowances in the Local Standards Transportation is problematic. A debtor who financed an extended warranty as part of the purchase of a car certainly is not required to “subtract” that debt from the Operating Costs allowed by the Local Standards Transportation notwithstanding that maintenance, repairs and insurance are included in Operating Costs according to the IRS.

[149]

There is another twist in the awkward relationship between the Local Standards Transportation and the Bankruptcy Code for Chapter 13 debtors with older cars not subject to loan or lease. As explained by the bankruptcy court in In re Ford:220

On September 1, 2005, the IRS changed the Internal Revenue Manual “to include the $200 allowance for those taxpayers owning a vehicle with no loan/lease that is over six years old and/or has reported mileage of 75,000 or more.” IRM Manual Transmittal 5.8.5 (Sept. 1, 2005). See IRM 5.8.5.5.2.221
[150]

Several courts—all embracing the Internal Revenue Manual as a source for interpretation of the Local Standards—have allowed Chapter 13 debtors with high-mileage vehicles not subject to debt or lease to deduct the $200-per-month additional allowance in I.R.M. 5.8.5.5.2.222 Claiming a more rigorous reading of the Bankruptcy Code, other courts have held that the $200 additional operating expense in § 5.8.5.5.2 of the Internal Revenue Manual is not part of the Local Standards Transportation issued by the IRS and cannot be allowed under § 707(b)(2)(A)(ii)(I). As explained by the bankruptcy court in In re Johnson:223

The $200.00 additional operating expense at issue is not set forth in the tables for the Local and National Standards. Instead, the claimed deduction is based upon § 5.8.5.5.2 . . . of the Internal Revenue Manual. While § 5.8.5.5.2 appears to give IRS employees discretion to depart from the Local Standards in carrying out the work of the IRS, it is not a part of either the National or Local Standards issued by the IRS. . . . [S]ection 707(b)(2)(A)(ii)(I) . . . refers only to . . . “Local Standards” and does not refer to or purport to include the numerous rules and practices specified throughout the Internal Revenue Manual. . . . [S]ection 707(b)(2)(A)(ii)(I) provides that the debtor’s monthly expenses “shall be” the applicable monthly expenses “specified under the National Standards and Local Standards[.]” . . . [T]he expenses that are mandated as the debtor’s monthly expenses are the standard amounts that are applicable to the debtor in accordance with the tables issued by the IRS as the National and Local Standards. The disputed $200.00 additional operating expense was not taken from either of the tables that contain the National and Local Standards and hence is not a monthly expense of the Debtors under section 707(b)(2)(A)(ii)(I). . . . The reference to the National and Local Standards in section 707(b)(2)(A)(ii)(I) apparently was intended to provide a set of standard expenses that could be easily and uniformly applied by the courts. To read section 707(b)(2)(A)(ii)(I) as adopting the entire Internal Revenue Manual as the source for determining a debtor’s monthly expenses would frustrate such purpose and increase the difficulty already inherent in interpreting and applying revised sections 1325(b) and 707(b)(2).224
[151]

This debate about the $200 older/high-mileage car allowance added to the Internal Revenue Manual after the enactment of BAPCPA further illustrates the problems of incorporating tax collection guidelines into a bankruptcy statute. Johnson is correct that the $200-per-month expense sometimes allowed by the IRS in negotiations with delinquent taxpayers does not appear in the Local Standards issued by the IRS. The courts allowing the additional expense read the reference to Local Standards in § 707(b)(2)(A)(ii)(I) expansively to include an obscure provision buried elsewhere in the Internal Revenue Manual. The Internal Revenue Manual gives tax collection agents discretion to allow the $200 additional expense for transportation when debtors have old cars and high-mileage cars. Are bankruptcy judges to exercise that discretion? Is this $200 additional expense allowance “at odds” with the Bankruptcy Code for Ransom purposes?

[152]

One final reality check about the Local Standards for Housing, Utilities and Transportation. Even after Ransom, that a Chapter 13 debtor has “some” expense for transportation and for housing entitles the debtor with CMI greater than applicable median family income to claim the Local Standards amounts shown on the tables issued by the IRS. Those amounts have no predictable relationship to the debtor’s actual expenses for housing or transportation and, perhaps more importantly, no certain relationship to payments that the debtor must make after confirmation.

[153]

For example, if a debtor has a $10,000 car debt that will be paid through the plan in monthly installments over 36 months, the debtor, after Ransom, is entitled to a Local Standards Transportation Ownership Costs expense deduction of $496 per month for the entire 60 months of the plan. That actual car payments will complete before 60 months is of no moment in the unreal world of Chapter 13 mathematics after BAPCPA. The debtor is not required to “step up” payments to creditors when the actual car note is paid off—that payoff is already accounted for in the calculation of projected disposable income.225


 

1  See § 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

2  11 U.S.C. § 1325(b)(2), discussed in § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

3  See § 469.1 [ Comparison of CMI to Applicable Median Family Income: § 1325(b)(3) ] § 92.4  Household Size and Comparison of CMI to Median Family Income: § 1325(b)(3).

 

4  11 U.S.C. § 1325(b)(3), discussed in § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

5  See 11 U.S.C. § 707(b)(2)(A)(i), discussed in § 474.1 [ In General ] § 95.1  In General.

 

6  See list in § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

7  11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphasis added).

 

8  See below in this section, and see §§ 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts, 475.1 [ National Standards ] § 95.2  National Standards and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

9  See below in this section.

 

10  __ U.S. __, 131 S. Ct. 716, 178 L. Ed. 2d 603 (Jan. 11, 2011).

 

11  See § 475.1 [ National Standards ] § 95.2  National Standards.

 

12  See discussion beginning at § 95.4  Other [Necessary] Expenses—In General; All CategoriesThe word “Necessary” is in brackets because there is no such thing as a category of Other Necessary Expenses specified by the IRS as contemplated by 11 U.S.C. § 707(b)(2)(A)(ii)(I). There are categories of Other Expenses specified by the IRS, but the “Necessary” part of that phrase appears only in the Bankruptcy Code and is not specified by the IRS. See § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

13  http://www.irs.gov/irm.

 

14  http://www.irs.gov/irm/part5/index.html.

 

15  http://www.irs.gov/irm/part5/ch15so1.html.

 

16  I.R.M. 5.15.1.7 (Oct. 2, 2009); I.R.M. 5.15.1.7 (May 9, 2008); I.R.M. 5.15.1.7 (May 1, 2004), available at 2007 WL 2646962.

 

17  The Internal Revenue Manual offers the following statement of the necessary expense test:

The necessary expense test is defined as expenses that are necessary to provide for a taxpayer’s and his or her family’s health and welfare and/or production of income. The expenses must be reasonable. The total necessary expenses establish the minimum a taxpayer and family needs [sic] to live.

I.R.M. 5.15.1.7(1) (Oct. 2, 2009). This definition of the necessary expense test was the same in prior versions of the Internal Revenue Manual. See I.R.M. 5.15.1.7(1) (May 9, 2008); I.R.M. 5.15.1.7(1) (May 1, 2004), available at 2007 WL 2646962.

 

18  See I.R.M. 5.15.1.7(2) (Oct. 2, 2009). The same three types of necessary expenses were identified in prior versions of the Internal Revenue Manual. See I.R.M. 5.15.1.7(2) (May 9, 2008); I.R.M. 5.15.1.7(2) (May 1, 2004), available at 2007 WL 2646962.

 

19  See § 475.1 [ National Standards ] § 95.2  National Standards.

 

20  See discussion beginning at § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

21  See I.R.M. Exhibit 5.15.1-2 (Oct. 2, 2009). See also I.R.M. Exhibit 5.15.1-2 (May 9, 2008); I.R.M. Exhibit 5.15.1-2 (May 1, 2004). In the May 1, 2004, version of the Internal Revenue Manual, this exhibit was differently titled as “Allowance Expense Tables (Collection Expense Standards).” The addition of “Living” to the name of this exhibit in the May 9, 2008, version of the Internal Revenue Manual is not explained.

 

22  I.R.M. Exhibit 5.15.1-2 (Oct. 2, 2009).

 

23  See below in this section, and see § 475.1 [ National Standards ] § 95.2  National Standards.

 

24  See § 475.1 [ National Standards ] § 95.2  National Standards for discussion of the October 1, 2007, changes to the National Standards.

 

25  See below in this section.

 

26  See 11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed below in this section and in §§ 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues, 475.1 [ National Standards ] § 95.2  National Standards and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

27  See http://www.irs.gov/business/small/article/0,,id=104623,00.html.

 

28  See below in this section, and see §§ 475.1 [ National Standards ] § 95.2  National Standards and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

29  See Matthew Stephenson & Kristin Hickman, The Administrative Law of Borrowed Regulations: Legal Questions Regarding the Bankruptcy Law’s Incorporation of IRS Standards, 1 Norton Bankr. L. Adviser 1 (2008).

 

30  Notwithstanding legislation in 1998 requiring national guidelines for tax collection standards—see 26 U.S.C. § 7122(d)(1) and (2)—and the incorporation of the National Standards, Local Standards and Other [Necessary] Expenses categories into bankruptcy by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23 (2005), the IRS persists in the untenable position that the Local Standards are not subject to § 553 of the Administrative Procedures Act and can be changed by the Treasury Department without notice or opportunity for comment. See §§ 475.1 [ National Standards ] § 95.2  National Standards and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories for further discussion.

 

31  See below in this section, and see §§ 475.1 [ National Standards ] § 95.2  National Standards and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

32  The same can be said about the National Standards and the categories of Other [Necessary] Expenses issued by the IRS. See § 95.2  National Standards and discussion beginning at § 95.4  Other [Necessary] Expenses—In General; All Categories

 

33  See below in this section, and see §§ 475.1 [ National Standards ] § 95.2  National Standards and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

34  See below in this section.

 

35  In contrast, see the discussion below in this section and in § 475.1 [ National Standards ] § 95.2  National Standards with respect to the “effective date” of changes to the Local Standards and National Standards Tables.

 

36  I.R.M. 5.15.1.0 (May 2, 2009), from an archived Web crawl on May 27, 2010, available at http://replay.web.archive.org/20100601203138/http://www.irs.gov/irm/part5/irm_05-015-001.html.

 

37  Some Internet archives of the IRM, as well as the Local Standards tables, are available at http://web.archive.org/20040101000000*/http://www.irs.gov/irm/index.html and http://classic-web.archive.org/web/*/http://www.irs.gov/irm/index.html. The Internet Archive Wayback Machine is “a 501(c)(3) non-profit that was founded to build an Internet library. Its purposes include offering permanent access for researchers, historians, scholars, people with disabilities, and the general public to historical collections that exist in digital format.” http://www.archive.org/about/about.php.

 

38  I.R.M. 5.15.1.9 (May 1, 2004), available at 2007 WL 2646964.

 

39  I.R.M. 5.15.1.9 (May 9, 2008).

 

40  I.R.M. 5.15.1.9 (Oct. 2, 2009).

 

41  There is a possible exception: the enigmatic “notwithstanding” sentence in § 707(b)(2)(A)(ii)(I) could be interpreted to address the question whether debt is includable in the Local Standards deductions claimed by a debtor with CMI greater than applicable median family income. The Supreme Court cruelly declined to address this issue in Ransom. See below in this section. If the “notwithstanding” sentence in § 707(b)(2)(A)(ii)(I) is interpreted to preclude an expense allowance for any Local Standards category that includes debt, then even more complicated interpretive issues arise with respect to the use of the Internal Revenue Manual in this content. See below in this section, and see § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

42  See, e.g., 11 U.S.C. § 707(b)(2)(A)(ii)(I) (“actual expenses” in categories of Other Necessary Expenses), discussed in § 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

43  See below in this section.

 

44  See below in this section, and see § 475.1 [ National Standards ] § 95.2  National Standards.

 

45  The addition of “cell phone” expenses to the Local Standards Housing and Utilities in the May 9, 2008, version of the Internal Revenue Manual probably reflects changes made by the IRS on October 1, 2007, when cell phone expenses were added to the Local Standards Housing and Utilities tables and removed from the category of Other [Necessary] Expenses for Optional Telephones and Services. See § 477.14 [ Other [Necessary] Expenses—Optional Telephones and Services ] § 95.17  Other [Necessary] Expenses—Optional Telephones and Services.

 

46  See 11 U.S.C. § 707(b)(2)(A)(iii) (allowing, without limitation, the deduction of scheduled, contractually due secured debt), discussed in § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

47  See below in this section.

 

48  http://www.usdoj.gov/ust/bapcpa.

 

49  See below in this section, and see § 475.1 [ National Standards ] § 95.2  National Standards.

 

50  See below in this section, and see § 475.1 [ National Standards ] § 95.2  National Standards.

 

51  http://www.irs.gov/businesses/small/article/0,,id=104696,00.html.

 

52  See above in this section, and see § 475.1 [ National Standards ] § 95.2  National Standards.

 

53  In March of 2009, such a warning was available as a “Headliner” issued December 30, 2008, at http://www.irs.gov/businesses/small/article/0,,id=201339,00.html. The IRS has since removed this “Headliner,” and no archive for this information has been located.

 

54  See http://www.irs.gov/business/small/article/0,,id=104840,00.html (Apr. 16, 2011).

 

55  http://www.irs.gov/businesses/small/article/0,,id=104840,00.html (Sept. 30, 2007).

 

56  As explained in the text, the URLs for the October 1, 2007, Local Standards Housing and Utilities tables and the March 1, 2008, Local Standards Housing and Utilities tables are the same: http://www.irs.gov/businesses/small/article/0,,id=104840,00.html. Each new version of the Local Standards expenses amounts destructively replaces the prior table.

 

57  See above in this section, and see § 475.1 [ National Standards ] § 95.2  National Standards.

 

58  http://www.irs.gov/businesses/small/article/0,,id=104840,00.html (Oct. 2, 2007).

 

59  http://www.irs.gov/business/small/article/0,,id=104840,00.html (Apr. 3, 2008) (emphasis added).

 

60  http://www.irs.gov/business/small/article/0,,id=104840,00.html (Feb. 11, 2009).

 

61  http://www.irs.gov/business/small/article/0,,id=104840,00.html (Apr. 6, 2010).

 

62  http://www.irs.gov/business/small/article/0,,id=104840,00.html (Apr. 16, 2011).

 

63  http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.html.

 

64  http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.html.

 

65  See http://www.usdoj.gov/ust/eo/bapcpa/meansteasting.html.

 

66  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in §§ 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts, 475.1 [ National Standards ] § 95.2  National Standards and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

67  See below in this section, and see § 94.2  Netting Issues, Including Exclusion of Payments for Debts, § 95.2  National Standards and discussion beginning at § 95.4  Other [Necessary] Expenses—In General; All Categories

 

68  See below in this section.

 

69  Pub. L. No. 109-8, § 103(a), 119 Stat. 23 (2005).

 

70  http://www.justice.gov/ust/eo/bapcpa/20110315/meanstesting.htm (Apr. 16, 2011).

 

71  http://www.justice.gov/ust/eo/bapcpa/20110315/meanstesting.htm (Apr. 16, 2011).

 

72  http://www.justice.gov/ust/eo/bapcpa/20110315/meanstesting.htm (Apr. 16, 2011).

 

73  See § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

74  Line 25A of Official Form B22C prior to December 2010 contained the misleading instruction to enter the amount of the IRS Housing and Utilities Standards based on “household size.” As discussed above and in § 475.1 [ National Standards ] § 95.2  National Standards, the IRS Standards are sometimes displayed in tables based on number of persons (National Standards) and other times based on family size (Local Standards Housing and Utilities). The use of household size at Line 25A of prior versions of Official Form B22C was confusing.

 

75  The separate deduction from CMI of scheduled, contractually due secured debts in 11 U.S.C. § 707(b)(2)(A)(iii) is discussed in § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

76  This argument was rejected by a majority of the Supreme Court in Ransom in the context of applying the Local Standards Transportation Ownership Costs deduction. Ransom is discussed below in this section.

 

77  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

78  This amount was $1,500 per year per child prior to adjustment on April 1, 2007.

 

79  11 U.S.C. § 707(b)(2)(A)(ii)(IV), discussed in § 483.1 [ Education Expenses ] § 95.26  Education Expenses.

 

80  See § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

81  See § 94.2  Netting Issues, Including Exclusion of Payments for Debts and discussion beginning at § 95.4  Other [Necessary] Expenses—In General; All Categories

 

82  See § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

83  371 B.R. 482 (Bankr. D.N.M. July 11, 2007) (McFeeley).

 

84  Accord In re Meek, 370 B.R. 294 (Bankr. D. Idaho June 27, 2007) (Myers) (Local Standards Housing and Utilities for debtor with CMI greater than applicable median family income are net of debt secured by homestead; when home mortgage payment exceeds Local Standards, debtor gets secured debt deduction under § 707(b)(2)(A)(iii) but gets nothing as Local Standards deduction for home ownership.).

 

85  See 11 U.S.C. § 707(b)(2)(A)(iii), discussed in § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

86  371 B.R. at 484–86 (“[Section] 707(b)(1)(A)(ii)(I) . . . provides . . . that ‘[n]otwithstanding any other provision of this clause, the monthly expenses shall not include any payments for debt.’ . . . 11 U.S.C. § 707(b)(2)(A)(ii)(I) does not take into account a debtor’s monthly mortgage payment. Those payments are accounted for in 11 U.S.C. § 707(b)(2)(A)(iii) . . . . [T]he Debtors’ mortgage payment on their primary residence is not restricted to the IRS Standard. The full amount may be deducted from Debtors’ income under 11 U.S.C. § 707(b)(2)(A)(iii).”). Accord In re Prigge, 441 B.R. 667, 673 (Bankr. D. Mont. Mar. 4, 2010) (Kirscher) (Exclusion of debt from expenses allowed a debtor with CMI greater than applicable median family income in § 707(b)(2)(A)(ii)(I) does not preclude deduction of Local Standards Housing and Transportation allowances at Line 47 of Official Form B22C; deduction for secured debts allowed by § 707(b)(2)(A)(iii) is not limited to amounts allowed by Local Standards deduction under § 707(b)(2)(A)(ii). Trustee argued that exclusion of debt from allowances in § 707(b)(2)(A)(ii)(I) precluded debtor with CMI greater than applicable median family income from deducting any debt payment at Line 47 with respect to home mortgage or auto loan. Exclusion of debt in clause (ii) of § 707(b)(2)(A) “applies only with respect to ‘any other provision of this clause.’” “The Trustee’s argument that clause (iii) of § 707(b)(2)(A) is subordinate to clause (ii) because (iii) does not state that the Debtor’s monthly expenses may include payments on secured debts would render clause (iii) nugatory.”); In re Kain, No. 07-40922, 2007 WL 2851612, at *2 (Bankr. W.D. Wash. Sept. 11, 2007) (unpublished) (Snyder) (For debtor with CMI greater than applicable median family income, Local Standard amount for housing and utilities is not a cap on home mortgage expenses and arrearrages that may be deducted as secured debt under § 707(b)(2)(A)(iii). IRS Local Standard for Housing and Utilities was $1,318 per month. Debtors’ mortgage and arrearage payments were $5,162.85. “Debtors are authorized to deduct their contractually due secured payments for their residence in accordance with 11 U.S.C. § 707(b)(2)(A)(iii), even though the IRS Standard housing expense is limited to $1,318 per month. . . . [A]fter the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), a court has no authority to question the reasonableness and necessity of secured debt that is contractually due for an above-median income debtor.”); In re Meek, 370 B.R. 294 (Bankr. D. Idaho June 27, 2007) (Myers) (Although debt secured by a homestead is netted from the Local Standards for Housing and Utilities for a debtor with CMI greater than applicable median family income, the debtor is allowed a secured debt deduction under § 707(b)(2)(A)(iii) for the entire home mortgage payment.).

 

87  See, quoted above in this section, I.R.M. 5.15.1.9 (Oct. 2, 2009); I.R.M. 5.15.1.9 (May 9, 2008); and I.R.M. 5.15.1.9 (May 1, 2004), available at 2007 WL 2646964.

 

88  353 B.R. 224 (Bankr. N.D. Ill. Sept. 15, 2006) (Goldgar).

 

89  353 B.R. at 230–31. Accord In re Musselman, 379 B.R. 583, 590 (Bankr. E.D.N.C. Nov. 30, 2007) (Doub) (For debtor with CMI greater than applicable median family income, housing and car expenses are determined by Local Standards issued by IRS without regard to actual expenses; when actual mortgage payments and actual car notes are less than Local Standards amounts, debtor is entitled to deduct higher Local Standards amounts. “[T]he term ‘shall be’ was used by Congress, creating a requirement that those standards be used with no flexibility. Nowhere in the statute does Congress mandate the use of the lesser of the actual expense and the applicable national standards. . . . [E]xpenses under the Local Standards only need to be applicable to the debtor, because of where he lives and how large his household is. It makes no difference whether he actually has them.”), aff’d in part, rev’d in part, 394 B.R. 801, 816–17 (E.D.N.C. Sept. 30, 2008) (Flanagan) (“[A] debtor who has housing or transportation expenses may include the full amount provided by the IRS Local Standards for those expense categories, even when his actual expenses are less than those amounts. . . . Congress chose ‘applicable’ to modify expenses under the National Standards and Local Standards . . . . [T]he Internal Revenue Handbook was not expressly incorporated therein by Congress.”); In re Trimarchi, 421 B.R. 914, 921 (Bankr. N.D. Ill. Jan. 25, 2010) (Squires) (Citing Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148 (7th Cir. Dec. 17, 2008) (Flaum, Rovner, Williams), debtor is entitled to Local Standards housing expense deduction notwithstanding that debtor lives in a home that is owned and paid for by the debtor’s nonfiling spouse. “The Debtor is entitled to deduct the standard housing expense under the IRS standards even though she has no housing expense.”); In re Young, 392 B.R. 6 (Bankr. D. Mass. Aug. 8, 2008) (Hillman) (Summarizing at least seven different positions in reported cases, debtor with CMI greater than applicable median family income is allowed Local Standards housing and utilities expense that exceeds actual rent and transportation ownership expense for unencumbered, operational vehicle.); In re Reinstein, 393 B.R. 838, 841 (Bankr. E.D. Wis. July 28, 2008) (Shapiro) (Citing Neary v. Ross-Tousey (In re Ross-Tousey), 368 B.R. 762 (E.D. Wis. May 21, 2007) (Griesbach), if debtor has housing or transportation expenses, the Local Standards amounts are allowed even if actual expenses are less. “This court finds itself aligned with those cases holding that the housing and transportation expenses contained in the Local Standards are fixed expenses and apply where a debtor has, in fact, incurred some housing and transportation expenses, even if the actual expenses are lower than the Local Standard[s] expenses.”); In re Osei, 389 B.R. 339, 346–52 (Bankr. S.D.N.Y. June 25, 2008) (Glenn) (Debtor with CMI greater than applicable median family income is entitled to deduct applicable Local Standards amount for mortgage/rental expense notwithstanding that actual monthly rent is lower. “[T]his Court does not find ambiguity in the plain language of §§ 1325(b)(3) and 707(b)(2)(A)(ii)(I). . . . [T]he Local Standards provide for the exact amounts of mortgage/rent expense to be deducted by a debtor. Section 707(b)(2)(A)(ii)(I) even goes so far as to distinguish the ‘applicable monthly expense amounts’ which may be deducted under the Local Standards for items such as mortgage/rent expense from the ‘actual monthly expenses’ for ‘Other Necessary Expenses’ issued by the Internal Revenue Service . . . . I find nothing within § 707(b)(2)(A)(ii)(I) itself directing or even hinting that Congress intended for courts to ‘apply’ the Local and National Standards in the same manner as outlined in the Handbook. . . . This statutory provision makes no reference to the Financial Analysis Handbook. . . . The only way to find ambiguity in § 707(b)(2)(A)(ii)(I) is to immediately jump to referencing the Handbook interpretation of the Local Standards. . . . [T]his cannot be done if the plain language of the statute controls. . . . [I]nterpreting the Local Standards as a cap on a debtor’s expense amounts, as the IRS does, is inconsistent with § 707(b)(2)(A)(ii)(I). . . . [L]egislative history does not manifest any intent to interpret the National and Local Standards in the same manner as the IRS.”); In re Egbert, 384 B.R. 818, 825–31 (Bankr. E.D. Ark. Apr. 10, 2008) (Taylor) (Debtors with CMI greater than applicable median family income can claim housing and transportation expense deductions specified as allowances under Local Standards notwithstanding that actual payments are lower. Distinguishing Babin v. Wilson (In re Wilson), 383 B.R. 729 (B.A.P. 8th Cir. Mar. 14, 2008) (Schermer, Federman, McDonald): “[A] plain meaning analysis of § 1325(b)(3) demonstrates that Congress removed all discretion from courts in determining ‘amounts reasonably necessary to be expended.’ . . . [T]he amounts set forth in the IRS Local Standards are fixed expense allowances and not caps on the debtor[s’] actual expenses in the covered categories. . . . Congress’s omission of any language referencing the manual or any indication that the Local Standards should serve as a cap demonstrates Congress’s intent for the standards to instead provide formulaic uniformity. . . . [T]he proper application of the IRS Local Standards does not limit the debtors’ disposable income deductions to their actual housing and vehicle payments.”); In re Phillips, 382 B.R. 153 (Bankr. D. Mass. Feb. 7, 2008) (Feeney) (Citing In re Briscoe, 374 B.R. 1 (Bankr. D.D.C. Sept. 4, 2007) (Teel), absent evidence of changed circumstances, applicable expense figures dictated by Local Standards control; debtor can deduct mortgage/rent expenses that exceed actual rent and transportation expenses that exceed actual car lease.); In re Simms, No. 06-1206, 2008 WL 217174, at *16–*18 (Bankr. N.D. W. Va. Jan. 23, 2008) (unpublished) (Flatley) (Chapter 13 debtor with CMI greater than applicable median family income is entitled to housing expenses not limited to actual amount debtor pays for housing and utilities; not appropriate to consult IRS Manual to determine applicable amounts allowed under Local Standards. “The most natural reading of § 707(b)(2)(A)(ii)(I) is that ‘applicable’ modifies ‘the amounts specified’ in the ‘Local Standards’ . . . . [T]his court finds no basis in the statute for grafting the Internal Revenue Manual into the Bankruptcy Code. . . . [T]he word ‘specified’ could not be much clearer in indicating the Standards govern, not what the IRS would allow. . . . 11 U.S.C. § 707(b)(2)(A)(ii)(I) is plain and unambiguous, and . . . no basis exists for the court to allow the  . . . Local Standards to be spliced based on what an IRS field agent would do when dealing with a delinquent taxpayer.”); In re Briscoe, 374 B.R. 1, 8–12 (Bankr. D.D.C. Sept. 4, 2007) (Teel) (Local Standards amount for housing and utilities is allowed a debtor with CMI greater than applicable median family income notwithstanding that actual rent or mortgage is less; it is not appropriate to consult Internal Revenue Manual for contrary result. “[T]here is some logic in looking only at the values set forth in the Local and National Standards without considering the manner in which those values are used by the IRS. All but one of the values set forth in the National Standards ‘come from the Bureau of Labor Statistics (BLS) Consumer Expenditure Survey’ . . . . [T]he IRS collected and applied objective data in supplying values for the National and Local Standards. . . . The provisions of the Financial Analysis Handbook dictating how that data should be used are not so malleable. They are instructions directed at a specific audience (tax collectors) for a specific purpose (collecting delinquent taxes). . . . [I]t would be much odder for Congress to have imported the IRS’s internal collection procedures into the Bankruptcy Code than for Congress to have referred to the objective data used in applying those procedures without requiring debtors to follow the procedures themselves. . . . [T]he detailed methodology set forth within the Financial Analysis Handbook is not only foreign to the means testing scheme set forth in § 707(b)(2), but also antithetical to its purpose. . . . The provision at issue refers to ‘applicable monthly expense amounts specified under the . . . Local Standards,’ . . . not ‘applicable monthly expense amounts specified under the Financial Analysis Handbook of the Internal Revenue Manual’ . . . . [T]he Local Standards (along with the National Standards) are not located within the Financial Analysis Handbook at all, but rather are found separately on the IRS’s website. . . . [T]he reference in § 707(b)(2) to the Local Standards is not a shorthand way of referring to the Financial Analysis Handbook, but rather denotes an entirely separate source of information. . . . The simplest way to interpret the modifier ‘applicable’ is to read it as being subordinate to the same limiting phrase (‘specified under the . . . Local Standards’) as the object (‘monthly expense amounts’) that it modifies. . . . [I]t is clear that, within the context of the Local Standards (as opposed to the Financial Analysis Handbook), the term must refer to the varying expense amounts listed for individuals subject to different circumstances. . . . The legislative history of BAPCPA supports this reading of § 707(b)(2)(A)(ii)(I). As the bankruptcy court noted in [In re Fowler, 349 B.R. 414 (Bankr. D. Del. Sept. 11, 2006) (Walrath)], a prior version of BAPCPA calculated monthly expenses by requiring debtors to apply ‘the expense allowances under the applicable National Standards, Local Standards, and Other Necessary Expenses allowance . . . under the Internal Revenue Service financial analysis for expenses in effect as of the date of the order for relief.’ . . . (quoting H.R. 3150, 105th Congress (1998)) . . . . The phrase ‘under the Internal Revenue Service financial analysis’ is conspicuously absent from the final version of the amended § 707(b)(2). . . . The use of fixed amounts under the National and Local Standards relieves the court of the obligation to make largely subjective judgments . . . . In § 1325(b)(3), Congress created a mechanical, objective test for determining those expenses covered by the National and Local Standards in computing disposable income. . . . [T]he debtor is free to show ‘special circumstances’ as described in § 707(b)(2)(B) . . . . Congress did not see fit to permit the trustee or creditors to demonstrate that the expenses for those categories of expenses covered by the National and Local Standards should be adjusted downward in computing disposable income based on the special circumstance that the debtor’s actual expenses were less than set forth by those standards. Congress could readily have permitted such an adjustment in computing disposable income, but it did not.” In “extraordinary circumstances” use of National and Local Standards in computing expenses might lack good faith under § 1325(a)(3).); In re Morgan, 374 B.R. 353, 356–59 (Bankr. S.D. Fla. Aug. 8, 2007) (Cristol) (Debtor with CMI greater than applicable median family income is entitled to mortgage/rent expense using Local Standards notwithstanding that debtor pays no rent or mortgage. “[T]he plain meaning of the phrase ‘applicable monthly expenses’ found in section 707(b)(2)(A)(ii)(I) of the Bankruptcy Code entitles the Debtor to deduct from current monthly income the Local Standard allowance for housing/rental expense, without regard to whether the Debtor actually pays a housing/rental expense. . . . Because 11 U.S.C. § 707(b)(2)(A)(ii)(I) provides that the debtor’s allowed expenses ‘shall be’ the ‘amounts specified’ under the Local Standards—and because the statute makes no provision for reducing the specified amounts to the debtor’s actual expenses—a plain reading of the statute would allow a deduction of the amounts listed in the Local Standards even where the debtor’s actual expenses are less.”); In re Swan, 368 B.R. 12, 17–21 (Bankr. N.D. Cal. Apr. 18, 2007) (Weissbrodt) (Local Standards for housing amount is allowed notwithstanding that debtor’s actual rent is less than the standard. “[T]he IRS Local Standards are not caps, but provide the actual deductions to be taken under the circumstances. . . . [T]he use of the word ‘applicable’ in the first clause with regard to some expenses (which include both housing and transportation ownership), and the use of the word ‘actual’ with regard to ‘Other Necessary Expenses,’ indicates Congressional intent to distinguish between the two classes of expenses, and to allow debtors to use the deductions found in the Local Standards for the first category. A debtor’s actual expenses are only relevant with respect to expenses that fall into the ‘Other Necessary Expenses’ category. . . . Debtor’s actual monthly rent payment is $800. Debtor claimed a deduction of $1,644 . . . . This is the appropriate IRS Housing and Utility Local Standard . . . . Creditor’s position . . . would have the effect of locking Debtor into [$800] for the duration of the chapter 13 Plan. Such a result would be unfair to the Debtor because it is highly unlikely that Debtor’s housing expense will remain at the current level throughout the Plan term.”); In re Cummings, No. 06-33029-tmb-13, 2007 WL 6362250, at *6 (Bankr. D. Or. Mar. 2, 2007) (unpublished) (Brown) (Debtor with CMI greater than applicable median family income is entitled to Local Standards housing and transportation expense deductions without regard to actual housing and transportation expenses. “I do not believe that the term ‘applicable’ was intended as a limit on a debtor’s deductions. I believe that Congress meant to radically change the method for calculating disposable income. It replaced the old method for calculating disposable income, which relied on judicial interpretation of Schedules I and J, with a rigid formula designed to limit judicial discretion. . . . [W]here an expense provided for under the National or Local Standards is ‘applicable’ to a debtor, that is, the debtor has an expense of that nature, the debtor is entitled to deduct the full amount of the National and Local Standards for purposes of determining disposable income, regardless of the amount of the debtor’s actual expense for that item.”); In re Demonica, 345 B.R. 895, 903 (Bankr. N.D. Ill. July 31, 2006) (Barbosa) (Debtor with CMI greater than applicable median family income can deduct Local Standards amount for mortgage/rent expense notwithstanding that debtor is not liable on mortgage. “The Local Standard deduction for housing categorizes the expense as mortgage/rent and specifies only one amount. Therefore, whether or not a debtor is liable on the mortgage is not relevant to determining the proper deduction for the housing expense. . . . [A] debtor may claim the full Local Standard expense for housing, but may not claim additional expenses based upon actual amounts paid. ”). But see In re Rezentes, 368 B.R. 55, 59–62 (Bankr. D. Haw. Apr. 2, 2007) (Faris) (Debtors with CMI greater than applicable median family income are allowed IRS Local Standard for housing or actual cost of housing, whichever is lower; debtors who moved family of six into parents’ home and reduced rent from $2,000 to $300 per month in an effort to pay creditors are rewarded in a Chapter 13 case with denial of confirmation because only rent of $300 per month, not Local Standard for housing ownership, is available. “[T]he Internal Revenue Manual explains that, ‘Unlike the national standards, the local standards for housing, utilities, and transportation serve as a cap. The taxpayer is allowed the local standard or the amount actually paid, whichever is less.’ IRM § 5.19.1.4.3.2 ¶ 2 (2002). . . . The IRS does, however, advise its agents that the ‘[n]ational [and] local expense standards are guidelines’ and, ‘If it is determined a standard amount is inadequate to provide for a specific taxpayer’s basic living expenses,’ a deviation is to be allowed if the taxpayer provides reasonable substantiation. IRM § 5.15.1.7 ¶ 7. . . . Congress made clear that the income/expense screening mechanism of section 707(b)(2)(A) and (B) was ‘intended to ensure that debtors repay creditors the maximum they can afford.’ H.R. Rep. No. 109-31, pt. 1, at 2 (2005) . . . . The fixed-allowance interpretation of section 707(b)(2)(A)(ii)(I) is inconsistent with this guiding principle of BAPCPA. . . . [T]he [In re Slusher, 359 B.R. 290 (Bankr. D. Nev. Jan. 17, 2007) (Markell),] court persuasively reasoned that, ‘Congress’ decision to use the IRS standards within the Bankruptcy Code strongly suggests that courts should look to how the IRS determined those standards’ . . . . [F]or purposes of calculating projected disposable income, debtors may deduct the local standard housing expense or their actual housing expense, whichever is less. . . . The irony of this case is that the debtors must make larger plan payments because they moved into a too-small home in a valiant and commendable effort to pay their creditors. . . . [N]o kind deed goes unpunished.”).

 

90  See below in this section.

 

91  Ransom v. FIA Card Servs., N.A., .__ U.S. __, 131 S. Ct. 716, 724, 178 L. Ed. 2d 603 (Jan. 11, 2011).

 

92  See below in this section.

 

93  See Ransom, 131 S. Ct. at 728 n.8, discussed below.

 

94  131 S. Ct. at 727 (footnote omitted), discussed below in this section.

 

95  See above in this section, and see § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

96  See 11 U.S.C. § 707(b)(2)(A)(iii), discussed in § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

97  But see 11 U.S.C. § 707(b)(2)(A)(ii)(V), which allows a debtor with CMI greater than applicable median family income expenses for housing and utilities in excess of the Local Standards amount based on “actual expenses for home energy costs.” See § 484.1 [ Home Energy Costs ] § 95.27  Home Energy Costs.

 

98  342 B.R. 304 (Bankr. W.D. Mo. May 11, 2006) (Venters).

 

99  See § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

100  See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

101  This distinction between secured debt and rent is discussed further in § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts. Compare In re Varner, 08-20806-TLM, 2009 WL 1468707 (Bankr. D. Idaho May 22, 2009) (unpublished) (Myers) (Debtor with CMI greater than applicable median family income is entitled to Local Standards Housing and Utilities deduction for rented apartment notwithstanding that debtor owns a condominium that is subject to mortgages that are separately deductible under § 707(b)(2)(A)(iii). Debtor rented an apartment in one community for $500 per month and owned a condominium in another community subject to monthly mortgage payments of $924. Plan proposed to surrender the condominium. Debtor took $650-per-month Local Standards Housing and Utilities deduction for community in which the apartment was located and deducted the $924 per month as scheduled contractually due payments to secured creditors. Because there was no secured debt with respect to the rented apartment, the debtor was not required to net the mortgage payments on the condo against the Local Standards Housing and Utilities deduction with respect to the apartment.).

 

102  See In re Steele, No. 09-21218, 2010 WL 4791837, at *1–*2 (Bankr. D. Wyo. Nov. 18, 2010) (McNiff) (Citing Hamilton v. Lanning, __ U.S. __, 130 S. Ct. 2464, 177 L. Ed. 2d 23 (June 7, 2010), and home energy cost adjustment in § 707(b)(2)(A)(ii)(V), actual rental housing expense of $1,500 per month—$681 per month more than the applicable Local Standard allowance—is allowed based on evidence that debtor with three children needs four-bedroom home in a community where housing is expensive. “The United States Supreme Court held that a court calculating ‘projected disposable income’ should begin with the ‘presumption’ that the figure yielded by the mechanical approach was correct, but that the figure could be rebutted by evidence of substantial changes in debtor’s circumstances that are known or virtually certain. . . . The Debtors demonstrated to the Court that the actual rental expenses are reasonable and necessary for the health and well-being of their children. The expense is allowed.”). See also In re Martin, No. 09-31916-DHW, 2010 WL 1198389, at *2 (Bankr. M.D. Ala. Mar. 19, 2010) (unpublished) (Williams) (Local Standards Housing and Utilities allowance is not necessarily a “cap,” but it is at least a “benchmark”; measured against that benchmark, debtors with CMI greater than applicable median family income cannot deduct actual home mortgage expense of $5,168 per month when unsecured creditors will receive only 30% of their claims. “The question . . . is whether the Internal Revenue Service local housing standard serves as a cap in determining the debtors’ disposable income. The court, however, need not make that determination in this case. The means test functions as a method of calculating what debtors with similar incomes and household sizes should reasonably be able to pay to their unsecured creditors. Implicit in the test is the establishment of at least a benchmark for determining reasonable expenses, whether or not these serve as an absolute cap or a mere guide. Were this not the case, a debtor who made improvident lifestyle choices regarding incurring debt would be rewarded over one who had not. . . . The debtors in this case have a home mortgage payment that is over seven times greater than the Internal Revenue standard for housing. It is clear that they have made an improvident decision regarding their housing expense. In short, they have bitten off more than they can chew with respect to their housing costs. Unsecured creditors cannot, under the law, be made to bear the brunt of the debtors’ improvident choice.”).

 

103  http://www.irs.gov/business/small/article/0,,id=104840,00.html (Apr. 16, 2011).

 

104  I.R.M. 5.15.1.9 (Oct. 2, 2009).

 

105  See, quoted above, I.R.M. 5.15.1.9(1)(A) (Oct. 2, 2009); I.R.M. 5.15.1.9(1)(A) (May 9, 2008); I.R.M. 5.15.1.9(1)(A) (May 1, 2004), available at 2007 WL 2646964.

 

106  11 U.S.C. § 707(b)(2)(A)(iii), discussed in § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

107  See § 477.13 [ Other [Necessary] Expenses—Taxes ] § 95.16  Other [Necessary] Expenses—Taxes.

 

108  See § 477.13 [ Other [Necessary] Expenses—Taxes ] § 95.16  Other [Necessary] Expenses—Taxes.

 

109  See In re O’Connor, No. 08-60641-13, 2008 WL 4516374, at *13–*14 (Bankr. D. Mont. Sept. 30, 2008) (unpublished) (Kirscher) (No separate deduction for taxes (and insurance) not included in mortgage payment because taxes (and insurance) are included in Local Standards Housing and Utilities allowance. “Debtors’ contention that they are entitled to an additional $204.50 for taxes and insurance, simply because their actual expense for mortgage, taxes and insurance exceed [sic] the Local IRS Standard for housing and utilities, goes against the plain language of § 707(b)(2)(A)(ii)(I).”).

 

110  See Exhibit 5.15.1-2 (Oct. 2, 2009) which will refer you to http://www.irs.gov/businesses/small/article/0,,id=104623,00.html.

 

111  This amount was $475 prior to February 1, 2006.

 

112  This amount was $338 prior to February 1, 2006.

 

113  See above in this section, and see § 475.1 [ National Standards ] § 95.2  National Standards.

 

114  See above in this section, and see http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Oct. 2, 2007).

 

115  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Oct. 2, 2007).

 

116  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Mar. 1, 2008).

 

117  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Apr. 6, 2010).

 

118  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Apr. 13, 2011).

 

119  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Oct. 2, 2007).

 

120  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Apr. 6, 2010).

 

121  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Apr. 13, 2011).

 

122  The IRS eliminated Metropolitan Statistical Areas from its Local Standards for Transportation for Milwaukee, Cincinnati, Kansas City and Tampa in the October 1, 2007, version of the Local Standards for Transportation. See http://www.irs.gov/individuals/article/0,,id=96543,00.html (Oct. 2, 2007).

 

123  See above in this section. See also the discussion of National Standards in § 475.1 [ National Standards ] § 95.2  National Standards.

 

124  http://www.justice.gov/ust/.

 

125  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Oct. 2, 2007).

 

126  Compare 11 U.S.C. § 707(b)(2)(A)(ii)(IV) (“actual expenses . . . to attend . . . school”), discussed in § 483.1 [ Education Expenses ] § 95.26  Education Expenses.

 

127  eCast Settlement Corp. v. Washburn (In re Washburn), 579 F.3d 934, 937–42 (8th Cir. Aug. 28, 2009) (Melloy, Benton, Magnuson) (Citing Tate v. Bolen (In re Tate), 571 F.3d 423 (5th Cir. June 10, 2009) (Reavley, Davis, Benavides), and Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148 (7th Cir. Dec. 17, 2008) (Flaum, Rovner, Williams), and threading between Coop v. Frederickson (In re Frederickson), 545 F.3d 652 (8th Cir. Oct. 27, 2008) (Wollman, Beam, Riley), cert. denied, 129 S. Ct. 1630, 173 L. Ed. 2d 997 (Mar. 23, 2009), and McCarty v. In re Lasowski (In re Lasowski), 575 F.3d 815 (8th Cir. Aug. 12, 2009) (Bye, Colloton, Gruender), debtor with CMI greater than applicable median family income is entitled to Local Standards Transportation Ownership Costs notwithstanding that car is unencumbered. “[W]e hold that the plain language approach adopted by the Fifth and Seventh Circuits results in the proper interpretation of 11 U.S.C. § 707(b)(2)(A)(ii)(I). . . . Simply put, ‘Congress used two different terms to achieve two different results.’ . . . ‘It is difficult to square’ the IRM approach, ‘which would only allow the vehicle ownership deduction on condition of a monthly debt payment,’ . . . with that portion of § 707(b)(2)(A)(ii)(I) that provides, ‘Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments of debts.’ . . . [W]e do not believe it is appropriate to give § 707(b)(2)(A)(ii)(I) one meaning when applied in a Chapter Seven proceeding and another when applied in a Chapter Thirteen proceeding without a legislative basis for doing so. . . . While eCAST is correct in its characterization of Frederickson as recognizing discretion in determining projected disposable income, the question in Frederickson was different than the question at hand. . . . We ultimately recognized the existence of ‘some’ judicial discretion to look beyond disposable income calculations in determining projected disposable income. . . . Neither our opinion in Frederickson nor the other circuits’ opinions regarding projected disposable income characterize the discretion under § 1325(b)(1)(B) as unfettered . . . . We recently applied the standard from [Nowlin v. Peake (In re Nowlin), 576 F.3d 258 (5th Cir. July 17, 2009) (King, Dennis, Elrod)]. See In re Lasowski, . . . . Here, the appellants neither preserved the issue addressed in Frederickson for review nor developed a record sufficient to enable anything more than a speculative assessment of whether projected disposable income should, on the present facts, differ from disposable income. Unlike the facts of Lasowski, where it was reasonably certain that the debtor would fully pay off a loan from her 401(k) retirement account during the period of plan administration, it is by no means clear that the present debtor’s future vehicle payments can be deemed ‘reasonably certain.’ . . . [D]etermination of a vehicle ownership expense for the purpose of determining disposable income is categorical under § 707(b)(2)(A)(ii)(I), but ‘some discretion’ exists for bankruptcy courts to consider the debtor’s actual financial situation in determining projected disposable income for the purpose of § 1325(b)(1)(B). Lasowski recognized that this discretion must be based on reasonably certain future events, and we leave for another day the question of whether the requisite certainty is present when addressing questions of vehicle expenses.”); Coffin v. eCast Settlement Corp. (In re Coffin), 435 B.R. 780, 786–90 (B.A.P. 1st Cir. 2010) (Lamoutte, Boroff, Rosenthal) (Debtor with CMI greater than applicable median family income is entitled to Local Standards Transportation Ownership costs deductions for two cars owned free of debt or lease. “[Section] 1325(b) is an example of a provision that is caught between the tension of BAPCPA’s two goals: bankruptcy abuse prevention and consumer protection. . . . Section 707(b)(2)(A) and (B), the so-called ‘means test,’ significantly restrict[] court discretion as to those expenses which are ‘amounts reasonably necessary’ . . . . [T]hat Congress specified that debtors are entitled to ‘actual’ monthly expenses with respect to Other Necessary Expenses and ‘applicable’ monthly expense amounts with respect to the National and Local Standards indicates that Congress intended ‘applicable’ to mean something other than ‘actual.’ . . . Legislative history indicates that Congress intended for the Local Standards to function as fixed deduction amounts. . . . In an earlier version of BAPCPA that did not pass, Congress [referenced IRS Financial Analysis] . . . . In the enacted version of BAPCPA, Congress replaced the reference to the IRS financial analysis with the ‘applicable monthly expense amounts specified under the National and Local Standards’ language. This language change demonstrates that Congress’ purpose in referring to the Local Standards was to establish a fixed deduction rather than to make IRS financial analysis binding on bankruptcy courts. . . . Congress intended for the National and Local Standards to serve as a list of standard expenses for all debtors that could be ‘easily and uniformly applied.’ . . . Ownership expenses encompass costs associated with owning a vehicle beyond loan or lease payments . . . . Allowing debtors who do not have a car payment to take the vehicle ownership deduction ‘“avoids arbitrary distinctions between debtors who have only a few car payments left at the time of their bankruptcy filing and those who finished making their car payments just before filing.”’ . . . [D]isallowing the vehicle ownership expense where the debtor has no lease or loan payment would penalize these debtors, and indeed would create ‘a perverse incentive to splurge on a vehicle’ prior to filing a bankruptcy petition.”); Pearson v. Stewart (In re Pearson), 390 B.R. 706, 714 (B.A.P. 10th Cir. July 28, 2008) (McFeeley, Bohanon, Thurman) (Rejecting Ransom v. MBNA Am. Bank, N.A. (In re Ransom), 380 B.R. 799 (B.A.P. 9th Cir. Dec. 27, 2007) (Dunn, Baum, Montali), and embracing Hildebrand v. Kimbro (In re Kimbro), 389 B.R. 518 (B.A.P. 6th Cir. June 12, 2008) (Fulton, Rhodes, Scott), debtor with CMI greater than applicable median family income is allowed Local Standards transportation ownership expense for unencumbered car. “If Congress meant ‘actual expenses’ in the first part of § 707(b)(2)(A)(iii)(I), it would have used that term instead of ‘applicable monthly expense.’”); Hildebrand v. Kimbro (In re Kimbro), 389 B.R. 518 (B.A.P. 6th Cir. June 12, 2008) (Fulton, Rhodes, Scott) (Debtor with CMI greater than applicable median family income is allowed transportation ownership expense for unencumbered car.); Swimelar v. Lamendola, No. 6:08-cv-1210 (GLS), 2009 WL 1748780 (N.D.N.Y. June 19, 2009) (Sharpe) (Citing Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148 (7th Cir. Dec. 17, 2008) (Flaum, Rovner, Williams), debtor with CMI greater than applicable median family income is entitled to transportation ownership deduction for car not subject to loan or lease; “applicable” does not mean the same as “actual” in § 707(b)(2)(A)(ii)(I).); In re Armstrong, 370 B.R. 323, 329–31 (Bankr. E.D. Wash. June 12, 2007) (Williams) (Chapter 13 debtor with CMI greater than applicable median family income gets transportation ownership expense deduction notwithstanding that pickup is owned free and clear of liens or lease. “The purpose of § 707(b) is to provide a mechanism to identify debtors who can afford to repay. If Congress had intended that such debtors be identified based on actual reasonable expenses, it would have so provided and, as to certain types of expenses, did so provide. The transportation expense is not one of them. With regard to housing and transportation expense, Congress intended that such debtors be identified by use of a uniform, easily applied formula, i.e., the Local Standards.”), aff’d, 395 B.R. 127, 130–32 (E.D. Wash. Sept. 24, 2008) (Shea) (Debtor with CMI greater than applicable median family income may claim Local Standards transportation ownership expense for unencumbered car. “[E]xamining only a portion of the first sentence in § 707(b)(2)(A)(ii)(I) leads to misinterpretation . . . . The statute does not identify what income, household size, housing expense, or vehicle variables to select. This appears to be the reason for the modifiers ‘debtor’s’ and ‘applicable.’ . . . Congress added ‘applicable’ to instruct the debtor how to select the other variables from the tables. . . . ‘[A]pplicable’ is meant to identify what variable to select, not to limit the expenses under the National Standards and Local Standards to those actually incurred by the debtor.”); In re Pelkey, 434 B.R. 26, 30 (Bankr. D. Conn. Mar. 25, 2010) (Dabrowski) (Debtors with CMI greater than applicable median family income are entitled to Local Standards Transportation Ownership Costs for two cars that are free of debt or lease; “forward looking” approach in Hamilton v. Lanning (In re Lanning), 545 F.3d 1269 (10th Cir. Nov. 13, 2008) (Murphy, Brorby, Tymkovich), cert. granted, 130 S. Ct. 487 (Nov. 2, 2009), is consistent with this outcome because “the deduction at issue is the vehicle ownership expense, which the statute states shall be the amount set forth in the IRS Standards.”); In re Edwards, 421 B.R. 757, 761–62 (Bankr. N.D. Miss. Nov. 13, 2009) (Houston) (Reconsidering In re White, 393 B.R. 436 (Bankr. N.D. Miss. Sept. 9, 2008) (Houston), in light of Tate v. Bolen (In re Tate), 571 F.3d 423 (5th Cir. June 10, 2009) (Reavley, Davis, Benavides): “[T]he Fifth Circuit intended its Tate decision to apply to Chapter 13 proceedings. Therefore, the debtors herein will be permitted to take the two standard ownership deductions in the sum of $489.00 each even though they have no underlying debt or lease obligations owed on their vehicles.”); In re Wisham, 416 B.R. 790, 795–96 (Bankr. M.D. Fla. June 5, 2009) (Glenn) (Debtors with CMI greater than applicable median family income can deduct Local Standards Transportation Ownership Costs for unencumbered car. With respect to trustee’s argument that Internal Revenue Manual would disallow the ownership deduction: “[T]he IRS states . . . ‘[t]hese Standards are . . . for purposes of federal tax administration only.’ . . . A prior version of BAPCPA included proposed language that would have defined a debtor’s expenses as: . . . ‘determined under the Internal Revenue Service financial analysis’ . . . . This proposed provision was removed, however, prior to the enactment of BAPCPA . . . . No reference to the Internal Revenue Manual (IRM), guidelines, or ‘financial analysis’ appears in BAPCPA as enacted. . . . Congress was aware of the IRM but deliberately chose not to incorporate it into the statute. . . . [T]he IRS guidelines should not be used to determine a debtor’s vehicle ownership expense under § 707(b)(2)(A)(ii)(I).”); In re Soos, No. 13-09-10557 MA, 2009 WL 2913226 (Bankr. D.N.M. May 6, 2009) (unpublished) (McFeeley) (Citing Pearson v. Stewart (In re Pearson), 390 B.R. 706 (B.A.P. 10th Cir. July 28, 2008) (McFeeley, Bohanon, Thurman), appeal dismissed, No. 08-8060, 2009 WL 205408 (10th Cir. Jan. 22, 2009) (unpublished) (Kelly, Murphy, Hartz), vacating bankruptcy court ruling and dismissing appeal, 399 B.R. 829 (B.A.P. 10th Cir. Jan. 29, 2009) (McFeeley, Bohanon, Thurman), debtor with CMI greater than applicable median family income is entitled to vehicle ownership expense to calculate projected disposable income notwithstanding that car is unencumbered.); In re Burbank, 401 B.R. 67, 72 (Bankr. D.R.I. Feb. 24, 2009) (Votolato) (Debtor with CMI greater than applicable median family income can deduct Local Standards Transportation Ownership Costs for two cars that are owned free of loan or lease payments. “[T]he plain language of the statute clearly differentiates between ‘applicable’ expenses and ‘actual’ expenses . . . . I . . . disagree with the Trustee’s argument that ‘ownership expense’ can only mean either a car installment loan or a lease payment. . . . [N]othing in the statute requires such a narrow reading. . . . [A]llowing a debtor who owns the vehicle, free and clear of secured debt, to deduct the ownership expense avoids arbitrary and unfair results.”); In re Bentley, 400 B.R. 848, 852–53 (Bankr. M.D. Fla. Oct. 28, 2008) (Funk) (Debtor with CMI greater than applicable median family income is allowed Local Standards Transportation Ownership Costs for unencumbered car. “[A] debtor’s entitlement to take a vehicle ownership deduction is not predicated upon whether the debtor owns the vehicle free and clear, but upon the number of vehicles owned by the debtor. . . . For the Court to find that a debtor must have a car payment in order to incur ‘ownership expenses’ would produce an unfair result based upon an unrealistic theory.”); In re Baughman, No. 07-63208, 2008 WL 4487879, at *3–*4 (Bankr. N.D. Ohio Sept. 30, 2008) (unpublished) (Kendig) (Debtor with CMI greater than applicable median family income gets Local Standards Transportation Ownership Costs for unencumbered car and gets difference between IRS allowance and actual debt payment on second car; good faith requires that amount not “actually” used for transportation ownership must be saved or otherwise accounted for. “[T]here would seem to be little point in allowing an ownership deduction at all if it were meant to apply only to vehicles serving as collateral for secured loans . . . . [I]f the deduction were allowed in full for a vehicle serving as collateral for a secured loan of any size, but disallowed for a vehicle owned free and clear, the result is arbitrary to the point of nonsensicality. . . . [A] nearly worthless car secured by a lien demanding payments of $1.00 per month would be substantially more valuable to a debtor than a perfectly serviceable vehicle that the debtor had completely paid off. BAPCPA may at times be a riddle wrapped in a mystery inside an enigma, but the Court is confident that this result is not what Congress had in mind. . . . Analogous reasoning . . . compels the conclusion that they may take the remainder of the deduction when their payment is greater than zero but less than the amount of the allowance. . . . . The ‘amounts specified’ under the relevant Local Standards are fixed amounts; they do not change based on the amount that the debtor is paying.”); In re Hedge, 394 B.R. 463, 467 (Bankr. S.D. Ind. Sept. 17, 2008) (Lorch) (Debtor with CMI greater than applicable median family income is entitled to Local Standards Transportation Ownership Costs for car owned free of debt. “[T]he statute clearly draws a distinction, in the precise language used by Congress in establishing the means test formula, between ‘applicable’ expenses on the one hand and ‘actual’ expenses on the other. . . . [E]xpenses under the Local Standards, including the transportation ownership expense, are those applicable to the debtor based upon matters particular to that debtor, e.g. number of cars, size of household, where he lives.”); In re Pearl, 394 B.R. 309, 314 (Bankr. N.D.N.Y. Sept. 10, 2008) (Gerling) (Debtor with CMI greater than applicable median family income is entitled to Local Standards Transportation Ownership Costs for car that is not subject to debt. “[F]or purposes of the Bankruptcy Code, the Local Standard amounts are fixed allowances, rather than caps, and are applicable to the Debtors in this case, despite the fact that there is no lien on their second vehicle. This comports with the intention of Congress to eliminate the discretion of the courts[.]”); In re Lane, 394 B.R. 248 (Bankr. D. Mass. Aug. 19, 2008) (Hillman) (Citing In re Young, 392 B.R. 6 (Bankr. D. Mass. Aug. 8, 2008) (Hillman), debtor with CMI greater than applicable median family income is allowed Local Standards Transportation Ownership Costs for car that is not subject to lien or lease.); In re May, 390 B.R. 338 (Bankr. S.D. Ohio July 7, 2008) (Walter) (Adopting Hildebrand v. Kimbro (In re Kimbro), 389 B.R. 518 (B.A.P. 6th Cir. June 12, 2008) (Fulton, Rhodes, Scott), debtor with unencumbered car is allowed Local Standards Transportation Ownership Costs deduction.); In re Mati, 390 B.R. 11 (Bankr. D. Mass. June 9, 2008) (Feeney) (Declining to follow Ransom v. MBNA America Bank, N.A. (In re Ransom), 380 B.R. 799 (B.A.P. 9th Cir. Dec. 27, 2007) (Dunn, Baum, Montali), debtor with CMI greater than applicable median family income is allowed Transportation Ownership Costs without regard to lease or car payment.); In re White, 382 B.R. 751, 757–58 (Bankr. C.D. Ill. Feb. 28, 2008) (Perkins) (Chapter 13 debtors with CMI greater than applicable median family income get car ownership deduction without regard to debt. “The statute refers only to the ‘monthly expense amounts specified under the . . . Standards.’ . . . [T]he term ‘applicable’ when contrasted with the subsequent term ‘actual,’ is indicative of an intent to disregard the debtor’s actual circumstances when determining the debtor’s ‘applicable monthly expense amounts specified under’ the Standards. . . . [A] likely purpose of incorporating the IRS expense standards into the Bankruptcy Code was to make the . . . disposable income analysis in Chapter 13 more uniform on a national basis by eliminating variations in expenses allowed from trustee to trustee and from court to court. . . . The use of fixed expense allowances levels the playing field for debtors. It is far less defensible from a policy perspective for a debtor with one car payment remaining at the time of filing to get the full standard deduction for the 60-month term of the Chapter 13 plan, while a debtor who paid off the secured debt before filing gets no deduction whatsoever.”); In re Roberts, No. 07-210247, 2008 WL 542503, at *4 (Bankr. D. Conn. Feb. 28, 2008) (unpublished) (Krechevsky) (“[A]n above-median debtor’s entitlement to a transportation ownership expense deduction is based upon the IRS standard for the area in which the debtor resides, based upon the number of vehicles owned by the debtor, regardless of whether the debtor is contractually obligated to make any lease or loan payments therefor.”); In re Davis, 382 B.R. 764 (Bankr. W.D. Ark. Feb. 26, 2008) (Barry) (Debtor with CMI greater than applicable median family income is entitled to ownership expense deduction for car owned free and clear of debt.), rev’d sub nom. In re Powell, 392 B.R. 407 (B.A.P. 8th Cir. Sept. 2, 2008) (Kressel, Schermer, McDonald); In re Clark, No. 07-23390, 2008 WL 444565, at *2–*6 (Bankr. E.D. Wis. Feb. 14, 2008) (unpublished) (McGarity) (Chapter 13 debtor with CMI greater than applicable median family income can deduct automobile ownership expense for unencumbered car. “The ‘plain meaning rule’ will not work here. . . . The way the ownership expense deduction acts in practice, when it is undeniably allowable, militates for its application to debtors who own cars free and clear. First, it is called an ‘ownership expense,’ and the debtor owns a car. Thus, the deduction ‘applies.’ Second, if the average car payment is less than the deduction amount . . . the debtor gets an allowance for which there is no expense. . . . Congress must have had a reason for allowing the ownership deduction in calculating the means test formula for debtors with modest payments, perhaps as some courts have posited, because the debtors may need replacement transportation during the course of a chapter 13 plan. Owners of cars without liens would have the same need. Whatever the reason for different policies involving tax collection and chapter 13 . . . the IRS cap language was not used in the bankruptcy statute. It does no violence to the interpretation of the statute to treat similarly situated debtors similarly, and this court will do so.”); In re Simms, No. 06-1206, 2008 WL 217174, at *16 (Bankr. N.D. W. Va. Jan. 23, 2008) (unpublished) (Flatley) (Chapter 13 debtor with CMI greater than applicable median family income is entitled to Transportation Ownership Costs notwithstanding that car is paid off. “The most natural reading of § 707(b)(2)(A)(ii)(I) is that ‘applicable’ modifies ‘the amounts specified’ in the ‘Local Standards.’”); In re Buck, No. 07-31513-KRH, 2007 WL 4418145, at *4 (Bankr. E.D. Va. Dec. 14, 2007) (unpublished) (Huennekens) (“[T]he vehicle expense deduction is allowed even where the debtor makes no debt or lease payment on the vehicle.”); In re Sears, No. R06-42597 PWB, 2007 WL 7143410, at *4–*5 (Bankr. N.D. Ga. Oct. 4, 2007) (unpublished) (Bonapfel) (Debtor with CMI greater than applicable median family income is allowed a deduction for vehicle ownership expense pursuant to § 707(b)(2)(A)(ii)(I) without regard to debt on vehicle. “The statute’s use of the term ‘shall’ mandates use of the amounts specified in the Local Standards. The term ‘applicable’ merely references the applicable region, household size, and, with respect to an ownership cost, whether a debtor has one or more vehicles. Nothing in the language of § 707(b)(2)(A)(ii)(I) requires a debtor to have a debt payment on a vehicle in order to claim the ownership expenses. . . . The Court also rejects the use of the IRS Manual and Handbook to determine statutory rules in the context of the means test or calculation of projected disposable income. The statute itself makes clear that it is the amounts specified in the Local Standards that shall be used; nothing in the statute incorporates usage of IRS internal guidance for use in application of § 707(b)(2)(A)(ii)(I).”); In re Moorman, 376 B.R. 694, 697–99 (Bankr. C.D. Ill. Sept. 28, 2007) (Gorman) (Debtors with CMI greater than applicable median family income are entitled to Transportation Ownership Costs for cars owned free and clear of debt; it is not appropriate to consult Internal Revenue Manual for contrary outcome. “[T]he goal of the IRS employees using the IRM is to maximize revenue to the IRS without specific regard to taxpayers’ other obligations to secured or unsecured creditors. Thus, the IRM and related Standards provide ‘caps’ on the amount of secured debt payments which may be deducted when figuring what payments should be made to the IRS to pay delinquent taxes. . . . Chapter 13 of the Bankruptcy Code, on the other hand, attempts to provide a structure for the repayment of all debts based on established priorities. . . . [A]lthough Congress borrowed the National and Local Standards from the IRS for incorporation into BAPCPA, there is no reasonable basis to also borrow the IRS collection guidelines and methods found in the IRM for interpretation of BAPCPA. . . . [T]he ‘cap’ provisions . . . used by the IRS to consider secured debt payments conflict with express provisions of BAPCPA and, therefore, the language in the IRM about the Standards being ‘caps’ cannot be applied. . . . This Court . . . will not consider the IRM to determine the availability of the Standard ownership deduction for debtors who own vehicles free and clear of liens. . . . [A] debtor’s ‘applicable’ deductions are those that correspond to the debtor’s date of filing, family size, geographic location, number of vehicles, or other factors set forth in the Standard tables. In determining whether a debtor has properly claimed his ‘applicable’ deductions, a Court must determine whether the debtor has correctly navigated through the tables. . . . If Congress had wanted to limit vehicle ownership deductions to the amount actually expended for secured debt payment as the IRS does, albeit with a cap, it could have done so by allowing the secured debt payment in full and eliminating the ownership deduction altogether. . . . [W]ith even the smallest of secured debt payments, the Standard deduction is still ‘applicable’ regardless of a debtor’s actual ownership expenses. It does not logically follow that, if a debtor has no secured debt payment to deduct from the Standard, the Standard, for some reason, becomes no longer ‘applicable.’”); In re Wilson, 373 B.R. 638 (Bankr. W.D. Ark. July 30, 2007) (Mixon) (Debtor with CMI greater than applicable median family income gets vehicle ownership expense deduction without regard to debt or lease.), rev’d, 383 B.R. 729 (B.A.P. 8th Cir. Mar. 14, 2008) (Schermer, Federman, McDonald); In re Musgrave, No. BK 07-80393, 2007 WL 6364775 (Bankr. D. Neb. July 19, 2007) (unpublished) (Saladino) (Debtor with CMI greater than applicable median family income is entitled to Transportation Ownership Costs for car without regard to loan or lease.); In re Armstrong, 370 B.R. 323, 329 (Bankr. E.D. Wash. June 12, 2007) (Williams) (Chapter 13 debtor with CMI greater than applicable median family income gets Transportation Ownership Costs notwithstanding that pickup is owned free and clear of liens or lease. “The purpose of § 707(b) is to provide a mechanism to identify debtors who can afford to repay. If Congress had intended that such debtors be identified based on actual reasonable expenses, it would have so provided and, as to certain types of expenses, did so provide. The transportation expense is not one of them. With regard to housing and transportation expense, Congress intended that such debtors be identified by use of a uniform, easily applied formula, i.e., the Local Standards.”); In re Vaughn, 411 B.R. 199, 210 (Bankr. M.D. Pa. June 8, 2007) (France) (“[T]he plain language of § 707(b)(2)(A)(ii)(I) permits a debtor to claim a transportation ownership deduction regardless of whether the vehicle is encumbered or leased. . . . [A] debtor may claim the ‘applicable monthly expense’ set forth in the Local Standards and is not limited to their ‘actual monthly expense.’”); In re Lynch, 368 B.R. 487 (Bankr. E.D. Va. May 8, 2007) (Tice) (Debtor with CMI greater than applicable median family income gets expense deduction for car ownership even when car is not subject to debt or lease.); In re Chamberlain, 369 B.R. 519 (Bankr. D. Ariz. Apr. 26, 2007) (Haines) (Debtor with CMI greater than applicable median family income gets automobile ownership deduction for unencumbered car.); In re Swan, 368 B.R. 12, 17 (Bankr. N.D. Cal. Apr. 18, 2007) (Weissbrodt) (Debtor with CMI greater than applicable median eleven opinions holding that a debtor cannot deduct an ownership expense for a vehicle owned free and clear. . . . Fourteen courts have gone the other way, holding that the debtor may deduct the ownership expense for a vehicle that is not financed or leased.”); In re Watson, 366 B.R. 523 (Bankr. D. Md. Apr. 11, 2007) (Keir) (Debtor with CMI greater than applicable median family income is allowed ownership and operating costs for an unencumbered car.); In re Enright, 397 B.R. 272, 274 (Bankr. M.D.N.C. Mar. 6, 2007) (Waldrep) (“[A] Chapter 13 debtor who owns a car free of any liens or leases can claim the ownership allowance under the IRS Local Standard for transportation as a monthly expense for the purpose of computing disposable income under Section 1325(b)(2).”); In re Crews, No. 06-13117, 2007 WL 626041, at *3 (Bankr. N.D. Ohio Feb. 23, 2007) (unpublished) (Harris) (“The Court concludes that the debtors are entitled to the transportation ownership expense even for a vehicle owned free and clear of any liens.”); In re Sawdy, 362 B.R. 898, 914 (Bankr. E.D. Wis. Feb. 20, 2007 (Pepper) (“[D]ebtors . . . are entitled to deduct on their Form B22C the IRS Local Standard expense amount for vehicle ownership, even though they own their vehicles outright and do not make monthly note or lease payments.”), rev’d, 384 B.R. 199 (E.D. Wis. Mar. 17, 2008) (Stadtmueller); In re Grunert, 353 B.R. 591 (Bankr. E.D. Wis. Nov. 20, 2006) (Kelley) (Vehicle ownership deduction is allowed without regard to whether debtor has debt or lease.); In re Haley, 354 B.R. 340 (Bankr. D.N.H. Oct. 18, 2006) (Debtor with CMI greater than applicable median family income is allowed ownership expense for car without regard to whether car is subject to loan or lease.); In re Demonica, 345 B.R. 895 (Bankr. N.D. Ill. July 31, 2006) (Barbosa) (Debtor with CMI greater than applicable median family income can deduct Local Standards amount for vehicle ownership expense notwithstanding that debtor is not liable on note for vehicles.).

 

128  In re Powell, 392 B.R. 407, 408 (B.A.P. 8th Cir. Sept. 2, 2008) (Kressel, Schermer, McDonald) (Citing Babin v. Wilson, 383 B.R. 729 (B.A.P. 8th Cir. Mar. 14, 2008) (Schermer, Federman, McDonald), “debtors who do not incur vehicle ownership expenses are not permitted to claim a deduction for such expenses because such expenses are not allowable under Section 707(b)(2)(A)(ii)(I) of the Bankruptcy Code.”); Babin v. Wilson (In re Wilson), 383 B.R. 729, 733–34 (B.A.P. 8th Cir. Mar. 14, 2008) (Schermer, Federman, McDonald) (“[A] vehicle ownership expense is only applicable if a debtor is in fact incurring such an expense. . . . [T]here can be no doubt that the purpose of these amendments to §§ 707(b) and 1325(b) was to require above-median income debtors to make more funds available to their unsecured creditors, and to do so by limiting the court’s authority to allow expenses. . . . It would turn the logic of BAPCPA on its head to allow above-median debtors such a deduction.”); Ransom v. MBNA Am. Bank, N.A. (In re Ransom), 380 B.R. 799, 807–08 (B.A.P. 9th Cir. Dec. 27, 2007) (Dunn, Baum, Montali) (Chapter 13 debtor with CMI greater than applicable median family income is not entitled to automobile ownership expense deduction if car is owned free of lien or lease.), certified for further appeal, 380 B.R. 809 (B.A.P. 9th Cir. Dec. 27, 2007) (Dunn, Baum, Montali), aff’d, 577 F.3d 1026 (9th Cir. Aug. 14, 2009) (Trott, McKeown, Ikuta), aff’d, __ U.S. __, 131 S. Ct. 716, 178 L. Ed. 2d 603 (Jan. 11, 2011); Grossman v. Sawdy (In re Sawdy), 384 B.R. 199, 204 (E.D. Wis. Mar. 17, 2008) (Stadtmueller) (“[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. Stated another way, a debtor may only claim the deductions listed if they are applicable to that debtor. . . . [T]his court concludes that Congress’ use of the word ‘applicable’ limits the eligibility for expenses under the National and Local Standards; a debtor must actually have incurred the expense (here, a car payment) in order to claim the amounts set forth in the Standard.”); In re Rabener, 424 B.R. 36, 43–44 (Bankr. E.D.N.Y. Jan. 21, 2010) (Grossman) (Debtor with CMI greater than applicable median family income cannot deduct Transportation Ownership Costs for cars owned free of loan or lease. “[T]he most persuasive reading of the phrase ‘applicable monthly expense amounts’ in Section 707(b)(2)(A)(ii), is that only expense amounts that are capable of being applied to a particular debtor may be deducted from income. . . . When one considers that Congress determined to apply standardized deductions, as opposed to ‘actual’ deductions, to above-median income debtors it stands to reason that the standardized deductions were intended to act as a cap on certain expenses not as an opportunity to take an expense deduction where one does not actually exist. If a below-median income debtor is limited by his actual car loan or lease payment amounts, why should a debtor with higher income be permitted to take an expense amount where one does not exist?”); In re Alvarado, No. 09-40855-R, 2009 WL 3617655, at *2 (Bankr. E.D. Tex. Oct. 29, 2009) (unpublished) (Rhoades) (Citing Nowlin v. Peake (In re Nowlin), 576 F.3d 258 (5th Cir. July 17, 2009) (King, Dennis, Elrod), and distinguishing Tate v. Bolen (In re Tate), 571 F.3d 423 (5th Cir. June 10, 2009) (Reavley, Davis, Benavides), Local Standards Transportation Ownership Costs deduction is not available when Chapter 13 debtors are not presently incurring ownership expense for their cars. “The Fifth Circuit recently . . . join[ed] the Eighth and Tenth Circuits in adopting a forward-looking interpretation of ‘projected disposable income.’ . . . [T]he Court may look at Bankruptcy Form B22C as a starting point. . . . When conducting a means test under § 707(b), the Fifth Circuit has concluded that a debtor may deduct a vehicle ownership expense, even if the debtor does not have a vehicle ownership expense, for the purpose of determining whether a presumption of abuse exists. . . . However, the analysis does not stop there in the Chapter 13 confirmation context. . . . ‘[A]ny party may rebut this presumption by presenting evidence of present or reasonably certain future events that substantially change the debtor’s financial situation.’ . . . There is no dispute that the debtors in this case are not presently incurring an ownership expense for their vehicles. The Court finds and concludes that the Bankruptcy Form B22C calculation of disposable income, to the extent it includes such an expense, has been rebutted.”); In re Wenzel, 415 B.R. 510, 514, 515 (Bankr. D. Kan. Sept. 1, 2009) (Nugent) (Reaffirming In re Howell, 366 B.R. 153 (Bankr. D. Kan. Apr. 26, 2007) (Nugent), rejecting eCast Settlement Corp. v. Washburn (In re Washburn), 579 F.3d 934 (8th Cir. Aug. 28, 2009) (Melloy, Benton, Magnuson), and embracing Ransom v. MBNA America Bank, N.A. (In re Ransom), 577 F.3d 1026 (9th Cir. Aug. 14, 2009) (Trott, McKeown, Ikuta), debtors with CMI greater than applicable median family income cannot deduct Transportation Ownership Costs for an unencumbered car. “BAPCPA’s legislative intent to require chapter 13 debtors to repay their creditors what they are able carries greater weight and is more compelling when interpreting § 707(b)(2)(A)(ii)(I) in the chapter 13 setting.” With respect to the contrary decision of the Bankruptcy Appellate Panel for the Tenth Circuit in In re Pearson, 390 B.R. 706 (B.A.P. 10th Cir. July 28, 2008) (McFeeley, Bohanon, Thurman): “The Tenth Circuit Court of Appeals dismissed the appeal as moot and vacated the BAP opinion. [Stewart v. Pearson (In re Pearson), No. 08-8060, 2009 WL 205408 (10th Cir. Jan. 22, 2009) (unpublished) (Kelly, Murphy, Hartz)]. It remanded the case back to the BAP with instructions to vacate the bankruptcy court’s ruling on the vehicle ownership deduction issue. On remand, the BAP vacated the bankruptcy court’s ruling. [Pearson v. Stewart (In re Pearson), 399 B.R. 829 (B.A.P. 10th Cir. Jan. 29, 2009) (McFeeley, Bohanon, Thurman)].”); In re Coffin, 396 B.R. 804, 809 (Bankr. D. Me. Nov. 18, 2008) (Haines) (Debtor with CMI greater than applicable median family income cannot deduct ownership expenses for two vehicles owned free of debt or lease. “The determinative standard for Chapter 13 debtors’ expenses is reasonableness and necessity. A non-expenditure . . . does not qualify. . . . [B]ecause Coffin is not incurring out-of-pocket ownership expenses, such expenses cannot fairly be ‘projected’ in a plan.”), rev’d, 435 B.R. 780 (B.A.P. 1st Cir. Sept. 15, 2010) (Lamoutte, Boroff, Rosenthal); In re White, 393 B.R. 436, 443 (Bankr. N.D. Miss. Sept. 9, 2008) (Houston) (Citing In re Ransom, 380 B.R. 799 (B.A.P. 9th Cir. Dec. 27, 2007) (Dunn, Baum, Montali), debtor with CMI greater than applicable median family income is not entitled to Local Standards Transportation Ownership Costs for car free of debt. “[T]his court believes that the language in § 1325(b)(1)(B) simply does not contemplate an ‘artificial’ deduction when there is no underlying debt. This is consistent with one of the primary objectives of BAPCPA which is to ensure that debtors repay as much of their debt as reasonably possible. . . . Refusing to permit the debtors to deduct an ownership expense when there is no actual underlying debt results in an increased distribution to unsecured creditors, even if only for a temporary period, with monies that are actually available.”); In re Law, No. 07-40863, 2008 WL 1867971, at *9–*11 (Bankr. D. Kan. Apr. 24, 2008) (unpublished) (Karlin) (Local Standards Transportation Ownership Costs not available for unencumbered car. “Congress did not need to insert the term ‘applicable’ if it is to be used to modify the term ‘Local Standards’ because, by definition, the debtor would have to look to the Local Standards that apply to the debtor when taking that expense deduction . . . . If Congress intended to allow a debtor to take all of the National and Local Standards, regardless of whether the specific expense was applicable to the debtor, it could have simply left the word ‘applicable’ out of § 707(b)(2)(A)(ii)(I). . . . The Court agrees with those cases that hold that if a debtor does not have an expense provided for in the National and Local Standards, then that expense is not ‘applicable’ to the debtor and he cannot claim it on Form 22C.”); In re French, 383 B.R. 402, 406 (Bankr. W.D. Ky. Mar. 13, 2008) (Lloyd) (Debtors with CMI greater than applicable median family income cannot claim ownership expense for car owned free of debt and are limited to actual car payment. Monthly car payment was $320.10. Local Standard for car ownership expense was $471. Debtors claimed $150.90 difference on Line 28 of Form B22C. “The Court favors the line of cases that follow eCAST’s argument that where there are no actual ownership or lease payments for a car, no allowance expense can be deducted. . . . eCAST contends that Debtors may only deduct actual expenses or the amount of the allowance, whichever is less. The Court is inclined to only allow the Debtors’ actual and reasonable expenses.”); In re Houser, No. 07-50529, 2007 WL 6404340, at *6 (Bankr. W.D.N.C. Dec. 14, 2007) (unpublished) (Whitley) (“If a debtor does not have a loan or lease payment, then the Local Standard for transportation ownership expense is not ‘applicable.’”); In re Kiedrowski, No. 06-24318-PP, 2007 WL 6371259 (Bankr. E.D. Wis. Aug. 9, 2007) (unpublished) (Pepper) (Applying In re Ross-Tousey, 368 B.R. 762 (E.D. Wis. May 21, 2007) (Griesbach), Chapter 13 debtor with CMI greater than applicable median family income is not entitled to Transportation Ownership Costs for car owned free of lien or lease.); In re Hubbard, 384 B.R. 808, 812 (Bankr. N.D. Ind. Oct. 12, 2007) (Grant) (Debtors with CMI greater than applicable median family income are not entitled to vehicle ownership deduction for cars owned free and clear of debt. “[T]he more appropriate position is the one that views the vehicle ownership expense as a cap rather than an automatic allowance. . . . [A] debtor is not entitled to a transportation ownership expense unless it actually has such an expense, whether in the form of a lease payment or a payment on account of a secured claim.”); In re Bennett, 371 B.R. 440 (Bankr. C.D. Cal. June 6, 2007) (Albert) (Chapter 13 debtor with CMI greater than applicable median family income does not get Transportation Ownership Costs when car is owned free and clear of debt or lease.); In re Howell, 366 B.R. 153 (Bankr. D. Kan. Apr. 26, 2007) (Nugent) (Debtor with CMI greater than applicable median family income with an unencumbered car is not allowed an ownership expense deduction.); In re Ceasar, 364 B.R. 257 (Bankr. W.D. La. Mar. 6, 2007) (Summerhays) (Debtor with CMI greater than applicable median family income cannot deduct Transportation Ownership Costs for a car that is free of debt.); In re Slusher, 359 B.R. 290 (Bankr. D. Nev. Jan. 17, 2007) (Markell) (Debtor with CMI greater than applicable median family income forfeits ownership allowance in absence of car loan or lease.); In re Devilliers, 358 B.R. 849, 864 (Bankr. E.D. La. Jan. 9, 2007) (Magner) (“[T]he IRS standard deduction allowed for the costs associated [with] acquiring ownership or leasing a vehicle . . . is only applicable if a debtor is actually paying for or leasing a vehicle. Unencumbered vehicles do not qualify for the deduction.”); In re Carlin, 348 B.R. 795, 797 (Bankr. D. Or. Aug. 18, 2006) (Radcliffe) (Citing In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. Mar. 6, 2006) (Nelms), and In re McGuire, 342 B.R. 608 (Bankr. W.D. Mo. June 1, 2006) (Federman), “the statute plainly and unambiguously” does not allow a vehicle ownership expense deduction when the debtor owns car free and clear of liens.); In re Wiggs, No. 06 B 70203, 2006 WL 2246432 (Bankr. N.D. Ill. Aug. 4, 2006) (unpublished) (Barbosa) (Chapter 13 debtor with CMI greater than applicable median family income cannot deduct Local Standard amount for car ownership when debtor owns cars but there is no loan or lease obligation.); In re Lara, 347 B.R. 198 (Bankr. N.D. Tex. June 28, 2006) (Houser) (For purposes of Local Standard for transportation, no ownership expense is allowed if there is no debt or lease payment.); In re Dyke, No. 06-40333-13-ABF, 2006 WL 4451484 (Bankr. W.D. Mo. June 4, 2006) (unpublished) (Federman) (Debtor with CMI greater than applicable median family income cannot take ownership deduction for car that is either not owned or is owned free of liens.); In re McGuire, 342 B.R. 608 (Bankr. W.D. Mo. June 1, 2006) (Federman) (Debtor with CMI greater than applicable median family income cannot deduct Local Standard for ownership of car that is free of liens.); In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. Mar. 6, 2006) (Nelms) (To determine Local Standard for transportation for debtor with CMI greater than applicable median family income, ownership deduction is allowed only if car is subject to debt or lease.).

 

129  389 B.R. 518 (B.A.P. 6th Cir. June 12, 2008) (Fulton, Rhodes, Scott).

 

130  389 B.R. at 522–31.

 

131  380 B.R. 799 (B.A.P. 9th Cir. Dec. 27, 2007) (Dunn, Baum, Montali), aff’d, 577 F.3d 1026 (9th Cir. Aug. 14, 2009) (Trott, McKeown, Ikuta), aff’d, __ U.S.__, 131 S. Ct. 716, 178 L. Ed. 2d 603 (Jan. 11, 2011).

 

132  380 B.R. at 807–08.

 

133  369 B.R. 519 (Bankr. D. Ariz. Apr. 26, 2007) (Haines).

 

134  369 B.R. at 523–26. Accord Hildebrand v. Kimbro (In re Kimbro), 389 B.R. 518, 525 (B.A.P. 6th Cir. June 12, 2008) (Fulton, Rhodes, Scott) (“Congress intended to incorporate only the specific IRS expense standards and not the IRM.”); In re Armstrong, 370 B.R. 323, 329–31 (Bankr. E.D. Wash. June 12, 2007) (Williams) (“It certainly could have, but did not state that application of the Local Standards should be applied in the same manner as described by the IRS’s internal policies. The intent was to require rote mathematic calculations based upon the geographic area in which the debtor resides and the number of vehicles. . . . The IRM are not statutes. They are not promulgated as part of an administrative process. They are internal documents developed to assist IRS agents engaged in a non-bankruptcy process, i.e., the collection of past due taxes. Absent a reference in the ‘means test’ to the IRM, which Congress chose not to do, one cannot conclude that Congress intended courts to be bound by the IRM.”), aff’d, 395 B.R. 127 (E.D. Wash. Sept. 24, 2008) (Shea); In re Musselman, 379 B.R. 583 (Bankr. E.D.N.C. Nov. 30, 2007) (Doub), aff’d in part, rev’d in part, 394 B.R. 801, 817 (E.D.N.C. Sept. 30, 2008) (Flanagan) (“[T]he Internal Revenue Handbook was not expressly incorporated therein by Congress.”); In re Styles, 397 B.R. 771, 774 (Bankr. W.D. Va. Nov. 21, 2008) (Krumm) (“The Internal Revenue Manual . . . was not incorporated into 11 U.S.C. § 707(b)(2)(A)(ii)(I) and does not apply to the calculation of expense deductions.”); In re Pearl, 394 B.R. 309, 314 (Bankr. N.D.N.Y. Sept. 10, 2008) (Gerling) (“This Court concurs with the view that deferring to the approach taken by the IRS . . . would to a certain extent enable it to become ‘a rule-making body for bankruptcy law,’ thereby assigning a legislative function to an agency.”); In re Mati, 390 B.R. 11, 23 (Bankr. D. Mass. June 9, 2008) (Feeney) (“[T]he reference in § 707(b)(2) to the Local Standards is not a shorthand way of referring to the Financial Analysis Handbook or the Internal Revenue Manual[.]”); In re Anderson, 383 B.R. 699, 708–09 (Bankr. S.D. Ohio Mar. 21, 2008) (Humphrey) (Not appropriate to look to the Internal Revenue Manual to overcome the Local Standards transportation ownership expense allowance. “eCast’s position is not supported by the language of the statute. . . . eCast’s position is grounded in commentary from the Internal Revenue Service . . . . BAPCPA does not incorporate this language . . . . [T]he court has no authority to raise the [IRS] Handbook above the language Congress chose in writing BAPCPA. The language of BAPCPA provides separate subsections in § 707(b)(2)(A) for secured debt and the Local Standards issued by the IRS rather than require that the Debtors choose the lesser figure.”); In re White, 382 B.R. 751, 757–58 (Bankr. C.D. Ill. Feb. 28, 2008) (Perkins) (Not appropriate to consult Internal Revenue Manual to overcome statutory allowance for Local Standards car ownership without regard to debt. “The statute refers only to the ‘monthly expense amounts specified under the . . . Standards.’ It does not expressly incorporate by reference the instructions or commentary portion of the IRM. . . . The IRM is in the nature of an internal agency rule that is not enforceable against the IRS. . . . [T]he purpose to which the guidelines are put by the field agents is significantly dissimilar from their purported use in bankruptcy . . . . [T]he uncapped deduction for secured debt payments permitted under clause (iii) of Section 707(b)(2)(A) is contrary to the IRM guidelines.”); In re Roberts, No. 07-210247, 2008 WL 542503, at *3–*4 (Bankr. D. Conn. Feb. 28, 2008) (unpublished) (Krechevsky) (Citing In re Chamberlain, 369 B.R. 519 (Bankr. D. Ariz. Apr. 26, 2007) (Haines), “[t]he most natural reading of § 707(b)(2)(A)(ii)(I) is that ‘applicable’ modifies ‘the amounts specified’ in the ‘Local Standards’ . . . . [T]he language of the statute makes no reference to the IRM. On the contrary, reference to the IRM was included in an earlier draft of BAPCPA, but was omitted from the bill that was actually enacted. . . . [T]he purpose for which the IRS uses the standards differs significantly from, and in some instances is in direct conflict with, their purposes under BAPCPA. . . . [T]he IRM and related Standards provide ‘caps’ on the amount of secured debt payment which may be deducted when figuring what payments should be made to the IRS to pay delinquent taxes. . . . For purposes of the Chapter 13 disposable income test . . . all secured debt which is contractually due within the five-year period after filing may be deducted by debtors. . . . There are no caps on such expenditures included in the statutory formulae for calculating . . . Chapter 13 disposable income . . . . [A]dopting the IRS procedures set forth in the IRM is both unauthorized by the plain language of BAPCPA and is at odds with its purposes.”); In re Davis, 382 B.R. 764, 768 (Bankr. W.D. Ark. Feb. 26, 2008) (Barry) (“[T]he IRM is not incorporated by reference in § 707(b). . . . [T]he IRM is not a source from which a court should glean Congress’s intent regarding the means test. . . . The IRS is not an administrative agency that administers the bankruptcy code . . . . [C]ourts should not consult the IRM when deciding when and how those standards apply to a bankruptcy debtor for purposes of section 707(b).”), rev’d sub nom. In re Powell, 392 B.R. 407 (B.A.P. 8th Cir. Sept. 2, 2008) (Kressel, Schermer, McDonald); In re Clark, No. 07-23390, 2008 WL 444565, at *6 (Bankr. E.D. Wis. Feb. 14, 2008) (unpublished) (McGarity) (“Whatever the reason for different policies involving tax collection and chapter 13 . . . the IRS cap language was not used in the bankruptcy statute.”); In re Simms, No. 06-1206, 2008 WL 217174, at *17–*18 (Bankr. N.D. W. Va. Jan. 23, 2008) (unpublished) (Flatley) (Not appropriate to consult IRS Manual to determine applicable amounts allowed for transportation expenses under Local Standards. “[T]his court finds no basis in the statute for grafting the Internal Revenue Manual into the Bankruptcy Code. . . . [T]he word ‘specified’ could not be much clearer in indicating the Standards govern, not what the IRS would allow. . . . 11 U.S.C. § 707(b)(2)(A)(ii)(I) is plain and unambiguous, and . . . no basis exists for the court to allow the . . . Local Standards to be spliced based on what an IRS field agent would do when dealing with a delinquent taxpayer.”); In re Herbord, Nos. 07-60311, 07-60331, 2008 WL 149972 (Bankr. S.D. Ill. Jan. 14, 2008) (unpublished) (Meyers) (Internal Revenue Manual is not incorporated into disposable income test and does not define expenses allowed under Local Standards for transportation.); In re Barrett, 371 B.R. 860, 865 (Bankr. S.D. Ill. July 10, 2007) (Meyers) (“This Court . . . rejects the notion that Congress intended the provisions of the Internal Revenue Manual and the IRS’s Collection Financial Standards, with their respective definitions of necessity, to control means testing in bankruptcy.”); In re Armstrong, 370 B.R. 323, 329–31 (Bankr. E.D. Wash. June 12, 2007) (Williams) (“Congress . . . certainly could have, but did not state that application of the Local Standards should be applied in the same manner as described by the IRS’s internal policies. The intent was to require rote mathematic calculations based upon the geographic area in which the debtor resides and the number of vehicles. . . . The IRM are not statutes. They are not promulgated as part of an administrative process. They are internal documents developed to assist IRS agents engaged in a non-bankruptcy process, i.e., the collection of past due taxes. Absent a reference in the ‘means test’ to the IRM, which Congress chose not to do, one cannot conclude that Congress intended courts to be bound by the IRM.”); In re Long, 372 B.R. 467, 470–71 (Bankr. W.D. Wis. May 10, 2007) (Martin) (“[F]or items covered by the National and Local Standards, the ‘applicable’ amounts are fixed costs promulgated by the IRS. Holding otherwise would nullify the statute’s instructions to consider the debtor’s actual spending on other types of expenses. The Bankruptcy Code diverges from the IRS’s own understanding of the National and Local Standards. . . . [E]ven though Congress incorporated into the Bankruptcy Code the IRS’s benchmarks for how much a delinquent taxpayer can afford to pay, it did not incorporate the way IRS field officers are instructed to apply those benchmarks. . . . I respectfully disagree with courts in other jurisdictions that have given weight to the IRS’s regulations.”); In re Lynch, 368 B.R. 487, 491–92 (Bankr. E.D. Va. May 8, 2007) (Tice) (“Congress indicated a desire to implement a bright line rule when enacting the means test, and use of the Internal Revenue Service’s guidance documents to disallow the expense would instead return the courts to a flexible analysis of expenses requiring excessive investigation into IRS principles and practices. . . . [T]he use of the Service’s internal guidance documents by bankruptcy judges in order to enforce the bankruptcy code could enable the IRS to become a rule-making body for bankruptcy law. This runs the risk of improperly assigning a legislative function to an agency unrelated to bankruptcy and may raise serious questions of administrative law.”); In re Watson, 366 B.R. 523, 528 (Bankr. D. Md. Apr. 11, 2007) (Keir) (“[C]ourts which have disallowed the application of the Local Ownership Allowance for an unencumbered vehicle, have done so by applying language contained in the Internal Revenue Manual . . . . As explained . . . in . . . [In re Fowler, 349 B.R. 414 (Bankr. D. Del. Sept. 11, 2006) (Walrath),] the Collection Financial Standards are published by the Internal Revenue Service to determine a taxpayer’s ability to pay a delinquent tax liability. . . . Under the IRM, as to Local Standards, for tax collection purposes, the agent is instructed to allow the debtor the lesser of the actual amount paid or the Local Standards. But, Section 707(b)(2)(A)(iii) explicitly provides that in determining Allowable Expenses, the debtor’s actual average monthly payments on account of secured debts are to be included. Thus the explicit direction of the Bankruptcy Code as to determination of Allowable Expenses for a determination of ‘amounts reasonably necessary to be expended’ is different than the use of the Local Standards for the collection of taxes under the guidance of the IRM. . . . [T]his Court agrees with the holding . . . that the Local Standards referred to by Section 707(b)(2)(A)(ii)(I) of the Bankruptcy Code, do not include the guidance set forth in the IRM for tax collectors. Congress clearly intended that the Bankruptcy Code direct how the Local Standards are to be employed in determining the Allowable Expenses.”); In re Plumb, 373 B.R. 429, 439 (Bankr. W.D.N.C. Mar. 16, 2007) (Hodges) (“This court agrees with the reasoning in [In re Prince, No. 06-10328C-7G, 2006 WL 3501281 (Bankr. M.D.N.C. Nov. 30, 2006) (unpublished) (Stocks),] and similarly declines to consider the rules and practices specified in the Internal Revenue Service 5.15.1 Financial Analysis Handbook in determining whether the debtors are entitled to the entire Local Standard allowance or should be restricted to a deduction in the amount of the debtors[’] actual debt payment.”); In re Enright, 397 B.R. 272, 280 (Bankr. M.D.N.C. Mar. 6, 2007) (Waldrep) (“If debtors were expected to consult the IRM as a whole, then this would defeat the intent of the section, which was to provide a clear formula that a debtor could easily follow.”); In re Crews, No. 06-13117, 2007 WL 626041, at *4 (Bankr. N.D. Ohio Feb. 23, 2007) (unpublished) (Harris) (“The Court acknowledges that the Internal Revenue Manual does indicate that the transportation ownership standards are caps in the context of analyzing a taxpayers’s ability to pay . . . . Section 707(b)(2)(A)(ii)(I), however, deems the debtor’s expenses to be the ‘amounts specified’ in the Local Standards. . . . It nowhere incorporates wholesale all the IRS criteria for collection matters.”); In re Sawdy, 362 B.R. 898, 914 (Bankr. E.D. Wis. Feb. 20, 2007) (Pepper) (“Congress used the word ‘applicable’ instead of the word ‘actual’ in referring to the expenses enumerated in the National and Local Standards, and second, the fact that Congress appears to have considered importing the language from the Internal Revenue Manual and the Financial Collection Analysis into § 707(b)(2)(A)(ii)(I), but chose not to do so.”), rev’d, 384 B.R. 199 (E.D. Wis. Mar. 17, 2008) (Stadtmueller); In re Farrar-Johnson, 353 B.R. 224, 231 (Bankr. N.D. Ill. Sept. 15, 2006) (Goldgar) (“Section 707(b)(2)(A)(ii)(I) . . . deems the debtor’s expenses to be the ‘amount specified’ in the Local Standards. . . . It nowhere incorporates wholesale all IRS criteria for tax collection matters.”).

 

135  390 B.R. 338 (Bankr. S.D. Ohio July 7, 2008) (Walter).

 

136  390 B.R. at 348–49.

 

137  390 B.R. at 342 nn. 3 & 4.

 

138  362 B.R. 898, 913 (Bankr. E.D. Wis. Feb. 20, 2007) (Pepper) (quoting In re Fowler, 349 B.R. 414, 419 (Bankr. D. Del. Sept. 11, 2006) (Walrath)), rev’d, 384 B.R. 199 (E.D. Wis. Mar. 17, 2008) (Stadtmueller).

 

139  359 B.R. 290 (Bankr. D. Nev. Jan. 17, 2007) (Markell).

 

140  359 B.R. at 306–10. Accord Babin v. Wilson (In re Wilson), 383 B.R. 729, 733–34 (B.A.P. 8th Cir. Mar. 14, 2008) (Schermer, Federman, McDonald) (“[T]he IRS Internal Revenue Manual . . . requires taxpayer to have an actual loan or lease payment obligation on a vehicle before the Local Standard ownership cost applies.”); Grossman v. Sawdy (In re Sawdy), 384 B.R. 199, 204 (E.D. Wis. Mar. 17, 2008) (Stadtmueller) (“[I]t is logical to look to the actual IRS Collection Financial Standards in determining the applicable expense Standards in bankruptcy actions. . . . The IRS standards unequivocally state that when no car payment is being made, the debtor must look to the ‘operating costs’ to determine the transportation expense.”); In re French, 383 B.R. 402, 406 (Bankr. W.D. Ky. Mar. 13, 2008) (Lloyd) (“[T]his Court adopts the IRS’ interpretation of its own standards and will allow the Debtors to deduct their actual expenses or the amount allowed by the standards, whichever is less.”); In re Hubbard, 384 B.R. 808, 812 (Bankr. N.D. Ind. Oct. 12, 2007) (Grant) (“[T]he more appropriate position is the one that views the vehicle ownership expense as a cap rather than an automatic allowance. It clearly functions that way in the IRS standards themselves. . . . [W]hen Congress directed that the IRS would standards [sic] be used in order to help measure a bankruptcy debtor’s expenses, it knew how those standards actually worked and it intended that the courts would use them in that way when it came to applying the means test.”); In re Bennett, 371 B.R. 440, 445 (Bankr. C.D. Cal. June 6, 2007) (Albert) (Based in large part on footnotes in H.R. No. 109-31 that reference Internal Revenue Service Financial Analysis Handbook, court adopts “the entire IRS approach to the issue including the administrative interpretation of the Standards by the IRS itself.”); In re Howell, 366 B.R. 153, 157–58 (Bankr. D. Kan. Apr. 26, 2007) (Nugent) (“[B]y employing the word ‘applicable,’ . . . the drafters of § 707 suggest that the Standards must be interpreted in the context of the Manual’s application of them, not in a vacuum.”); In re Ceasar, 364 B.R. 257, 262–63 (Bankr. W.D. La. Mar. 6, 2007) (Summerhays) (“While the IRS’ guidelines are not binding on the court in applying § 707(b), nothing in the text of the statute suggests that Congress intended to prohibit courts from using the IRS’ own interpretive guidelines in applying the IRS cost allowances that are expressly incorporated into § 707(b)(2)(A)(ii)(I). . . . [T]his court will look to applicable IRS guidelines in the Internal Revenue Manual in order to determine which allowances are applicable to a debtor. . . . The IRS’ Internal Revenue Manual describes the ownership cost component of the allowance as follows: ‘Expenses are allowed for purchase and/or lease of a vehicle, with different rates established for a first car and, if allowed, a second or more cars. Taxpayers will be allowed the local standard or the amount actually paid, whichever is less. Generally, auto loan and/or lease payments will not continue as allowed expenses after the terms of the loan/lease have been satisfied.’ IRM § 5.8.5.5.2.3. . . . Debtors cannot claim the full IRS allowance for transportation ownership costs on their 1997 Honda because they no longer make lease or loan payments on the car.”); In re Carlin, 348 B.R. 795, 797–98 (Bankr. D. Or. Aug. 18, 2006) (Radcliffe) (“According to IRS publications . . . the ‘ownership costs’ is only applicable to debtors who actually have a monthly loan or lease payment obligation associated with a vehicle. . . . Section 707(b)(2)(A)(ii)(I)[] provides . . . that a debtor’s ‘monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the . . . Local Standards . . . issued by the Internal Revenue Service.’ . . . ‘If a debtor does not own or lease a vehicle, the ownership expense is not ‘applicable’ to that debtor.’”); In re McGuire, 342 B.R. 608, 612 (Bankr. W.D. Mo. June 1, 2006) (Federman) (“According to IRS publications regarding the application of its standards, . . . the ownership expense only applies to debtors who actually are obligated to pay a monthly loan or lease payment associated with a vehicle. . . . If a debtor does not own or lease a vehicle, the ownership expense is not ‘applicable’ to that debtor.”); In re Hardacre, 338 B.R. 718, 728 (Bankr. N.D. Tex. Mar. 6, 2006) (Nelms) (“The Collection Financial Standards . . . expressly state, ‘The ownership costs provide maximum allowances for the lease or purchase of up to two automobiles if allowed as a necessary expense.’ . . . Because the Local Standards only provide for a deduction for automobiles that are subject to lease or purchase, they do not permit a debtor to claim an ownership deduction for a vehicle owned free and clear by the debtor.”).

 

141  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed further in §§ 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts, 475.1 [ National Standards ] § 95.2  National Standards and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

142  It has been held that Ransom applies “retroactively” to unconfirmed plans in Chapter 13 cases pending on January 11, 2011. See In re Willems, 422 B.R. 918 (Bankr. E.D. Wis. Feb. 3, 2011) (Kelley).

 

143  Ransom v. MBNA Am. Bank, N.A. (In re Ransom), 380 B.R. 799 (B.A.P. 9th Cir. Dec. 27, 2007) (Dunn, Baum, Montali).

 

144  Ransom v. MBNA, Am. Bank, N.A. (In re Ransom), 577 F.3d 1026 (9th Cir. Aug. 14, 2009) (Trott, McKeown, Ikuta).

 

145  See Babin v. Washburn (In re Washburn), 579 F.3d 934 (8th Cir. Aug. 28, 2009) (Melloy, Benton, Magnuson); Tate v. Bolen (In re Tate), 571 F.3d 423 (5th Cir. June 10, 2009) (Reavley, Davis, Benavides); Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148 (7th Cir. Dec. 17, 2008) (Flaum, Rovner, Williams).

 

146  ___ U.S. ___, 130 S. Ct. 1324, 176 L. Ed. 2d 79 (Mar. 8, 2010).

 

147  Ransom v. FIA Card Servs., N.A., __ U.S. __, 131 S. Ct. 716, 721, 178 L. Ed. 2d 603 (Jan. 11, 2011).

 

148  131 S. Ct. at 721.

 

149  131 S. Ct. at 722.

 

150  11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphasis added) states:

The 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 Necessary Expenses issued by the [IRS] for the area in which the debtor resides.

 

151  131 S. Ct. at 724.

 

152  131 S. Ct. at 724.

 

153  131 S. Ct. at 725 (footnote omitted).

 

154  131 S. Ct. at 725 (internal citations omitted).

 

155  131 S. Ct. at 725.

 

156  131 S. Ct. at 725–26.

 

157  131 S. Ct. at 726 (footnote omitted).

 

158  131 S. Ct. at 727 (footnote omitted).

 

159  131 S. Ct. at 727 (footnote omitted).

 

160  131 S. Ct. at 728 n.8.

 

161  11 U.S.C. § 707(b)(2)(A)(ii)(I).

 

162  131 S. Ct. at 728–29 (footnote omitted).

 

163  131 S. Ct. at 729 n.11 (citation omitted).

 

164  131 S. Ct. at 729 (citing 11 U.S.C. § 1329(a)(1)).

 

165  131 S. Ct. at 730.

 

166  See Matthew Stephenson & Kristin Hickman, The Administrative Law of Borrowed Regulations: Legal Questions Regarding the Bankruptcy Law’s Incorporation of IRS Standards, 1 Norton Bankr. L. Adviser 1 (2008).

 

167  I.R.M. 5.8.5.5.2 (Sept. 1, 2005).

 

168  I.R.M. § 5.15.1.9(1)(B) (Oct. 2, 2009).

 

169  See § 475.1 [ National Standards ] § 95.2  National Standards.

 

170  See discussion beginning at § 95.4  Other [Necessary] Expenses—In General; All Categories

 

171  See I.R.M. § 5.15.1.8 (Oct. 2, 2009), discussed in § 475.1 [ National Standards ] § 95.2  National Standards.

 

172  11 U.S.C. § 1329 is discussed beginning at § 126.1  Standing, Timing and Procedure.

 

173  See §§ 257.1 [ Changed-Circumstances Requirement? ] § 126.5  Changed-Circumstances Requirement? and 506.1 [ Modification after Confirmation after BAPCPA ] § 126.6  Modification after Confirmation after BAPCPA. See, e.g., In re Witkowski, 16 F.3d 739 (7th Cir. Feb. 14, 1994) (Posner, Manion, Wood) (Chapter 13 trustee need not show changed circumstances, unanticipated or otherwise, to seek modification of a plan after confirmation.); Arnold v. Weast (In re Arnold), 869 F.2d 240, 243 (4th Cir. Mar. 6, 1989) (Ervin, Murnaghan, Wilkinson) (Doctrine of res judicata bars an increase in the amount of monthly payments only when there have been no unanticipated, substantial changes in debtor’s financial condition.).

 

174  ___ U.S. ___, 130 S. Ct. 2464, 177 L. Ed. 2d 23 (June 7, 2010). See § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

175  See § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

176  395 B.R. 914 (B.A.P. 6th Cir. Oct. 31, 2008) (Gregg, McIvor, Shea-Stonum).

 

177  See also Spears v. Reding (In re Spears), 415 B.R. 855 (M.D. Ala. Sept. 24, 2009) (Thompson) (Citing Tate v. Bolen (In re Tate), 571 F.3d 423 (5th Cir. June 10, 2009) (Reavley, Davis, Benavides), and Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148 (7th Cir. Dec. 17, 2008) (Flaum, Rovner, Williams), plain language of § 707(b)(2)(A)(ii)(I) allows Local Standards Transportation Ownership Costs notwithstanding that actual car payment is less; however, citing Nowlin v. Peake (In re Nowlin), 576 F.3d 258 (5th Cir. July 17, 2009) (King, Dennis, Elrod), because disposable income is only starting point or presumptive amount that can be rebutted by evidence of present or reasonably certain future events, bankruptcy court must consider all circumstances on remand to determine whether presumption is overcome, including evidence that actual car ownership expense is less than Local Standards amount.).

 

178  See § 257.1 [ Changed-Circumstances Requirement? ] § 126.5  Changed-Circumstances Requirement?.

 

179  I.R.M. 5.15.1.9(1)(A) (Oct. 2, 2009).

 

180  See 11 U.S.C. § 707(b)(2)(A)(iii), discussed in § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

181  See I.R.M. 5.15.1.9(1)(B) (Oct. 2, 2009). See, e.g., In re Reyes, 401 B.R. 910, 917 (Bankr. C.D. Cal. Feb. 26, 2009) (Carroll) (Citing Ransom v. MBNA America Bank, N.A. (In re Ransom), 380 B.R. 799 (B.A.P. 9th Cir. Dec. 27, 2007) (Dunn, Baum, Montali), debtor with leased car is entitled to lesser of Local Standards Transportation Ownership expense allowance or actual lease payment. Citing IRS Collection Financial Standards and § 5.15.1.9 of the Internal Revenue Manual: “Debtors will be permitted to deduct the vehicle ownership allowance under the Local Standard or their actual vehicle ownership expense, whichever is less. This interpretation is consistent with the underlying policy of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.”).

 

182  371 B.R. 860 (Bankr. S.D. Ill. July 10, 2007) (Meyers).

 

183  I.R.M. 5.15.1.9(1)(B) (Oct. 2, 2009).

 

184  Accord In re Joest, No. 10-60028, 2011 WL 1043559, at *5–*7 (Bankr. N.D.N.Y. Mar. 18, 2011) (Davis) (Unmarried debtor with CMI greater than applicable median family income who actually incurs expenses for two cars is allowed Local Standards Operating and Ownership deductions and secured debt deductions for two encumbered cars; after Hamilton v. Lanning, __ U.S. __, 130 S. Ct. 2464, 177 L. Ed. 2d 23 (June 7, 2010), and Ransom v. FIA Card Services, N.A., __ U.S. __, 131 S. Ct. 716, 178 L. Ed. 2d 603 (Jan. 11, 2011), bankruptcy court has no discretion to additionally assess reasonableness and necessity of actual expenses within § 707(b)(2)(A). “Lanning . . . clarifies that the ownership expense amount Debtor claims for her second vehicle is a ‘newly defined’ expense as amended in §§ 707(b)(2) and 1325(b)(3). This amendment applies in all above median income cases and serves as a signal to this Court that Congress intended to modify its ability to independently [assess] the reasonableness of this defined expense. . . . Based on the Supreme Court’s holding, whether an above median income debtor is permitted to claim the vehicle ownership cost deduction depends on whether the debtor is actually incurring costs associated with the acquisition of the vehicle. Since Debtor . . . is making payments on two vehicles, under Ransom the ownership cost expense is applicable to her and she may claim the deduction for both of her vehicles. . . . [T]he IRS Manual states in pertinent part that ‘[a] single taxpayer is normally allowed ownership and operating costs for one vehicle.’ . . . Since the IRS guidelines are at odds with the plain language of § 707(b)(2)(A)(ii)(I) as incorporated into § 1325(b)(3), and as instructed by the Supreme Court in Ransom, the IRS guidelines do not control.”); In re Daniel-Sanders, 420 B.R. 102, 104–05 (Bankr. W.D.N.Y. Dec. 30, 2009) (Bucki) (Applying “reasonably necessary” test, unmarried debtor can claim Local Standards Ownership Costs and Operating Costs for two cars when debtor provides father of her children a car while she is at work and he takes care of kids. “The national and local expense standards of the Internal Revenue Service do not establish any firm rules regarding the number of vehicles that the debtor may expense. . . . [I]n most instances, for purposes of determining disposable income, a single debtor may expense only one automobile. In the present instance, however, the debtor has adequately demonstrated that a second vehicle is reasonably needed to fulfill child care responsibilities. . . . [U]nder the unique circumstances of this case, the court will allow the debtor to expense a second vehicle, for purposes of calculating disposable income.”); In re Styles, 397 B.R. 771, 773–74 (Bankr. W.D. Va. Nov. 21, 2008) (Krumm) (Unmarried debtor with no dependents and CMI greater than applicable median family income is entitled to ownership and operation expense deductions for two cars. “‘[T]he term ‘applicable’ modifies the phrase ‘monthly expense amounts specified under the National Standards and Local Standards.’ . . . It does not modify the phrase ‘debtor’s monthly expenses.’ . . . [A] debtor should refer to the Standards and deduct the applicable amount.’ . . . Other courts . . . hold that ‘applicable’ serves as a cap to ‘actual’ expenses and debtors are therefore only allowed to claim expenses they actually incur. . . . These decisions base their analysis on interpretations of the IRS Standards found in the Internal Revenue Manual. The Internal Revenue Manual, however, was not incorporated into 11 U.S.C. § 707(b)(2)(A)(ii)(I) and does not apply to the calculation of expense deductions. . . . [T]he language of neither 11 U.S.C. § 707(b)(2)(A)(ii)(I) nor Form B22C limits Debtor’s deductions based on her household size but instead merely directs her to claim all expenses that applied. . . . [B]ecause Debtor owned three vehicles she appropriately checked boxes claiming deductions that applied to a person owning two or more vehicles.”); In re Scurlock, 385 B.R. 814, 816 (Bankr. M.D.N.C. Feb. 19, 2008) (Carruthers) (Unmarried debtor is entitled to Transportation Ownership Costs for two cars. “The language on Form B22C related to transportation ownership/lease expenses does not distinguish between cases in which there is a single debtor, a single debtor with dependents, or joint debtors. . . . After considering the language of § 707(b)(2), the Form B22C, as well as case law on this issue, this court concludes that the Debtor may include transportation ownership/lease expenses for two vehicles as part of her monthly expenses.”). But see In re Broers, No. 07-00094-FLK13, 2007 WL 4166144, at *7 (Bankr. E.D. Wash. Nov. 20, 2007) (unpublished) (Kurtz) (Debtor in single-person household gets ownership deduction for one car without regard to debt, but bankruptcy court has discretion to disallow expense deduction for second car. “Under the standardized expenses mandated by Congress, whether Mr. Broers as a single person household is entitled to a deduction for a second vehicle is not clearly established. For that reason, the court exercises it’s [sic] discretion and decides that the transportation allowance for the second vehicle is not reasonably necessary.”).

 

185  368 B.R. 558 (Bankr. E.D. Tex. Apr. 25, 2007) (Rhoades).

 

186  368 B.R. at 564 (“The IRS Local Standards establish maximum allowances for certain transportation related expenses . . . . These standard deductions are allowed only to the extent the underlying expenses are actual and necessary. . . . The ownership costs provide maximum allowances for the lease or purchase of up to two automobiles if allowed as a necessary expense. IRS Collection Financial Standards, available at http://www.irs.gov/individuals/artcle/0,,id=96543,00.html . . . . A ‘necessary expense’ is an expense that is ‘necessary to provide for a taxpayer’s and his or her family’s health and/or production of income.’ IRM § 5.15.1.7. . . . [T]he Internal Revenue Code defines a dependent as either a ‘qualifying child’ or a ‘qualifying relative.’ . . . Any cost incurred by the debtor’s fiancé in connection with the operation of another vehicle is not an expense of the debtor or a legal dependent of the debtor. . . . Further, the debtor’s voluntary payments of his unemployed fiancé’s transportation expenses do not generate any household income. . . . [T]he expenses relating to the [fiancé’s car] are unnecessary and unreasonable.”). Accord In re Stenstrom, 439 B.R. 494, 498 (Bankr. C.D. Ill. Mar. 25, 2010) (Perkins) (Citing In re Turner, 574 F.3d 349 (7th Cir. July 20, 2009) (Posner, Sykes, Van Bokkelen), and distinguishing Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148 (7th Cir. Dec. 17, 2008) (Flaum, Rovner, Williams), debtor with CMI greater than applicable median family income is not entitled to Local Standards Transportation Ownership or Operating Costs for motor home notwithstanding that debtor is on title and obligated on debt when nonfiling codebtor has possession of motor home and is making debt payments. “For purposes of determining the DEBTOR’S projected disposable income, her disclaimer of interest in and liability for the motorhome must be treated the same as a surrender of collateral. The DEBTOR forthrightly admits that the co-debtor has exclusive possession, use and enjoyment of the motorhome and sole responsibility for the debt service payments and all other expenses associated therewith. Although her legal liability still exists, the DEBTOR pays nothing. In effect, her status is relegated to that of a guarantor. Turner directs courts not to disregard undisputed information that directly affects how much the DEBTOR can afford to pay.”); In re Winslett, No. 08-07850-HB, 2010 WL 5112171 (Bankr. D.S.C. 20 Feb. 19, 2010) (Burris) (Ownership and Operating Costs are not allowed for more than one car when debtor is single parent of two adult children—notwithstanding that children are dependents for tax purposes, attending college and working part-time.).

 

187  See §§ 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline and 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

188  See H.R. Rep. No. 109-31(I), at 11–15 (Apr. 8, 2005) (“Means test” imposes rigid abuse formula and a formalistic presumption of abuse that provide little room for discretion on the part of the bankruptcy court); 151 Cong. Rec. H1974-05, 1980-81 (daily ed. Apr. 14, 2005) (statement of Rep. Jackson-Lee) (discussing lack of discretion allowed the bankruptcy court under the bill); see also H.R. Rep. No. 108-40(I), at 490 (Mar. 13, 2003) (dissenting views criticizing lack of discretion bankruptcy courts are allowed under the bill); 146 Cong. Rec. S11,683-02, S11,700 (daily ed. Dec. 7, 2000) (Bankruptcy Reform Act of 2000—Conference Report) (“HR 2415 . . . is intended to both remove unequivocally the bankruptcy court’s discretion with regard to whether a debtor with ability to pay should be dismissed from chapter 7, and to restrict as much as possible reliance upon judicial discretion to determine the debtor’s ability to pay. . . . Section 102 of HR 2415 provides that a Chapter 7 case will be presumed to be an ‘abuse’ of Chapter 7 if the debtor has the ability to repay, in a 5-year repayment plan, 25% of the debtor’s nonpriority unsecured claims (but not less than $6,000), or $10,000, whichever is less. For purposes of determining the debtor’s repayment ability, section 102 provides that the debtor’s monthly expenses shall be applicable monthly expenses under standards issued by the Internal Revenue Service (“IRS”) for the area in which the debtor resides. The IRS standards applicable under section 102 are the IRS ‘National Standards,’ ‘Local Standards,’ and certain categories of ‘Other Necessary Expenses’ which are specifically listed in the Standards. . . . These expense categories allow expenses for housing, food, transportation, and, for purposes of the means test, certain specified ‘other necessary expenses.’”).

 

189  In re Owsley, 384 B.R. 739 (Bankr. N.D. Tex. Mar. 31, 2008) (Nelms).

 

190  384 B.R. at 743–45.

 

191  See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts. See also § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

192  See § 264.1 [ To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim ] § 127.7  To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim.

 

193  See above in this section, and see § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

194  See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

195  The exclusion of “payments for debts” in 11 U.S.C. § 707(b)(2)(A)(ii)(I) is discussed above in this section and in §§ 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts, 475.1 [ National Standards ] § 95.2  National Standards and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

196  See above in this section.

 

197  See §§ 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts and 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts. See, e.g., In re Carlton, 362 B.R. 402, 410 (Bankr. C.D. Ill. Feb. 28) (Debtor with CMI greater than applicable median family income gets ownership deduction for two cars, net of debt secured by each car up to amount allowed in IRS Local Standards. “For Bankruptcy Code purposes . . . the IRS standards are just the starting point on vehicle ownership deductions. From the standard deduction, the amount of the average monthly payment for the secured debt related to a vehicle is subtracted.”), on reconsideration, 370 B.R. 188 (Bankr. C.D. Ill. June 18, 2007) (Gorman); In re Lara, 347 B.R. 198 (Bankr. N.D. Tex. June 28, 2006) (Houser) (For purposes of Local Standards for Transportation, the ownership expense allowance of $475 must be reduced by the actual monthly payment of $25 on the car.); In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. Mar. 6, 2006) (Nelms) (Local Standards permit deductions for car ownership that must be netted against secured debt deduction because of “notwithstanding” sentence in § 707(b)(2)(A)(ii)(I).).

 

198  These issues are particularly in focus after BAPCPA added the hanging sentence at the end of 11 U.S.C. § 1325(a). See discussion of purchase money security interests in § 451.3 [ Only PMSIs Need Apply ] § 75.3  Only PMSIs Need Apply.

 

199  See § 451.3 [ Only PMSIs Need Apply ] § 75.3  Only PMSIs Need Apply.

 

200  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html.

 

201  356 B.R. 519 (Bankr. E.D. Wash. Oct. 27, 2006) (Williams).

 

202  356 B.R. at 525.

 

203  362 B.R. 402 (Bankr. C.D. Ill. Feb. 28), on reconsideration, 370 B.R. 188 (Bankr. C.D. Ill. June 18, 2007) (Gorman).

 

204  362 B.R. at 410. See In re Clark, No. 07-23390, 2008 WL 444565, at *6 (Bankr. E.D. Wis. Feb. 14, 2008) (unpublished) (McGarity) (“[T]he Clarks could switch the designation of car 1 and car 2, and pick up an extra $139 . . . on line 28 that would not be challenged.”).

 

205  See above in this section, and see §§ 475.1 [ National Standards ] § 95.2  National Standards and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

206  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Oct. 1, 2007).

 

207  See above in this section.

 

208  No. 08-08973-8-ATS, 2009 WL 1241263 (Bankr. E.D.N.C. May 4, 2009) (unpublished) (Small).

 

209  2009 WL 1241263, at *2 (“[N]othing in § 1325(b), § 707(b)(2), or the standards adopted by the Internal Revenue Service preclude [sic] debtors who own four vehicles from claiming the local vehicle allowance for an unencumbered vehicle and a vehicle with the lowest average monthly payment, and also claiming the secured payment expense deduction for the vehicles with the higher average monthly payments. The court agrees with the debtors that they were not required to list their expenses in a way that maximizes their disposable income.”). Accord In re Harris, No. 08-08162-8-ATS, 2009 WL 1241267 (Bankr. E.D.N.C. May 4, 2009) (unpublished) (Small).

 

210  347 B.R. 198 (Bankr. N.D. Tex. June 28, 2006) (Houser).

 

211  See § 473.1 [ Accounting for Spouses ] § 94.3  Accounting for Spouses.

 

212  347 B.R. at 202–03.

 

213  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Oct. 2, 2007).

 

214  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Apr. 13, 2011).

 

215  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Apr. 13, 2011).

 

216  http://www.irs.gov/businesses/small/article/0,,id=104623,00.html (Apr. 13, 2011).

 

217  The special circumstances allowance for additional expenses in 11 U.S.C. § 707(b)(2)(B) is discussed in § 487.1 [ Additional Expenses or Adjustments to CMI ] § 98.1  Additional Expenses or Adjustments to CMI.

 

218  See, e.g., In re Tranmer, 355 B.R. 234, 249–50 (Bankr. D. Mont. Nov. 16, 2006) (Kirscher) (Debtors with CMI greater than applicable median family income are limited to transportation expenses specified by IRS notwithstanding actual transportation expenses exceeding that allowance. IRS Local Standards allowance for transportation was $420 per month; debtors proved actual transportation expenses in excess of $600 per month. “The IRS Financial Analysis Handbook in discussing Local Standards provides in § 5.15.1.7, ¶ 4 that ‘[t]axpayers will be allowed the local standard or the amount actually paid, whichever is less.’ (emphasis added). In contrast, ‘[t]he plain language of section 707(b)(2)(A)(ii)(I) provides that “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amount specified under the Local Standards.”’ . . . Other provisions of § 707(b)(2)(A)(ii) specify allowed additional expenses such as an additional allowance for food and clothing, and the absence of any additional allowance for transportation expenses such as the Debtors’ suggests that their transportation expenses are limited to the Local Standard. If Congress intended for additional transportation expenses to be allowed in § 707(b)(2)(A)(ii), it would have drafted the subsection to include them in its detailed list of additional expenses.” Debtors failed to demonstrate “special circumstances” to justify a departure from the Local Standards for Transportation.). But see In re Pederson, No. 06-00635S, 2006 WL 3000104, at *4 (Bankr. N.D. Iowa Oct. 13, 2006) (unpublished) (Edmonds) (Transportation expenses are determined from Schedule J when debtors demonstrate actual ownership and operation expenses greater than IRS Local Standard allowances on Form B22C. “I therefore find that $620.00 is reasonable and necessary for vehicle operation, and that figure will be used for determining disposable income and projected disposable income rather than the amount of $358.00 as provided in form B22C.” The higher numbers proven by the debtor included fuel costs and maintenance for a high-mileage pickup truck.).

 

219  131 S. Ct. at 725–26 (“A person who owns a car free and clear is entitled to claim the ‘Operating Costs’ deduction for all . . . expenses of driving.”).

 

220  No. 06-11097, 2006 WL 4458358 (Bankr. N.D. Ohio July 26, 2006) (unpublished) (Harris).

 

221  2006 WL 4458358, at *2.

 

222  See, e.g., Babin v. Wilson (In re Wilson), 383 B.R. 729, 734 (B.A.P. 8th Cir. Mar. 14, 2008) (Schermer, Federman, McDonald) (“[T]he IRS Standards permit debtors who own old or high mileage cars ‘free and clear’ to claim an extra $200 per month in operating expenses.”); In re Byrn, 410 B.R. 642, 649 (Bankr. D. Mont. Nov. 21, 2008) (Kirscher) (Debtor with car that is more than six years old that has 75,000 miles is allowed $200 additional operating expense in Internal Revenue Manual notwithstanding that car is not subject to debt or lease. “When no ownership expense exists, the Internal Revenue Manual provides in Part 5, Chapter 8, that an additional operating expense of $200 is allowable if the car’s age and mileage meets [sic] certain criteria. . . . The Internal Revenue Manual specifies that the national and local expense standards are guidelines and deviations are allowable. Internal Revenue Manual, Part 5, Chapter 15, § 5.15.1.7.5.”); In re O’Connor, No. 08-60641-13, 2008 WL 4516374, at *13 (Bankr. D. Mont. Sept. 30, 2008) (unpublished) (Kirscher) (“[A]pplying [Ransom v. MBNA America Bank, N.A. (In re Ransom), 380 B.R. 799 (B.A.P. 9th Cir. Dec. 27, 2007) (Dunn, Baum, Montali),] . . . and by reference to the Internal Revenue Manual, Part 5, Chapters 8 and 15, this Court overrules the Trustee’s objection to the extra $200 . . . in operating expenses for both of the Debtors’ vehicles which are older than 6 years old.”); In re Howell, 366 B.R. 153, 158 (Bankr. D. Kan. Apr. 26, 2007) (Nugent) (Debtor with CMI greater than applicable median family income with an unencumbered car gets $200 additional operating expense deduction consistent with Internal Revenue Manual notwithstanding that debtor is not allowed an ownership expense deduction. “[T]he debtor may recognize on line 27 an additional operating expense of $200 consistent with the Manual’s guidance.”); In re Law, No. 07-40863, 2008 WL 1867971, at *10 (Bankr. D. Kan. Apr. 24, 2008) (unpublished) (Karlin) (“‘The Manual disallows the ownership expense “after the terms of the loan/lease have been satisfied,” but provides for an additional operating allowance of $200 per month where the paid-for vehicle is over six years old and/or has over 75,000 recorded miles.’”); In re Slusher, 359 B.R. 290, 310 (Bankr. D. Nev. Jan. 17, 2007) (Markell) (Although debtor without car loan forfeits IRS Local Standards ownership allowance, debtor gets $200 additional operating expense deduction. “[T]he debtor is allowed an additional operating expense deduction of $200 for older cars. . . . The IRM does not allow a deduction in addition to the ownership or operating expense, but rather allows ‘an additional operating expense.’ . . . Because the IRM construes the extra deduction as part of the operating expense, this court views it as part of the definition of that expense and would allow it.”); In re Lara, 347 B.R. 198, 202–03 (Bankr. N.D. Tex. June 28, 2006) (Houser) (Joint debtors are allowed the additional $200 per month due to the age of the vehicle.); In re Dyke, No. 06-40333-13-ABF, 2006 WL 4451484 (Bankr. W.D. Mo. June 4, 2006) (unpublished) (Barbosa) (Debtor with CMI greater than applicable median family income cannot take ownership deduction for car that is either not owned or is owned free of liens, but debtor may be entitled to additional operating expense because car is more than six years old and has more than 75,000 miles.); In re McGuire, 342 B.R. 608, 613–14 (Bankr. W.D. Mo. June 1, 2006) (Federman) (Debtor with CMI greater than applicable median family income cannot deduct Local Standards for ownership of car that is free of liens but can claim additional operating expense of $200. “[C]onsistent with IRS Local Standards, they are entitled to claim on Form B22C an additional operating expense of $200, which expense is allowed for debtors with cars more than six years old, or having more than 75,000 miles.”).

 

223  No. 06-10674C-13, 2006 WL 2883243 (Bankr. M.D.N.C. Oct. 6, 2006) (unpublished) (Stocks).

 

224  2006 WL 2883243, at *2–*3. Accord In re May, 390 B.R. 338, 349 n.13 (Bankr. S.D. Ohio July 7, 2008) (Walter) (“Another example of the tenuous use of the IRM in bankruptcy is the additional $200 operating expense deduction some courts allow debtors to take for older unencumbered vehicles. . . . [T]his additional $200 deduction for older vehicles cannot be found in the IRS’s Local Standards for Transportation. Instead, its genesis is the IRM itself, specifically Internal Rev. Man. § 5.8.5.5.2(3) . . . . Courts allowing this additional $200 operating expense deduction found only in the IRM have gone beyond using the IRM as an interpretive guide. Instead, they permit the IRM’s flexible guidelines to modify the fixed monetary amounts provided in the IRS standards themselves. Such use of the IRM is not authorized by the statutory language of § 707(b)(2)(A)(ii)(I)[.]”); In re Herbord, Nos. 07-60311, 07-60331, 2008 WL 149972, at *1 (Bankr. S.D. Ill. Jan. 14, 2008) (unpublished) (Meyers) (Debtors with CMI greater than applicable median family income are not entitled to $200 “old car” operating expense because that expense appears only in Internal Revenue Manual and Manual is not incorporated into disposable income test. “[T]he Manual is not applicable . . . debtors [can] not rely on the Manual to justify an additional $200.00 operating expense for their vehicle . . . . Debtors’ reliance on I.R.M. 5.8.5.5.2 is therefore without merit.”); In re Ford, No. 06-11097, 2006 WL 4458358, at *2 (Bankr. N.D. Ohio July 26, 2006) (unpublished) (Harris) (Debtor with CMI greater than applicable median family income cannot deduct $200 additional expense for older/higher-mileage cars because $200 expense is not part of Local Standards for Transportation but is simply an adjustment discussed in Internal Revenue Manual. “[D]ebtors cannot take this additional $200 per vehicle deduction. . . . [T]his additional deduction is a separate adjustment, not incorporated into the definition of ‘Local Standards’ and therefore has no application to the means test contained in section 707(b)(2)(A) of the Bankruptcy Code. . . . [T]he Internal Revenue Manual does not include this adjustment as part of the Local Standards for transportation expenses. . . . [T]he additional $200 deduction is mentioned in the context of calculating ownership expenses for purposes of IRS collection activities.”).

 

225  See In re Hughey, 380 B.R. 102, 107 (Bankr. S.D. Fla. Dec. 14, 2007) (Hyman) (Plan need not step up payments when car note will be paid off in the 17th month after confirmation because the expense calculation for a debtor with CMI greater than applicable median family income in Form B22C already accounts for payoff of secured debt. “Under BAPCPA, which mandates the use of fixed standard transportation expenses, the above median income Debtor’s projected monthly disposable income is unaffected by the fact that the Debtor’s actual monthly expenses may be reduced after the Honda Loan is paid off. . . . Form B22C factors in the early payoff of the Honda Loan by calculating the amounts contractually due on the Honda Loan in the sixty months following commencement of the case and dividing by sixty.”); In re Brunner, No. 06-12237, 2007 WL 4373119 (Bankr. N.D.N.Y. Dec. 7, 2007) (unpublished) (Littlefield) (Debtors with CMI greater than applicable median family income need not “step up” payments to creditors when car lease and loan are paid off before completion of plan payments because disposable income calculation already accounts for those debts and events during years of plan are irrelevant to that calculation.); In re Hylton, 374 B.R. 579, 584 (Bankr. W.D. Va. Aug. 22, 2007) (Krumm) (Debtor is entitled to deductions for two cars under Local Standards for Transportation notwithstanding that actual payments on two cars will be completed before 60-month plan is completed. “The use of ‘applicable’ with respect to National and Local Standards and ‘actual’ with respect to Other Necessary Expenses indicates that Congress used these different terms to achieve different results. . . . [T]he expenses under the Local Standards only need to be applicable to the debtor, ‘because of where he lives and how large his household is. It makes no difference whether he “actually” has them.’ . . . [T]he legislative history of the statute supports the same finding. . . . A prior version of the BAPCPA which was never passed defined ‘projected monthly net income’ for the means test to require a calculation of expenses . . . ‘“as determined under the Internal Revenue Service financial analysis”’ . . . . The reference to the Internal Revenue Service financial analysis was replaced by the language currently in section 707(b)(2)(A) . . . . The change from the prior version evidences Congress’ intent that the Courts not be bound by the financial analysis contained in the IRM and lends credence to the Court’s conclusion that it should look only to the amounts set forth in the Local Standards. . . . [T]he Debtors in this case may properly deduct the ownership expense for their two vehicles, even though they will be owned debt free during the course of their Plan.”).