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Supreme Court Opens|With Bankruptcy Case

WASHINGTON (CN) - The Supreme Court delved into bankruptcy law on Monday to determine whether a man filing for Chapter 13 bankruptcy could bring down his payment to creditors by claiming an expense for automobile "ownership costs" for a car that he already paid for.

Petitioner Jason Ransom, who filed for bankruptcy in Nevada in 2006, claimed a $471 per month expense in his five-year creditor payment plan for car ownership costs, which would lower his payment by approximately $28,000 over the five-year period.

FIA Card Services, formerly MBNA America Bank, objected to Ransom's plan, saying he could not claim ownership costs because the IRS defined such costs as lease or loan payments, which Ransom did not have. The bankruptcy court, bankruptcy appellate panel and 9th Circuit agreed with FIA, and Ransom appealed.

Ransom's attorney, Christopher Burke, said Congress allowed a debtor to take all "applicable" deductions under its IRS standards, which Burke said referred to a chart that detailed a $471 per month deduction for vehicle "ownership costs," not the intricacies of the 500-page, "almost incomprehensible" IRS manual.

Burke said the manual contained discretionary guidelines intended to help IRS agents collect taxes.

He said car ownership costs represented an aggregate of variables, and included replacement costs and major repairs in addition to lease and loan payments.

But Justice Stephen Breyer said the language in the IRS manual defining ownership costs was "very, very clear."

"Ownership costs refers to monthly loan or lease payments, nothing else," Breyer said. "Is there something wrong with the IRS saying what they mean?"

Burke said that while the IRS manual defines car ownership, it is not in the bankruptcy code.

But Breyer went further, said if a debtor bought a dozen apples every month, they could not be included in ownership costs "even if you decorate the car with them." He said it was important not to cut off the definition of ownership.

"It's for ownership," Breyer said, "it's not for, for example, whistling."

Fifteen minutes into the argument, Justice Elena Kagan delivered her first question from the bench, asking if the distinction could be made that ownership costs are lease and loan payments and operating costs are all other costs associated with owning a vehicle.

Burke said that the statute did not require the court to reach that far.

"That's the beauty of the statute," Burke said. We don't need to go into the IRS manual. We just need their tables."

Justice Ruth Bader Ginsburg said it was "unusual" for an individual to get a deduction if they didn't have the expense.

"It wasn't about actual expense, it was about applicable expense," Burke said. "You get the entire deduction whether you owe on it or not."

Deanne Maynard, attorney for FIA Card Services, said Ransom should not be able to shield $471 a month from creditors for a car payment he "does not have," arguing that he does not have a car ownership expense according to IRS standards because he "has no expense whatsoever."

"Petitioner is left at the statutory door," Maynard said. "He has no applicable expense." She requested that court affirm the lower court's judgment.

Justice Department lawyer Nicole Saharsky agreed with Maynard that the car ownership expense did not apply to Ransom. She said the expense covered lease or loan payments and "he just doesn't have any payments of that type."

The point of the statute is to determine what money a debtor has available to pay creditors, not whether they have a car, Saharsky said.

She said awarding the case to Ransom would shield $28,000 from his creditors.

"Nobody is shielding anything," Burke said. "It's all black and white on his current expenses. If he doesn't have it, he is not getting it."

The case is Ransom v. FIA Card Services NA, 09-907.

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