RANSOM v. MBNA
Jason Ransom filed for Chapter 13 bankruptcy in Nevada in 2006 and proposed a plan to make $500 monthly payments over a period of 60 months. The chapter 13 trustee and two creditors objected to confirmation of the plan, arguing that $500 per month was not Ransom's projected disposable income as defined in the Bankruptcy Code. They argued that Ransom improperly included a deduction against income for "vehicle ownership expense" of $471. The trustee and creditors claimed that the deduction should be disallowed and that the monthly payment should be increased. The Bankruptcy Court agreed with the trustee and refused to confirm the plan. The Bankruptcy Appellate Panel, agreeing to hear the appeal on this interlocutory issue, affirmed the Bankruptcy Court. The U.S. Court of Appeals for the Ninth Circuit affirmed the Bankruptcy Court's decision.
In calculating a debtor's "projected disposable income" during a Chapter 13 bankruptcy plan period, can a bankruptcy court allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles?
Legal provision: Chapter 13, Bankruptcy Act
Yes. In an 8-to-1 decision, Justice Elena Kagan, in her first opinion for the Court, ruled that a debtor who does not make loan or lease payments could not take the car-ownership deduction. Justice Antonin Scalia filed a dissenting opinion.
OPINION OF THE COURT
RANSOM V. FIA CARD SERVICES, N.&NBSP;A.
562 U. S. ____ (2011)
SUPREME COURT OF THE UNITED STATES
JASON M. RANSOM, PETITIONER v. FIA CARD SERVICES, N. A., fka MBNA AMERICA BANK, N. A.
on writ of certiorari to the united states court of appeals for the ninth circuit
[January 11, 2011]
Justice Kagan delivered the opinion of the Court.
Chapter 13 of the Bankruptcy Code enables an individual to obtain a discharge of his debts if he pays his creditors a portion of his monthly income in accordance with a court-approved plan. 11 U. S. C. §1301 et seq. To determine how much income the debtor is capable of paying, Chapter 13 uses a statutory formula known as the “means test.” §§707(b)(2) (2006 ed. and Supp. III), 1325(b)(3)(A) (2006 ed.). The means test instructs a debtor to deduct specified expenses from his current monthly income. The result is his “disposable income”—the amount he has available to reimburse creditors. §1325(b)(2).
This case concerns the specified expense for vehicle-ownership costs. We must determine whether a debtor like petitioner Jason Ransom who owns his car outright, and so does not make loan or lease payments, may claim an allowance for car-ownership costs (thereby reducing the amount he will repay creditors). We hold that the text, context, and purpose of the statutory provision at issue preclude this result. A debtor who does not make loan or lease payments may not take the car-ownership deduction.
“Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA or Act) to correct perceived abuses of the bankruptcy system.” Milavetz, Gallop & Milavetz, P. A. v. United States, 559 U. S. ___, ___ (2010) (slip op., at 1). In particular, Congress adopted the means test—“[t]he heart of [BAPCPA’s] consumer bankruptcy reforms,” H. R. Rep. No. 109–31, pt. 1, p. 2 (2005) (hereinafter H. R. Rep.), and the home of the statutory language at issue here—to help ensure that debtors who can pay creditors do pay them. See, e.g., ibid. (under BAPCPA, “debtors [will] repay creditors the maximum they can afford”).
In Chapter 13 proceedings, the means test provides a formula to calculate a debtor’s disposable income, which the debtor must devote to reimbursing creditors under a court-approved plan generally lasting from three to five years. §§1325(b)(1)(B) and (b)(4).[Footnote 1] The statute defines “disposable income” as “current monthly income” less “amounts reasonably necessary to be expended” for “maintenance or support,” business expenditures, and certain charitable contributions. §§1325(b)(2)(A)(i) and (ii). For a debtor whose income is above the median for his State, the means test identifies which expenses qualify as “amounts reasonably necessary to be expended.” The test supplants the pre-BAPCPA practice of calculating debtors’ reasonable expenses on a case-by-case basis, which led to varying and often inconsistent determinations. See, e.g., In re Slusher, 359 B. R. 290, 294 (Bkrtcy. Ct. Nev. 2007).
Under the means test, a debtor calculating his “reasonably necessary” expenses is directed to claim allowances for defined living expenses, as well as for secured and priority debt. §§707(b)(2)(A)(ii)–(iv). As relevant here, the statute provides:
“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 Internal Revenue Service [IRS] for the area in which the debtor resides.” §707(b)(2)(A)(ii)(I).
These are the principal amounts that the debtor can claim as his reasonable living expenses and thereby shield from creditors.
The National and Local Standards referenced in this provision are tables that the IRS prepares listing standardized expense amounts for basic necessities.[Footnote 2] The IRS uses the Standards to help calculate taxpayers’ ability to pay overdue taxes. See 26 U. S. C. §7122(d)(2). The IRS also prepares supplemental guidelines known as the Collection Financial Standards, which describe how to use the tables and what the amounts listed in them mean.
The Local Standards include an allowance for transportation expenses, divided into vehicle “Ownership Costs” and vehicle “Operating Costs.”[Footnote 3] At the time Ransom filed for bankruptcy, the “Ownership Costs” table appeared as follows:
App. to Brief for Respondent 5a. The Collection Financial Standards explain that these ownership costs represent “nationwide figures for monthly loan or lease payments,” id., at 2a; the numerical amounts listed are “base[d] … on the five-year average of new and used car financing data compiled by the Federal Reserve Board,” id., at 3a. The Collection Financial Standards further instruct that, in the tax-collection context, “[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.” Ibid.
Ransom filed for Chapter 13 bankruptcy relief in July 2006. App. 1, 54. Among his liabilities, Ransom itemized over $82,500 in unsecured debt, including a claim held by respondent FIA Card Services, N. A. (FIA). Id., at 41. Among his assets, Ransom listed a 2004 Toyota Camry, valued at $14,000, which he owns free of any debt. Id., at 38, 49, 52.
For purposes of the means test, Ransom reported income of $4,248.56 per month. Id., at 46. He also listed monthly expenses totaling $4,038.01. Id., at 53. In determining those expenses, Ransom claimed a car-ownership deduction of $471 for the Camry, the full amount specified in the IRS’s “Ownership Costs” table. Id., at 49. Ransom listed a separate deduction of $338 for car-operating costs. Ibid. Based on these figures, Ransom had disposable income of $210.55 per month. Id., at 53.
Ransom proposed a 5-year plan that would result in repayment of approximately 25% of his unsecured debt. Id., at 55. FIA objected to confirmation of the plan on the ground that it did not direct all of Ransom’s disposable income to unsecured creditors. Id., at 64. In particular, FIA argued that Ransom should not have claimed the car-ownership allowance because he does not make loan or lease payments on his car. Id., at 67. FIA noted that without this allowance, Ransom’s disposable income would be $681.55—the $210.55 he reported plus the $471 he deducted for vehicle ownership. Id., at 71. The difference over the 60 months of the plan amounts to about $28,000.
The Bankruptcy Court denied confirmation of Ransom’s plan. App. to Pet. for Cert. 48. The court held that Ransom could deduct a vehicle-ownership expense only “if he is currently making loan or lease payments on that vehicle.” Id., at 41.
Ransom appealed to the Ninth Circuit Bankruptcy Appellate Panel, which affirmed. In re Ransom, 380 B. R. 799, 808–809 (2007). The panel reasoned that an “expense [amount] becomes relevant to the debtor (i.e., appropriate or applicable to the debtor) when he or she in fact has such an expense.” Id., at 807. “[W]hat is important,” the panel noted, “is the payments that debtors actually make, not how many cars they own, because [those] payments … are what actually affect their ability to” reimburse unsecured creditors. Ibid.
The United States Court of Appeals for the Ninth Circuit affirmed. In re Ransom, 577 F. 3d 1026, 1027 (2009). The plain language of the statute, the court held, “does not allow a debtor to deduct an ‘ownership cost’ … that the debtor does not have.” Id., at 1030. The court observed that “[a]n ‘ownership cost’ is not an ‘expense’—either actual or applicable—if it does not exist, period.” Ibid.
We granted a writ of certiorari to resolve a split of authority over whether a debtor who does not make loan or lease payments on his car may claim the deduction for vehicle-ownership costs. 559 U. S. ___ (2010).[Footnote 4] We now affirm the Ninth Circuit’s judgment.
Our interpretation of the Bankruptcy Code starts “where all such inquiries must begin: with the language of the statute itself.” United States v. Ron Pair Enterprises, Inc., 489 U. S. 235, 241 (1989). As noted, the provision of the Code central to the decision of this case 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.” §707(b)(2)(A)(ii)(I).
The key word in this provision is “applicable”: A debtor may claim not all, but only “applicable” expense amounts listed in the Standards. Whether Ransom may claim the $471 car-ownership deduction accordingly turns on whether that expense amount is “applicable” to him.
Because the Code does not define “applicable,” we look to the ordinary meaning of the term. See, e.g., Hamilton v. Lanning, 560 U. S. ___, ___ (2010) (slip op., at 6). “Applicable” means “capable of being applied: having relevance” or “fit, suitable, or right to be applied: appropriate.” Webster’s Third New International Dictionary 105 (2002). See also New Oxford American Dictionary 74 (2d ed. 2005) (“relevant or appropriate”); 1 Oxford English Dictionary 575 (2d ed. 1989) (“[c]apable of being applied” or “[f]it or suitable for its purpose, appropriate”). So an expense amount is “applicable” within the plain meaning of the statute when it is appropriate, relevant, suitable, or fit.
What makes an expense amount “applicable” in this sense (appropriate, relevant, suitable, or fit) is most naturally understood to be its correspondence to an individual debtor’s financial circumstances. Rather than authorizing all debtors to take deductions in all listed categories, Congress established a 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. The statute underscores the necessity of making such an individualized determination by referring to “the debtor’s applicable monthly expense amounts,” §707(b)(2)(A)(ii)(I) (emphasis added)—in other words, the expense amounts applicable (appropriate, etc.) to each particular debtor. 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.
If Congress had not wanted to separate in this way debtors who qualify for an allowance from those who do not, it could have omitted the term “applicable” altogether. Without that word, all debtors would be eligible to claim a deduction for each category listed in the Standards. Congress presumably included “applicable” to achieve a different result. See Leocal v. Ashcroft, 543 U. S. 1, 12 (2004) (“[W]e must give effect to every word of a statute wherever possible”). Interpreting the statute to require a threshold determination of eligibility ensures that the term “applicable” carries meaning, as each word in a statute should.
This reading of “applicable” also draws support from the statutory context. The Code initially defines a debtor’s disposable income as his “current monthly income … less amounts reasonably necessary to be expended.” §1325(b)(2) (emphasis added). The statute then instructs that “[a]mounts reasonably necessary to be expended … shall be determined in accordance with” the means test. §1325(b)(3). 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.[Footnote 5]
Finally, consideration of BAPCPA’s purpose strengthens our reading of the term “applicable.” 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.” H. R. Rep., at 2. This purpose is best achieved by interpreting the means test, consistent with the statutory text, to reflect a debtor’s ability to afford repayment. Cf. Hamilton, 560 U. S., at ___ (slip op., at 14) (rejecting an interpretation of the Bankruptcy Code that “would produce [the] senseless resul[t]” of “deny[ing] creditors payments that the debtor could easily make”). Requiring a debtor to incur the kind of expenses for which he claims a means-test deduction thus advances BAPCPA’s objectives.
Because we conclude that a person cannot claim an allowance for vehicle-ownership costs unless he has some expense falling within that category, the question in this case becomes: What expenses does the vehicle-ownership category cover? If it covers loan and lease payments alone, Ransom does not qualify, because he has no such expense. Only if that category also covers other costs associ- ated with having a car would Ransom be entitled to this deduction.
The less inclusive understanding is the right one: The ownership category encompasses the costs of a car loan or lease and nothing more. As noted earlier, the numerical amounts listed in the “Ownership Costs” table are “base[d] … on the five-year average of new and used car financing data compiled by the Federal Reserve Board.” App. to Brief for Respondent 3a. In other words, the sum $471 is the average monthly payment for loans and leases nationwide; it is not intended to estimate other conceivable expenses associated with maintaining a car. The Standards do account for those additional expenses, but in a different way: They are mainly the province of the separate deduction for vehicle “Operating Costs,” which include payments for “[v]ehicle insurance, … maintenance, fuel, state and local registration, required inspection, parking fees, tolls, [and] driver’s license.” Internal Rev- enue Manual §§184.108.40.206 and 220.127.116.11 (May 1, 2004), reprinted in App. to Brief for Respondent 16a, 20a; see also IRS, Collection Financial Standards (Feb. 19, 2010), http://www.irs.gov/individuals/article/0,,id=96543,00.html.[Footnote 6] A person who owns a car free and clear is entitled to claim the “Operating Costs” deduction for all these expenses of driving—and Ransom in fact did so, to the tune of $338. 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.
The Collection Financial Standards—the IRS’s explanatory guidelines to the National and Local Standards—explicitly recognize this distinction between ownership and operating costs, making clear that individuals who have a car but make no loan or lease payments may claim only the operating allowance. App. to Brief for Respondent 3a; see supra, at 4. 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.[Footnote 7]
Because Ransom owns his vehicle free and clear of any encumbrance, he incurs no expense in the “Ownership Costs” category of the Local Standards. Accordingly, the car-ownership expense amount is not “applicable” to him, and the Ninth Circuit correctly denied that deduction.
Ransom’s argument to the contrary relies on a different interpretation of the key word “applicable,” an objection to our view of the scope of the “Ownership Costs” category, and a criticism of the policy implications of our approach. We do not think these claims persuasive.
Ransom first offers another understanding of the term “applicable.” A debtor, he says, determines his “applicable” deductions by locating the box in each National or Local Standard table that corresponds to his geographic location, income, family size, or number of cars. Under this approach, a debtor “consult[s] the table[s] alone” to determine his appropriate expense amounts. Reply Brief for Petitioner 16. Because he has one car, Ransom argues that his “applicable” allowance is the sum listed in the first column of the “Ownership Costs” table ($471); if he had a second vehicle, the amount in the second column ($332) would also be “applicable.” On this approach, the word “applicable” serves a function wholly internal to the tables; rather than filtering out debtors for whom a deduction is not at all suitable, the term merely directs each debtor to the correct box (and associated dollar amount of deduction) within every table.
This alternative reading of “applicable” fails to comport with the statute’s text, context, or purpose. As intimated earlier, supra, at 7–8, Ransom’s interpretation would render the term “applicable” superfluous. Assume Congress had omitted that word and simply authorized a deduction of “the debtor’s monthly expense amounts” specified in the Standards. That language, most naturally read, would direct each debtor to locate the box in every table corresponding to his location, income, family size, or number of cars and to deduct the amount stated. In other words, the language would instruct the debtor to use the exact approach Ransom urges. The word “applicable” is not necessary to accomplish that result; it is necessary only for the different purpose of dividing debtors eligible to make use of the tables from those who are not. Further, Ransom’s reading of “applicable” would sever the connection between the means test and the statutory provision it is meant to implement—the authorization of an allowance for (but only for) “reasonably necessary” expenses. Expenses that are wholly fictional are not easily thought of as reasonably necessary. And finally, Ransom’s interpretation would run counter to the statute’s overall purpose of ensuring that debtors repay creditors to the extent they can—here, by shielding some $28,000 that he does not in fact need for loan or lease payments.
As against all this, Ransom argues that his reading is necessary to account for the means test’s distinction between “applicable” and “actual” expenses—more fully stated, between the phrase “applicable monthly expense amounts” specified in the Standards and the phrase “actual monthly expenses for … Other Necessary Expenses.” §707(b)(2)(A)(ii)(I) (emphasis added). The latter phrase enables a debtor to deduct his actual expenses in particular categories that the IRS designates relating mainly to taxpayers’ health and welfare. Internal Revenue Manual §18.104.22.168(1), http://www.irs.gov/irm/part5/ irm_05-015-001.html#d0e1381. According to Ransom, “applicable” cannot mean the same thing as “actual.” Brief for Petitioner 40. He thus concludes that “an ‘applicable’ expense can be claimed [under the means test] even if no ‘actual’ expense was incurred.” Ibid.
Our interpretation of the statute, however, equally avoids conflating “applicable” with “actual” costs. Although the expense amounts in the Standards apply only if the debtor incurs the relevant expense, the debtor’s out-of-pocket cost may well not control the amount of the deduction. If a debtor’s actual expenses exceed the amounts listed in the tables, for example, the debtor may claim an allowance only for the specified sum, rather than for his real expenditures.[Footnote 8] For the Other Necessary Expense categories, by contrast, the debtor may deduct his actual expenses, no matter how high they are.[Footnote 9] Our reading of the means test thus gives full effect to “the distinction between ‘applicable’ and ‘actual’ without taking a further step to conclude that ‘applicable’ means ‘nonexistent.’ ” In re Ross-Tousey, 368 B. R. 762, 765 (Bkrtcy. Ct. ED Wis. 2007), rev’d, 549 F. 3d 1148 (CA7 2008).
Finally, Ransom’s reading of “applicable” may not even answer the essential question: whether a debtor may claim a deduction. “[C]onsult[ing] the table[s] alone” to determine a debtor’s deduction, as Ransom urges us to do, Reply Brief for Petitioner 16, often will not be sufficient because the tables are not self-defining. This case provides a prime example. The “Ownership Costs” table features two columns labeled “First Car” and “Second Car.” See supra, at 4. Standing alone, the table does not specify whether it refers to the first and second cars owned (as Ransom avers), or the first and second cars for which the debtor incurs ownership costs (as FIA maintains)—and so the table does not resolve the issue in dispute.[Footnote 10] See In re Kimbro, 389 B. R. 518, 533 (Bkrtcy. App. Panel CA6 2008) (Fulton, J., dissenting) (“[O]ne cannot really ‘just look up’ dollar amounts in the tables without either referring to IRS guidelines for using the tables or imposing pre-existing assumptions about how [they] are to be navigated” (footnote omitted)). Some amount of interpretation is necessary to decide what the deduction is for and whether it is applicable to Ransom; and so we are brought back full circle to our prior analysis.
Ransom next argues that viewing the car-ownership deduction as covering no more than loan and lease payments is inconsistent with a separate sentence of the means test that provides: “Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.” §707(b)(2)(A)(ii)(I). The car-ownership deduction cannot comprise only loan and lease payments, Ransom contends, because those payments are always debts. See Brief for Petitioner 28, 44–45.
Ransom ignores that the “notwithstanding” sentence governs the full panoply of deductions under the National and Local Standards and the Other Necessary Expense categories. We hesitate to rely on that general provision to interpret the content of the car-ownership deduction because Congress did not draft the former with the latter specially in mind; any friction between the two likely reflects only a lack of attention to how an across-the-board exclusion of debt payments would correspond to a particular IRS allowance.[Footnote 11] Further, the “notwithstanding” sentence by its terms functions only to exclude, and not to authorize, deductions. It cannot establish an allowance for non-loan or -lease ownership costs that no National or Local Standard covers. Accordingly, the “notwithstanding” sentence does nothing to alter our conclusion that the “Ownership Costs” table does not apply to a debtor whose car is not encumbered.
Ransom finally contends that his view of the means test is necessary to avoid senseless results not intended by Congress. At the outset, we note that the policy concerns Ransom emphasizes pale beside one his reading creates: His interpretation, as we have explained, would frustrate BAPCPA’s core purpose of ensuring that debtors devote their full disposable income to repaying creditors. See supra, at 8–9. We nonetheless address each of Ransom’s policy arguments in turn.
Ransom first points out a troubling anomaly: Under our interpretation, “[d]ebtors can time their bankruptcy filing to take place while they still have a few car payments left, thus retaining an ownership deduction which they would lose if they filed just after making their last payment.” Brief for Petitioner 54. Indeed, a debtor with only a single car payment remaining, Ransom notes, is eligible to claim a monthly ownership deduction. Id., at 15, 52.
But this kind of oddity is the inevitable result of a standardized formula like the means test, even more under Ransom’s reading than under ours. Such formulas are by their nature over- and under-inclusive. In eliminating the pre-BAPCPA case-by-case adjudication of above-median-income debtors’ expenses, on the ground that it leant itself to abuse, Congress chose to tolerate the occasional peculiarity that a brighter-line test produces. And Ransom’s alternative reading of the statute would spawn its own anomalies—even placing to one side the fundamental strangeness of giving a debtor an allowance for loan or lease payments when he has not a penny of loan or lease costs. On Ransom’s view, for example, a debtor entering bankruptcy might purchase for a song a junkyard car—“an old, rusted pile of scrap metal [that would] si[t] on cinder blocks in his backyard,” In re Brown, 376 B. R. 601, 607 (Bkrtcy. Ct. SD Tex. 2007)—in order to deduct the $471 car-ownership expense and reduce his payment to creditors by that amount. We do not see why Congress would have preferred that result to the one that worries Ransom. That is especially so because creditors 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. See 11 U. S. C. §1329(a)(1).
Ransom next contends that denying the ownership allowance to debtors in his position “sends entirely the wrong message, namely, that it is advantageous to be deeply in debt on motor vehicle loans, rather than to pay them off.” Brief for Petitioner 55. But the choice here is not between thrifty savers and profligate borrowers, as Ransom would have it. Money is fungible: The $14,000 that Ransom spent to purchase his Camry outright was money he did not devote to paying down his credit card debt, and Congress did not express a preference for one use of these funds over the other. Further, Ransom’s argument mistakes what the deductions in the means test are meant to accomplish. Rather than effecting any broad federal policy as to saving or borrowing, the deductions serve merely to ensure that debtors in bankruptcy can afford essential items. The car-ownership allowance thus safeguards a debtor’s ability to retain a car throughout the plan period. If the debtor already owns a car outright, he has no need for this protection.
Ransom finally argues that a debtor who owns his car free and clear may need to replace it during the life of the plan; “[g]ranting the ownership cost deduction to a vehicle that is owned outright,” he states, “accords best with economic reality.” Id., at 52. In essence, Ransom seeks an emergency cushion for car owners. But nothing in the statute authorizes such a cushion, which all debtors presumably would like in the event some unexpected need arises. And a person who enters bankruptcy without any car at all may also have to buy one during the plan period; yet Ransom concedes that a person in this position cannot claim the ownership deduction. Tr. of Oral Arg. 20. The appropriate way to account for unanticipated expenses like a new vehicle purchase is not to distort the scope of a deduction, but to use the method that the Code provides for all Chapter 13 debtors (and their creditors): modification of the plan in light of changed circumstances. See §1329(a)(1); see also supra, at 17.
Based on BAPCPA’s text, context, and purpose, we 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. We therefore affirm the judgment of the Ninth Circuit.
It is so ordered.Footnote 1
Chapter 13 borrows the means test from Chapter 7, where it is used as a screening mechanism to determine whether a Chapter 7 proceeding is appropriate. Individuals who file for bankruptcy relief under Chapter 7 liquidate their nonexempt assets, rather than dedicate their future income, to repay creditors. See 11 U. S. C. §§704(a)(1), 726. If the debtor’s Chapter 7 petition discloses that his disposable income as calculated by the means test exceeds a certain threshold, the petition is presumptively abusive. §707(b)(2)(A)(i). If the debtor cannot rebut the presumption, the court may dismiss the case or, with the debtor’s consent, convert it into a Chapter 13 proceeding. §707(b)(1).Footnote 2
The National Standards designate allowances for six categories of expenses: (1) food; (2) housekeeping supplies; (3) apparel and services; (4) personal care products and services; (5) out-of-pocket health care costs; and (6) miscellaneous expenses. Internal Revenue Manual §22.214.171.124 (Oct. 2, 2009), http://www.irs.gov/irm/part5/irm_05-015-001.html#d0e1012 (all Internet materials as visited Jan. 7, 2011, and available in Clerk of Court’s case file). The Local Standards authorize deductions for two kinds of expenses: (1) housing and utilities; and (2) transportation. Id., §126.96.36.199.Footnote 3
Although both components of the transportation allowance are listed in the Local Standards, only the operating-cost expense amounts vary by geography; in contrast, the IRS provides a nationwide figure for ownership costs.Footnote 4
Compare In re Ransom, 577 F. 3d 1026, 1027 (CA9 2009) (case below), with In re Washburn, 579 F. 3d 934, 935 (CA8 2009) (permitting the allowance), In re Tate, 571 F. 3d 423, 424 (CA5 2009) (same), and In re Ross-Tousey, 549 F. 3d 1148, 1162 (CA7 2008) (same). The question has also divided bankruptcy courts. See, e.g., In re Canales, 377 B. R. 658, 662 (Bkrtcy. Ct. CD Cal. 2007) (citing dozens of cases reaching opposing results).Footnote 5
This interpretation also avoids the anomalous result of granting preferential treatment to individuals with above-median income. Because the means test does not apply to Chapter 13 debtors whose incomes are below the median, those debtors must prove on a case-by-case basis that each claimed expense is reasonably necessary. See §§1325(b)(2) and (3). If a below-median-income debtor cannot take a deduction for a nonexistent expense, we doubt Congress meant to provide such an allowance to an above-median-income debtor—the very kind of debtor whose perceived abuse of the bankruptcy system inspired Congress to enact the means test.Footnote 6
In addition, the IRS has categorized taxes, including those associated with car ownership, as an “Other Necessary Expens[e],” for which a debtor may take a deduction. See App. to Brief for Respondent 26a; Brief for United States as Amicus Curiae 16, n. 4.Footnote 7
Because the dissent appears to misunderstand our use of the Collection Financial Standards, and because it may be important for future cases to be clear on this point, we emphasize again that the statute does not “incorporat[e]” or otherwise “impor[t]” the IRS’s guidance. Post, at 1, 4 (opinion of Scalia, J.). The dissent questions what possible basis except incorporation could justify our consulting the IRS’s view, post, at 4, n., but we think that basis obvious: The IRS creates the National and Local Standards referenced in the statute, revises them as it deems necessary, and uses them every day. The agency might, therefore, have something insightful and persuasive (albeit not controlling) to say about them.Footnote 8
The parties and the Solicitor General as amicus curiae dispute the proper deduction for a debtor who has expenses that are lower than the amounts listed in the Local Standards. Ransom argues that a debtor may claim the specified expense amount in full regardless of his out-of-pocket costs. Brief for Petitioner 24–27. The Government concurs with this view, provided (as we require) that a debtor has some expense relating to the deduction. See Brief for United States as Amicus Curiae 19–21. FIA, relying on the IRS’s practice, contends to the contrary that a debtor may claim only his actual expenditures in this circumstance. Brief for Respondent 12, 45–46 (arguing that the Local Standards function as caps). We decline to resolve this issue. Because Ransom incurs no ownership expense at all, the car-ownership allowance is not applicable to him in the first instance. Ransom is therefore not entitled to a deduction under either approach.Footnote 9
For the same reason, the allowance for “applicable monthly expense amounts” at issue here differs from the additional allowances that the dissent cites for the deduction of actual expenditures. See post, at 3–4 (noting allowances for “actual expenses” for care of an elderly or chronically ill household member, §707(b)(2)(A)(ii)(II), and for home energy costs, §707(b)(2)(A)(ii)(V)).Footnote 10
The interpretive problem is not, as the dissent suggests, “whether to claim a deduction for one car or for two,” post, at 3, but rather whether to claim a deduction for any car that is owned if the debtor has no ownership costs. Indeed, if we had to decide this question on the basis of the table alone, we might well decide that a debtor who does not make loan or lease payments cannot claim an allowance. The table, after all, is titled “Ownership Costs”—suggesting that it applies to those debtors who incur such costs. And as noted earlier, the dollar amounts in the table represent average automobile loan and lease payments nationwide (with all other car-related expenses approximated in the separate “Operating Costs” table). See supra, at 9–10. Ransom himself concedes that not every debtor falls within the terms of this table; he would exclude, and thus prohibit from taking a deduction, a person who does not own a car. Brief for Petitioner 33. In like manner, the four corners of the table appear to exclude an additional group—debtors like Ransom who own their cars free and clear and so do not make the loan or lease payments that constitute “Ownership Costs.”Footnote 11
Because Ransom does not make payments on his car, we need not and do not resolve how the “notwithstanding” sentence affects the vehicle-ownership deduction when a debtor has a loan or lease expense. See Brief for United States as Amicus Curiae 23, n. 5 (offering alternative views on this question); Tr. of Oral Arg. 51–52.
SCALIA, J., DISSENTING
RANSOM V. FIA CARD SERVICES, N.&NBSP;A.
562 U. S. ____ (2011)
SUPREME COURT OF THE UNITED STATES
JASON M. RANSOM, PETITIONER v. FIA CARD SERVICES, N. A., fka MBNA AMERICA BANK, N. A.
on writ of certiorari to the united states court of appeals for the ninth circuit
[January 11, 2011]
Justice Scalia, dissenting.
I would reverse the judgment of the Ninth Circuit. I agree with the conclusion of the three other Courts of Appeals to address the question: that a debtor who owns a car free and clear is entitled to the car-ownership allowance. See In re Washburn, 579 F. 3d 934 (CA8 2009); In re Tate, 571 F. 3d 423 (CA5 2009); In re Ross-Tousey, 549 F. 3d 1148 (CA7 2008).
The statutory text at issue is the phrase enacted in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), “applicable monthly expense amounts specified under the National Standards and Local Standards,” 11 U. S. C. §707(b)(2)(A)(ii)(I). The Court holds that the word “applicable” in this provision imports into the Local Standards a directive in the Internal Revenue Service’s Collection Financial Standards, which have as their stated purpose “to help determine a taxpayer’s ability to pay a delinquent tax liability,” App. to Brief for Respondent 1a. That directive says that “[i]f a taxpayer has no car payment,” the Ownership Cost provisions of the Local Standards will not apply. Id., at 3a.
That directive forms no part of the Local Standards to which the statute refers; and the fact that portions of the Local Standards are to be disregarded for revenue-collection purposes says nothing about whether they are to be disregarded for purposes of Chapter 13 of the Bankruptcy Code. The Court believes, however, that unless the IRS’s Collection Financial Standards are imported into the Local Standards, the word “applicable” would do no work, violating the principle that “ ‘we must give effect to every word of a statute wherever possible.’ ” Ante, at 8 (quoting Leocal v. Ashcroft, 543 U. S. 1, 12 (2004)). I disagree. The canon against superfluity is not a canon against verbosity. When a thought could have been expressed more concisely, one does not always have to cast about for some additional meaning to the word or phrase that could have been dispensed with. This has always been understood. A House of Lords opinion holds, for example, that in the phrase “ ‘in addition to and not in derogation of ’ ” the last part adds nothing but emphasis. Davies v. Powell Duffryn Associated Collieries, Ltd.,  A. C. 601, 607.
It seems to me that is the situation here. To be sure, one can say “according to the attached table”; but it is acceptable (and indeed I think more common) to say “according to the applicable provisions of the attached table.” That seems to me the fairest reading of “applicable monthly expense amounts specified under the National Standards and Local Standards.” That is especially so for the Ownership Costs portion of the Local Standards, which had no column titled “No Car.” Here the expense amount would be that shown for one car (which is all the debtor here owned) rather than that shown for two cars; and it would be no expense amount if the debtor owned no car, since there is no “applicable” provision for that on the table. For operating and public transportation costs, the “applicable” amount would similarly be the amount provided by the Local Standards for the geographic region in which the debtor resides. (The debtor would not first be required to prove that he actually operates the cars that he owns, or, if does not own a car, that he actually uses public transportation.) The Court claims that the tables “are not self-defining,” and that “[s]ome amount of interpretation” is necessary in choosing whether to claim a deduction at all, for one car, or for two. Ante, at 14–15. But this problem seems to me more metaphysical than practical. The point of the statutory language is to entitle debtors who own cars to an ownership deduction, and I have little doubt that debtors will be able to choose correctly whether to claim a deduction for one car or for two.
If the meaning attributed to the word by the Court were intended, it would have been most precise to say “monthly expense amounts specified under the National Standards and Local Standards, if applicable for IRS collection purposes.” And even if utter precision was too much to expect, it would at least have been more natural to say “monthly expense amounts specified under the National Standards and Local Standards, if applicable.” That would make it clear that amounts specified under those Standards may nonetheless not be applicable, justifying (perhaps) resort to some source other than the Standards themselves to give meaning to the condition. The very next paragraph of the Bankruptcy Code uses that formulation (“if applicable”) to limit to actual expenses the deduction for care of an elderly or chronically ill household member: “[T]he debtor’s monthly expenses may include, if applicable, the continuation of actual expenses paid by the debtor that are reasonable and necessary” for that purpose. 11 U. S. C. §707(b)(2)(A)(ii)(II) (emphasis added).
Elsewhere as well, the Code makes it very clear when prescribed deductions are limited to actual expenditures. Section 707(b)(2)(A)(ii)(I) itself authorizes deductions for a host of expenses—health and disability insurance, for example—only to the extent that they are “actual . . . expenses” that are “reasonably necessary.” Additional deductions for energy are allowed, but again only if they are “actual expenses” that are “reasonable and necessary.” §707(b)(2)(A)(ii)(V). Given the clarity of those limitations to actual outlays, it seems strange for Congress to limit the car-ownership deduction to the somewhat peculiar category “cars subject to any amount whatever of outstanding indebtedness” by the mere word “applicable,” meant as incorporation of a limitation that appears in instructions to IRS agents.*
I do not find the normal meaning of the text undermined by the fact that it produces a situation in which a debtor who owes no payments on his car nonetheless gets the operating-expense allowance. For the Court’s more strained interpretation still produces a situation in which a debtor who owes only a single remaining payment on his car gets the full allowance. As for the Court’s imagined horrible in which “a debtor entering bankruptcy might purchase for a song a junkyard car,” ante, at 17: That is fairly matched by the imagined horrible that, under the Court’s scheme, a debtor entering bankruptcy might purchase a junkyard car for a song plus a $10 promissory note payable over several years. He would get the full ownership expense deduction.
Thus, the Court’s interpretation does not, as promised, maintain “the connection between the means test and the statutory provision it is meant to implement—the authorization of an allowance for (but only for) ‘reasonably necessary’ expenses,” ante, at 12. Nor do I think this difficulty is eliminated by the deus ex machina of 11 U. S. C. §1329(a)(1), which according to the Court would allow an unsecured creditor to “move to modify the plan to increase the amount the debtor must repay,” ante, at 17. Apart from the fact that, as a practical matter, the sums involved would hardly make this worth the legal costs, allowing such ongoing revisions of matters specifically covered by the rigid means test would return us to “the pre-BAPCPA case-by-case adjudication of above-median-income debtors’ expenses,” ante, at 16. If the BAPCPA had thought such adjustments necessary, surely it would have taken the much simpler and more logical step of providing going in that the ownership expense allowance would apply only so long as monthly payments were due.
The reality is, to describe it in the Court’s own terms, that occasional overallowance (or, for that matter, underallowance) “is the inevitable result of a standardized formula like the means test . . . . Congress chose to tolerate the occasional peculiarity that a brighter-line test produces.” Ibid. Our job, it seems to me, is not to eliminate or reduce those “oddit[ies],” ibid., but to give the formula Congress adopted its fairest meaning. In my judgment the “applicable monthly expense amounts” for operating costs “specified under the . . . Local Standards,” are the amounts specified in those Standards for either one car or two cars, whichever of those is applicable.
* The Court protests that I misunderstand its use of the Collection Financial Standards. Its opinion does not, it says, find them to be incorporated by the Bankruptcy Code; they simply “reinforc[e] our conclusion that . . . a debtor seeking to claim this deduction must make some loan or lease payments.” Ante, at 10. True enough, the opinion says that the Bankruptcy Code “does not incorporate the IRS’s guidelines,” but it immediately continues that “courts may consult this material in interpreting the National and Local Standards” so long as it is not “at odds with the statutory language.” Ibid. In the present context, the real-world difference between finding the guidelines incorporated and finding it appropriate to consult them escapes me, since I can imagine no basis for consulting them unless Congress meant them to be consulted, which would mean they are incorporated. And without incorporation, they are at odds with the statutory language, which otherwise contains no hint that eligibility for a Car Ownership deduction requires anything other than ownership of a car.
ORAL ARGUMENT OF CHRISTOPHER P. BURKE ON BEHALF OF THE PETITIONER
Chief Justice John G. Roberts: We'll hear argument first this term in Case 09-907, Ransom v. FIA Card Services.
Mr. Burke: Thank you, Mr. Chief Justice, and may it please the Court:
In 2005 when Congress passed the Bankruptcy Act, it made a policy decision to limit judicial discretion on a case-by-case basis in the area of reasonable and necessary expenses.
It did so by creating a formula that entails an aggregate set amount of expenses for an individual.
Now, Congress could have created this from scratch.
It could have used an arbitrary figure.
But instead, there are figures that the IRS already had, based on Census Bureau statistics, that said nationwide, in a certain area, an individual would spend this much a month on average.
In the case of Mr. Ransom, that's approximately 2500 a month.
Forgetting about how it's divided up, if I had 100 people come in and answer the following five questions the same way Mr. Ransom did, and that's age, location, household size, gross income, and if you have a vehicle, how many, they would all get $2,500 standard aggregate deduction, which works out to $150,000 over a five-year period.
Now, the crux of this is whether or not courts are allowed to dig in and cut out pieces of the standard aggregate amount.
Justice Samuel Alito: Why is that the crux of it?
Congress made reference to the local standards, right?
Mr. Burke: Yes.
Justice Samuel Alito: And were the -- was the commentary in the Collection Financial Standards in existence at the time when Congress enacted this provision?
Mr. Burke: There was a Collection Financial Analysis that was in place, and it was noted in 1998 as a prior version of the bill that ultimately wasn't passed.
Justice Samuel Alito: And that explains what the IRS understands the local standards to mean; isn't that right?
Mr. Burke: I would disagree with that.
I would say -- well, it would -- it would explain what the IRS means, but that's where I would end it, because the IRS standards are used to collect taxes.
They are discretionary.
Justice Samuel Alito: Well, I understand that, but Congress decided to make reference to the local standards in this bankruptcy provision, didn't it?
Mr. Burke: --Standards.
Justice Samuel Alito: Yes.
Mr. Burke: It didn't go beyond that.
Justice Samuel Alito: And this -- and at the time when it did that, there was official IRS commentary regarding the meaning of those standards, correct?
Mr. Burke: For the IRS to use in collecting taxes.
Justice Samuel Alito: And your argument is that Congress intended to adopt the standards promulgated by the IRS, but not the IRS's interpretation of the standards.
Mr. Burke: Correct, not their methodology or interpretation.
Justice Ruth Bader Ginsburg: Doesn't the chart say "ownership costs"?
Mr. Burke: Yes.
Justice Ruth Bader Ginsburg: And you would read that to mean non-costs as well?
I mean, if the -- if the table is called ownership costs, then why not use the IRS's definition of what costs are; and that definition says what, loan payments and lease payments?
Mr. Burke: Because we have to look at it as a standard aggregate.
And what I mean by that is -- okay, the Bankruptcy Code doesn't define ownership costs.
And ownership costs could be the replacement value.
It could be buying a new vehicle.
It could be the costs associated with making payments on a vehicle.
What that -- that average number is, in this case, $471, is a nationwide figure that somebody would spend on average in a month.
It doesn't mean that any one individual spends that amount.
Justice Antonin Scalia: Mr. Burke, isn't it the -- isn't it the case that, even on the other side's interpretation of it, it doesn't come down to actual costs anyway?
Isn't it the case, or do I misunderstand it, that so long as there is one payment, you get the entire deduction?
Mr. Burke: That's their position, or even $1.
Justice Antonin Scalia: Even one payment of $1, you get the entire deduction.
So to argue this case as though it's a question of whether you actually expend the money that you are getting the credit for is simply -- is simply false.
You don't do that under either side's interpretation, right?
Mr. Burke: Again, I would perhaps--
Justice Antonin Scalia: I'm trying to help you, Mr. Burke.
Justice Ruth Bader Ginsburg: Mr. Burke, before you respond to that question, isn't it so that in the event that Justice Scalia just proposed, the trustee could propose an amendment to the plan to reflect that that cost is no longer being incurred?
Mr. Burke: --The cost has never been incurred.
That's the point.
Justice Ruth Bader Ginsburg: My question is: In the situation that Justice Scalia proposed, it's not automatic that this $471 gets deducted because there could be proposed an amendment of the claim to reflect that that -- there is no longer any expense for ownership.
Mr. Burke: --In the situation where there is a dollar, of course, an amendment can be made.
But the -- the dollar doesn't show up in the means test.
The means test is the aggregate--
Justice Ruth Bader Ginsburg: But it isn't -- it isn't automatic that because there's one payment, then forever, the rest of the 5 years, he gets to deduct the $471.
Mr. Burke: --That's what the lower court said.
Justice Antonin Scalia: Excuse me.
What -- what happens under the tax law?
Do they make an adjustment under the tax law as well?
Mr. Burke: Under the tax law you get a standard deduction.
Justice Antonin Scalia: A standard--
Mr. Burke: No different than here.
Nobody goes behind the scenes and says, hey, what is that standard deduction?
Justice Antonin Scalia: --Right.
So that they -- what is suggested is that you look at it and apply the IRS's approach as to whether you get into the chart, but then you don't use the IRS's approach when the trustee takes you out of the chart.
Is that what you think is the law?
Mr. Burke: No, that is not what I think is the law.
What I'm saying is Congress has given, in this case, an individual like Jason Ransom $150,000 over five years to spend.
They are not saying whether he actually spends it in any one category.
For instance, the car ownership might equate to $28,000 over 5 years.
Rent might be 1,000.
That's 60,000 over 5 years.
Congress did not say, go back and make sure Mr. Ransom is spending every dollar.
These are averages across the nation.
And when it comes to a car ownership expense, we are not saying spend $471.
Oh, you have no payment?
You didn't spend anything for 5 years?
What it's saying is over 5 years I have a cost associated with owning that vehicle, whether it's a loan or lease payment, whether it's replacing the vehicle, whether it's major repairs, on average, across the country.
Justice Stephen G. Breyer: You do.
You do, but the difficulty that I -- I don't get the answer to Justice Ginsburg's first question.
Of course you have all kinds of costs dealing with ownership, but what the IRS says, what it says in the statute, is you are supposed to take the applicable costs from IRS.
And what it has on page 5a is it has something called ownership costs.
Mr. Burke: Correct.
Justice Stephen G. Breyer: And it defines those as $471.
Mr. Burke: Correct.
Justice Stephen G. Breyer: And then on 3a, where it says what ownership costs are, it says
"The transportation standards consist of nationwide figures for monthly loan or lease payments, referred to as ownership costs. "
So when I read that, I said: Ownership costs means monthly loan or lease payments, nothing else.
Now, you have all kinds of other things.
It's just these words "ownership costs" don't refer to those other things, because of that definition given right there.
That's what I thought Justice Ginsburg was initially asking.
Justice Ruth Bader Ginsburg: Yes, I was.
Justice Stephen G. Breyer: And -- and how do you get out of that what I think of as very, very clear language which says what these standards refer to?
Mr. Burke: Because the standards refer to the numbers.
It's a chart.
Justice Stephen G. Breyer: Yes, but it doesn't -- for example, suppose you buy a dozen apples every month and they cost you $48 extra.
You are not going to say the ownership costs refer to the apples, even if you decorate the car with them.
Mr. Burke: What -- what--
Justice Stephen G. Breyer: I mean, ownership costs refers to lease and loan payments.
Justice Antonin Scalia: What's the language we are dealing with, Mr. Burke?
Do you want to quote the language to us?
Nobody's quoted the language.
What does it say is applicable?
Mr. Burke: --What the statute says is the applicable -- you shall get, mandatory, the applicable amounts specified based on where the debtor resides.
Justice Antonin Scalia: Wait.
The -- the applicable amounts specified where?
Mr. Burke: In the national local standards.
Justice Antonin Scalia: Read the text of the statute, would you, please, for me?
I couldn't even get it from your brief.
You had to refer me back to the petition.
Why isn't an appendix to your brief or printed in the beginning of your brief, instead of kicking me back to dig out your petition.
Mr. Burke: "The debtor's monthly expenses shall be the debtor's applicable monthly expense amount specified under the national local standards. "
Justice Antonin Scalia: "Amount specified under" the standard.
Mr. Burke: Specific amount, "applicable modified amount specified".
Justice Antonin Scalia: "Applicable amount specified", not the "amount specified if applicable".
Mr. Burke: Correct, based on where a debtor resides.
Now, the only way a court can say that an individual has to have a debt on a car to get this deduction -- two ways: One--
Justice Samuel Alito: Look at the local standard, which is on page 8 of the appendix to your brief, right?
And all it says is
"Ownership costs, first car, $471. "
That's the relevant text, isn't it.
Mr. Burke: --Yes.
Justice Samuel Alito: What if a person leases a car?
Do you think they get ownership costs?
Mr. Burke: Yes, because they get the cost whether they owe on it or not.
Justice Samuel Alito: But they don't own the car, so how can they get ownership costs?
Mr. Burke: There's a different definition.
Ownership doesn't mean -- it can mean possession.
Justice Samuel Alito: Where do you get that, from the--
Mr. Burke: --From the--
Justice Samuel Alito: --The Collection Financial Standards?
Mr. Burke: --The Collection Financial Standards say you get the lease -- you get the deduction if you have a loan or a lease payment.
Justice Samuel Alito: Where do you get the definition that somebody who leases something owns it?
Mr. Burke: I don't.
I'm not sure they do own it.
Justice Samuel Alito: Then how do they get ownership costs?
Mr. Burke: Because you have possession of it.
It's based on having the item, costs associated with having the item, whether it's paid off or not.
Justice Samuel Alito: If somebody rents an apartment, do they own the apartment?
Mr. Burke: Probably under ownership, their possession is some type of an ownership, maybe just possessory.
Justice Stephen G. Breyer: Is there something wrong with the IRS saying what they mean?
"Ownership costs means monthly loan or lease payments. "
Now, is there something--
Mr. Burke: The problem--
Justice Stephen G. Breyer: --That's what it says it means.
Now, is there something illegal about it defining ownership costs in that way?
Mr. Burke: --No, for collection of taxes there is not.
But if you're going to use -- start digging into the manual, you might as well bring it all in to 707(b), and, as we discussed earlier, there was language that said the collection financial analysis should be brought in, but that was deleted in the final version.
Justice Ruth Bader Ginsburg: Why not -- it says you are suppose to look at the costs; it's ownership costs.
So the only thing you'd look at the IRS for is, the manual, is to define ownership costs.
And they say ownership costs means those two things.
Mr. Burke: There is no reason to limit it.
If you are going to -- the text doesn't say -- it says national local standards.
It doesn't discriminate or give disparate treatment to that one item.
If you are going to give it to one item, then it can be pulled in, and it should be -- the same treatment should be given to all items, and we should have to prove some type of a--
Justice Ruth Bader Ginsburg: I don't follow that.
If the simple thing is to just -- what does the word "costs" mean?
And then you look to the IRS manual and it tells you that the cost means loan or lease payments.
Mr. Burke: --To collect taxes, that's how they defined it.
But in the statute it says you get "local standard amount specified".
It does not stretch it and say IRS's interpretation> ["].
That language was taken out.
And if we were to use the IRS interpretation, here's the whole problem: It's discretionary.
It goes up and down.
It's based on an IRS revenue agent.
It -- let me give you a separate example--
Justice Elena Kagan: Mr. Burke, if we could stay with this.
The $471 is derived by looking at the average loan or lease payments nationwide.
Then in addition to that we know that the IRS has a separate category for operating costs that is meant to reflect costs of having a car that are not your loan and lease payments.
So between those two things, why wouldn't we say that ownership costs means your loan and lease payments, but operating costs means your other costs of having a car, and that you get the operating costs if you have a car but don't make loan and lease payments and you get the ownership costs if you do make loan and lease payments?
Mr. Burke: --Because to reach that you have to go into the Internal Revenue Manual.
It's not in the statute that says you have to owe on it to get it.
And if you go into the Internal Revenue Manual -- let's look at operating expenses.
What it says, in collecting taxes, and it's in the Joint Appendix at page 83 through 88.
But what it says when it comes to local national and other expenses, an internal revenue agent has discretion.
You only get these expenses -- this is the overall idea -- if they produce income or if it's for health and welfare.
So when we look at the Joint Appendix page 88, section (b), under the local standard transportation expenses, when it talks about operating costs, which is something you just mentioned, it says you only get transportation expenses that are used to produce income for the health and welfare of an individual and their family.
Plus, the fact that you own a car, the IRS under its discretion can take away the operating costs if it's on four cinder blocks in your backyard.
You are not incurring fuel costs, mileage costs, you are not paying probably registration or any of those other operating costs.
The IRS agent under their manual can take away that expense.
So why stop and say, well, we're just going to look at the ownership costs, and all they're saying here is if you owe on it you get it, if you don't owe you don't get it.
Let's not look at anything else in the Internal Revenue Manual, which is a 39 part, 500 page document that in some ways is almost incomprehensible, and--
Justice Ruth Bader Ginsburg: Mr. Burke, the -- it's unusual to allow a deduction for the purpose of calculating disposable income although you don't have any expense.
I understand how you get to that conclusion with respect to car ownership.
Is there any other provision that in calculating disposable income you are allowed a deduction for an expense that you don't incur?
Mr. Burke: --If the Court understands my view that Congress gave--
Justice Ruth Bader Ginsburg: No.
The question, is there anything else that works like this?
You don't have the expense, nonetheless you have the deduction?
Any -- I mean, there are a whole list of deductions, expenses.
Is there any other one that works this way?
It doesn't matter whether you have the expense, in fact.
Justice Elena Kagan: For example, Mr. Burke, what would happen if you didn't actually have any out-of-pocket medical costs?
Could you still claim a deduction for out-of-pocket medical costs?
Mr. Burke: --I'm saying you get all the deductions, whether you owe on it or not.
Is there a specific one besides the car ownership that says you have to owe on it?
But my point is--
Justice Anthony Kennedy: Is that the general view of the courts?
Is the answer that you just gave supported uniformly by the courts that have looked at this?
Mr. Burke: --There is about 60 published cases.
They are split almost 50-50, actually more--
Justice Anthony Kennedy: In other words, even on this point they are split?
Mr. Burke: --This is one line that they have looked at in the cases.
Justice Antonin Scalia: I don't understand what you are saying.
He asked are they split 50-50 on the point that is before us here, yes or no.
Mr. Burke: --Yes, they're split about 50-50.
Justice Sonia Sotomayor: Do they apply -- do the Courts apply the housing and utilities listed amount whether or not you pay for a house or not, whether or not you rent?
Mr. Burke: There's two published cases I'm aware of and both allowed it.
One, somebody had military housing; one, the house was paid off.
Both courts said you get it under the local standards.
But the IRS manual would not give that to you, because under the local standards the IRS manual says you get the specific amount or your actual payment, whatever is less.
Justice Antonin Scalia: Of course, once again, Mr. Burke, this is -- I don't know why you don't point this out.
This is not the difference between your position and the position of the other side.
You get the deduction for the other side as well, whether or not you are making the payment.
Now, maybe it can be adjusted by the trustee, but as far as the statute is concerned, so long as you make one payment of one dollar, under their theory you are entitled to claim the deduction; isn't that right.
Mr. Burke: That's correct.
Justice Antonin Scalia: So.
Justice Anthony Kennedy: My question, incidentally, about courts was not with reference to the car expense.
It was in reference to the hypothetical or to the issue proposed by one of my colleagues, that said, Justice Kagan, suppose you don't have the medical expense, and the answer -- and your -- and I wanted to know if your answer is supported uniformly by the courts that have looked at this or if there is also a split on that point?
Mr. Burke: I apologize for not understanding it.
No, every other expense deduction that I have seen besides the car ownership, somebody gets it.
Chief Justice John G. Roberts: And they get it whether or not they incur that expense or not?
Mr. Burke: Correct.
Chief Justice John G. Roberts: In other words, food, you don't have to say, well, he did spend this much money on food, so he gets the same deduction?
Mr. Burke: Correct.
Chief Justice John G. Roberts: If he doesn't eat as much as somebody else he gets the same deduction, right?
Mr. Burke: Right.
Or if he lives at home and mom cooks for him.
Justice Elena Kagan: But, Mr. Burke, even you would say -- is this correct -- that if you don't own a car at all you can't claim the car costs?
Mr. Burke: Yes.
Justice Antonin Scalia: Is that -- is that by reason of the Internal Revenue Service--
Mr. Burke: No.
Justice Antonin Scalia: --manual or is it by reason of the Bankruptcy Code itself?
Mr. Burke: It's by reason of the Bankruptcy Code that refers to the standards and the standards specifically say, you have one car, no cars and you get a public transportation, or two cars; pick the one.
Justice Antonin Scalia: So it's in the chart--
Mr. Burke: It's in the chart.
Justice Antonin Scalia: --that you claim -- okay.
Justice Samuel Alito: What if you own a car but it's completely inoperable and it has no value.
You buy it for a dollar.
It's a junk car and you are planning possibly to restore it at some point.
Do you get the deduction then?
Mr. Burke: Based on a strict reading of the code, you get it.
Now, would the IRS allow it?
Again, that's a discretionary standard, but any time you have an objective test there's going to be line-drawing and perceived unfairness on the outskirts.
Justice Anthony Kennedy: And would your answer be the same if the allowance was set, the decree was made, and the debtor then went out and bought the junker to put in his driveway just in order to get the 400-plus dollars a month, or would that be deemed an evasion of the law that could be addressed by the Bankruptcy Court?
Mr. Burke: It can addressed by the Bankruptcy Court, and that's the beauty of the statute.
We don't need to go into the Internal Revenue Manual.
We just need their tables, because there is a provision, 1325(a)(3), that deals with good faith.
So it appears somebody is not acting in good faith, then--
Justice Stephen G. Breyer: What is -- we've got about half the courts in the country agreeing with you.
And so you've read all those arguments, and what in your opinion is the best one on the point, again, where I am stuck, which is Justice Ginsburg's original point.
I mean, I can think of millions of examples.
You have a form that says the employer says entertainment expenses and it defines entertainment expenses as food and transport, and they leave out movies, you know.
Or you could have vacation expenses and vacation expenses are defined as transport and hotel, and they leave out meals.
And here we have a definition of ownership expenses and they say leasing and loaning and they leave out other forms of ownership.
Mr. Burke: --Because--
Justice Stephen G. Breyer: Now, the argument is, well, that's what they mean by it, so that's what applicable.
Now, what's the best argument against that in those 50 cases?
Why is it trying -- why to try to get an expense which isn't loan or lease?
Have you any more right to it than if you tried to get an expense to my totally irrelevant apples?
I mean, it doesn't fit within the applicable definition.
What's the answer?
Mr. Burke: --The means test is a form, and if you look at the form -- the means test is a form.
Justice Stephen G. Breyer: I've looked at the form.
Mr. Burke: If you look at the form, it just says--
Justice Stephen G. Breyer: Ownership.
Mr. Burke: --That's it.
There's no definition in the form.
Justice Stephen G. Breyer: Two pages earlier they say what they mean by the word "ownership".
Mr. Burke: Not the -- the IRS does.
Justice Stephen G. Breyer: Yes.
Mr. Burke: Not the statute and not the B-22 form that is filled out by debtors.
Justice Stephen G. Breyer: Half the courts say, oh, you just sort of imagine what ownership expenses are and anything that they can fall within that general English language word is what they can deduct; is that their approach?
Because if you go longer you say cut off the definition, cut off the definition from the word "ownership", don't use it.
So what do we use to define what ownership is?
Mr. Burke: We don't have to.
Congress gave standard amounts for--
Justice Stephen G. Breyer: I know, but it's for ownership, it's not for, for example, whistling; it's for ownership.
So how do we define what that $471 attaches to?
Do we use a State common law definition or something?
How have they done it?
Mr. Burke: --Because you can take it as a bunch of variables.
It's not in the Bankruptcy Code.
So it could be replacement costs, it could be major repairs.
Justice Antonin Scalia: Is this a problem distinctive to your case?
Doesn't the other side have the same problem with ownership?
Don't they acknowledge that even if you are leasing the car you get the deduction?
Mr. Burke: Yes.
Justice Antonin Scalia: I don't see why this is distinctive to your case.
It's a problem both sides face.
And we don't avoid it by coming out against you, do we?
Mr. Burke: No, we don't.
Justice Stephen G. Breyer: Why?
Justice Samuel Alito: What if -- what if the definition of--
Justice Stephen G. Breyer: Why don't we?
Justice Samuel Alito: --ownership costs was moved into the local standards themselves?
Would the outcome be different then.
Mr. Burke: Are you saying in 707(b)?
Justice Samuel Alito: No.
It's moved from the CFS to the local standards, which are referred to in the code provision.
Mr. Burke: My answer would still be the same because that's not a congressional formula.
That's a form that comes off the Department of Justice website which administers the U.S. Trustee's program and that's their litigation position.
Justice Elena Kagan: But, Mr. Burke, if the table said loan and lease costs, you wouldn't have a case?
If it said, instead of ownership costs, if it said loan and lease costs, then you would sit down and you would say I'm not entitled to that deduction?
Mr. Burke: No.
I would say an individual who owns a car, whether they owe or not, gets the deduction because it's part of this aggregate standard.
Justice Elena Kagan: Even if it's called loan and lease costs?
Mr. Burke: Correct.
It's not a breakdown on what any one individual has.
It's an aggregate.
Justice Ruth Bader Ginsburg: You may want to save the rest of your time for rebuttal.
Mr. Burke: Thank you, I will.
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF DEANNE E. MAYNARD ON BEHALF OF THE RESPONDENT
Ms Maynard: Mr. Chief Justice, and may it please the Court:
The Bankruptcy Code precludes an above-median income debtor like Petitioner from shielding from his creditors $471 a month for a car payment that he does not have.
A debtor with--
Justice Sonia Sotomayor: --food costs, housing costs, utility costs, by getting his parents to pay for those things and still take this deduction?
Ms Maynard: --The statute allows a debtor to take an applicable monthly expense amount.
So if the debtor truly has no food costs, then the food standard would be not applicable to the debtor.
Justice Sonia Sotomayor: Your adversary said that only two courts have addressed this issue and have permitted those deductions.
So under what reasoning would we apply a different standard to the car costs as opposed to those other costs?
Ms Maynard: Well, I think with respect, I think the cases we were talking about were housing.
Justice Sonia Sotomayor: Housing.
Ms Maynard: Right.
So housing and car costs are part of the local standards.
Food, clothing, house cleaning supplies, those are part of the national standards.
The -- in our view, the text that goes along with, accompanies the tables, which is not the Internal Revenue Manual, it's just the pages reprinted at 1-A to 3-A of our brief, the Collection Financial Standards, the prefatory explanation for what the tables mean.
In our view, that goes along and is incorporated into the national local standards.
The national standards, Justice Sotomayor, are allowed.
As long as you have under the calculations as explained in the standards, under the national standards, a debtor would receive the allowance in the table as long as they have any such expense, so regardless of amount.
However, if they have no such expense, then they are taken out by the statutory language in the means test, which says that the standard must be applicable to the debtor.
Chief Justice John G. Roberts: So if they have prepurchased their food expenses, so long as they have one dollar of food expense they get the entire expense even though they are not incurring it?
Ms Maynard: If they are--
Chief Justice John G. Roberts: And there are things like, you can pay up, you know, have the grocery deliver your food every month and you can pay in advance, and if you paid up you still get the full food expense that is allowed?
Ms Maynard: --No, Your Honor.
I think if over the 60-month period looking forward you know that you're going to -- you've already paid up for your food for the next 60 months and you are not going to incur any additional food expenses, no, then in that situation the standard would be inapplicable to you.
You would be having now -- in that hypothetical--
Chief Justice John G. Roberts: But if you paid 1 dollar for food you would get the full amount for 60 months?
Ms Maynard: --Under the standard.
That's the way the standards operate, Your Honor.
I haven't seen any cases litigated--
Chief Justice John G. Roberts: So your argument leads to a result that is just as absurd as your colleague's result on the other side.
Ms Maynard: --I don't believe so, Your Honor.
Chief Justice John G. Roberts: I mean, that was a big part of your argument.
You said his position leads to an absurd result, and yours is just as absurd.
Ms Maynard: I don't think so, Your Honor, for this reason, which is that the national standards are food, clothing, house cleaning supplies, things that you expect every debtor to have.
You don't see much litigation about those expenses.
The local standards, however, operate differently.
In our view -- and our view's different from the Government's, Justice Scalia.
In our view, under the local standards and the way that they apply as explained in the Collection Financial Standards, is that the debtor is allowed their actual expense for the local standard or the amount in the table, whichever is less.
So in the hypothetical--
Justice Sonia Sotomayor: Where does it say that?
Ms Maynard: --In our--
Justice Sonia Sotomayor: The debtor's monthly expenses shall be the debtor's applicable monthly expense amount specified under the national and local standards.
So the national and local standards have amounts listed.
Where does it say you take only the actual, not the national or local standards?
Ms Maynard: --I read that text, Your Honor -- again, the Court doesn't need to decide this maximum cap issue to decide this case, because the Petitioner has no expense whatsoever and so it's not applicable to him.
But in our view, Justice Sotomayor -- in our view you get it from the language of the statute that says
"the debtor's applicable monthly expense amount specified under the national standards and local standards. "
And the way that we understand the national and local standards to work is, if you look at page -- it's explained on page 1A of the petition to our brief, the red brief.
Maximum allowance -- it's the third paragraph down:
"Maximum allowances for housing and utilities and transportation, known as the local standards, vary by location. "
"Unlike the national standards, the taxpayer is allowed the amount actually spent or the standard, whichever is less. "
Justice Sonia Sotomayor: But that's -- but that's not what the provision at issue here says.
It says you use the amount specified under the national standards and you use actual for everything else.
That's what the statute says.
So now you are trying to move the actual into the first half of the test?
Ms Maynard: No, Your Honor, that's not how I understand the text.
The text provides--
Justice Sonia Sotomayor: Why would you even bother?
Why don't you -- if -- if what you are arguing is that only actual expenses are -- are what you can claim, you wouldn't need the first half.
Ms Maynard: --Yes, you would, Your Honor, because what the -- what the statute's purpose here is -- I mean, I think it's helpful to step back.
Chapter 13 sends one to chapter 7's means test for the purpose of calculating the amounts reasonably necessary for the maintenance and support of the debtor.
And Congress chose to import the -- the methodology of the national standards and local standards as a way both to set the categories of expenses that debtors could receive payment for, and, with the case of the national and local standards, to set the amounts.
They were worried about capping upper discretion because Congress, it's quite clear from the text and the legislative history, was concerned about above-medium-income debtors taking luxurious expense amounts.
Justice Sonia Sotomayor: So what you would have the statute read is: The debtor's monthly expenses shall be the debtor's applicable monthly expense amount specified, as a -- as a maximum.
You would have to add "maximum" somewhere there.
Ms Maynard: No, Your Honor, because the amount under the national standards as the national standards operate is the -- is an allowance, not an actual, and the amount under the local standards as they operate is the amount actually spent or the amount in the table, whichever is less.
Chief Justice John G. Roberts: Your -- your position penalizes debtors who pay their expenses in advance, who don't incur additional debt to pay for things like their car.
I would have thought the Bankruptcy Code would think that's a good thing, that they are not incurring debt that they can't afford to pay off, but instead, to the extent they can, they are paying expenses in advance.
Why should somebody who does that be in a worse position than somebody -- somebody who takes out a loan they can't afford to pay back?
Ms Maynard: --Money is fungible, Your Honor, so to the extent the debtor has incurred expenses before going into bankruptcy instead of, as here, paying off this more than $85,000 in credit card debt--
Chief Justice John G. Roberts: Well, he hasn't incurred -- he hasn't incurred expenses.
It's the whole point, I guess, that he's paid for something.
Ms Maynard: --He used his money, perhaps, to purchase his car outright, instead of to pay down his credit card debt, and so he has a salary of $50,000, and he has a credit card debt of $85,000, and he owns a 2-year car -- 2-year-old car outright.
He should not be able to deduct, as a measure of his reasonably necessary expenses for his maintenance and support over the next 50 months, $28,000 that he doesn't need for a car payment that he doesn't make.
Justice Stephen G. Breyer: You're--
Chief Justice John G. Roberts: Even though he can do it -- even though he can do it for everything else: he can do it for food, he can do it for housekeeping expenses, he can do it for personal care expenses, he can even do it -- the other, the final category is miscellaneous, so he can do it for anything.
Ms Maynard: Well, the miscellaneous, all those numbers are capped, and the legislative history makes clear Congress thought all those numbers would actually effectively act as caps.
In other words, to the extent there was debate in the Congress, Congress was concerned that these numbers were actually too low, not that they were going to give anybody a windfall.
But to the extent--
Justice Sonia Sotomayor: So what you are proposing is that every debtor has to go to the Bankruptcy Court and show what their monthly food bills have been over what period of time, how much their personal supplies have been over what period of time?
How can you calculate forward what they are going to spend on a monthly basis for each of those items?
Isn't that the reason the tables are used, so that you don't have to do that?
Ms Maynard: --Yes, Your Honor, and in the national standard, which all the items you just list are national standards, under the national standards you don't do the actuals.
On page 1A it explains:
"Allowances for food, clothing and other items, known as the national standards, apply nationwide except for Alaska and Hawaii. "
"Taxpayers are allowed the total national standards amount for their family size and income level without questioning amounts actually spent. "
For -- yes, for those hard-to-calculate items, you do -- our position is you do get the amounts in the chart.
For local standards, the local standards, however, which include home, mortgage, lease expenses, utilities and transportation, which include both ownership costs and operating costs, you get the actual or whichever is less.
Justice Antonin Scalia: I must say your position is more logical than the position that you read in some of the instructions applicable to the -- to the chart that's referred to in the Bankruptcy Code, but not others.
I mean, it seems to me, if you are going to read in the requirement that have to have made a lease payment, you should also read in the requirement that you are referring to now, which would mean your deduction is limited by the -- by the amount of your lease payment.
I don't see why -- is there any reason why one would read in the other one and not read in yours?
Ms Maynard: Not in our view, Your Honor, because in our view the chart is -- is ambiguous about what the numbers stand for.
And so in the national standards, the text, the prefatory text, explains that the amount is an allowance if you have the expense.
In the local standards the prefatory text explains that the amount operates as a cap.
But the important point for this case, Your Honor, is that you don't have to decide anything about the national standards because Petitioner is left at the statutory door.
He has no applicable monthly expense amount for operating--
Justice Elena Kagan: Ms. Maynard, what would happen if the debtor had a car that was 200,000 miles old -- 200,000 miles, and it was going to break down, you know, within the next 5 years?
Would the debtor then be able to take the deduction?
Ms Maynard: --If the debtor owns the car outright at the time they file for bankruptcy, they would not get the deduction.
Justice Elena Kagan: Even though if you look ahead, if you project forward, it's pretty clear that the debtor is going to have to incur those expenses?
Ms Maynard: They would not get a deduction under this calculation.
However, under this Court's decision in Lanning, when one goes to project the disposable income it's conceivable that the debtor could prove that it's known or virtually certain that they will need a new car and that that could be accounted for.
But also the Bankruptcy Code in 1329 allows for modification of a plan, and so when the time arises that their car conks out and they need a new car they can move to modify their plan.
Justice Elena Kagan: Well, the modification works for chapter 13 but it doesn't work for chapter 7; is that right?
Ms Maynard: --Well, they make that statement in their reply brief, Your Honor, but I'm not sure exactly what they mean by that, because in chapter 7 this test is being used for a very different purpose.
It's the gateway; it's a presumptive test for abuse.
And so again, our reading makes perfect sense in that context because what you want to know is does this debtor actually have moneys it can prepay its creditors.
Should it be--
Justice Stephen G. Breyer: --The -- sorry, are you finished?
Ms Maynard: --I was -- I actually haven't answered the question.
Justice Stephen G. Breyer: Go ahead.
Chief Justice John G. Roberts: Why don't you finish answering the question?
Justice Stephen G. Breyer: Finish, yes.
Ms Maynard: So in chapter 7, you want to -- if you decide it's presumptively -- not presumptively abusive, and you stay in chapter 7 and chapter 7 is a liquidation.
There is no ongoing plan.
So I -- all of your nonexempt assets are liquidated, your creditors are paid off, and then you are discharged.
If 3 years from now your car conks out, you're just like you and me; you are not in bankruptcy, you just -- you try to make do.
Justice Stephen G. Breyer: I think it is -- well, I'm trying to work out what was his point.
And I don't blame him for this.
But trying to figure it out, he says look: This whole thing was written for a different purpose than the IRS and if we start reading all those things from the beginning into the tables we are really going to get into a mess.
For example, we are going to give people deductions when they have lease payments, even though they are not owners when they have lease payments.
The company owns -- not even an ownership expense, but it does say use the lease payment, and then it has all these other things.
So forget it; do a simple thing.
It says ownership expense.
You go to the registry of motor vehicles and you say, is Smith the owner?
And they will tell you, yes or no.
And if the answer is yes, he deducts $471.
Sometimes that's too little, sometimes that's too much.
But once we depart from that, we are really in a nightmare of trying to figure out what all these things mean that were written for other purposes.
So what do you say to that?
Ms Maynard: I say, Justice Breyer, that there is nothing in the statute or the legislative history that suggests that this was meant to be an overall budget for above-median income debtors.
This was about capping upper discretion and limiting the expenses available as reasonably necessary expenses for above-median income debtors.
And I think that point is made perfectly clear by the fact that you can compare it to what happens now to a below-median income debtor.
A below-median income debtor in the same situation as Petitioner, who owns his car outright, would be allowed no amount as an expense for his vehicle, because he doesn't have an actual expense that's reasonably necessary.
And I think that the 2005 Congress would think it was a senseless result, as they argue here, that Petitioner gets $471, above-median income debtor, the very class of debtors with whom Congress was concerned in the 2005 amendment, to shield from his creditors over the life of the plan when he has no comparable expense.
Justice Anthony Kennedy: What we are talking about is a paradigm of someone -- we are comparing someone who has a $470-a-month car payment and he gets -- and he gets the deduction.
Why is that, in light of the second sentence -- let's see, the third sentence of the statute, which says,
"Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts. "
I mean, that would be the car company.
Has that point been litigated?
Ms Maynard: That sentence is somewhat of a conundrum, Your Honor, and I think that the Court doesn't need to decide the meaning here, because whatever it does, it doesn't get the Petitioner within the Romanette ii calculation, because he has no payment.
Justice Anthony Kennedy: No, but it would -- it would eliminate the anomaly that -- one of the principal anomalies.
There are many anomalies in each position.
It would eliminate one of the principal asymmetries that seems to concern the counsel and the Court.
Ms Maynard: Well, my understanding of that provision is that it serves two purposes.
Justice Anthony Kennedy: It -- it--
Ms Maynard: Serves two purposes.
The first is that it makes clear -- in the back of our brief, we have the other necessary expenses from the IRM.
And on -- near the back, page 25a, two of the categories of other necessary expenses are secured or legally perfected debts and unsecured debts.
So I think the -- the otherwise -- the "notwithstanding" sentence makes clear that Romanette ii should not capture those other unsecured debts and secured debts that is the whole purpose of this calculation, to figure out how much money you have to pay those things.
The second purpose the sentence serves is to make sure that there is no double-counting, because Romanette iii, the very next provision in the means test, allows the debtor to claim monthly payments for secured debts.
Now, many car loans are probably secured debts and in our view if you actually have a car loan -- now, remember again, he neither has a car loan, nor a car lease payment, nor any kind of ownership payment.
But if -- if one actually did have a car loan that was secured by the car, which I think is the vast majority of car loans, in our view the debtor expenses nothing for that under Romanette ii, and only the actual amount of that debt under Romanette iii.
Justice Ruth Bader Ginsburg: I thought the -- the general position was you get either the actual payment or the 471, of whichever is higher.
Ms Maynard: Whichever is less.
I think that -- that is my understanding of how the local standards work, Your Honor.
I think, then, as a practical matter, that really will end up only applying to car leases with respect to transportation ownership costs, because I think that the notwithstanding sentence removes secured car loans from Romanette ii and has been calculated under Romanette iii, where there is no comparable cap.
But the point at issue in this case doesn't involve the interaction between Romanette ii and Romanette iii, because no matter how those two things interact, when the debtor has no payment whatsoever, he ought not to be able to claim any car ownership costs, because what we are frying to figure out is: What amount does he reasonably need for his maintenance and support?
And this question is a very important question.
This scenario happens a lot.
In the 2007 study that U.S. Trustees did at Congress's request to -- which Petitioner cites in his reply brief, the average overpayment of a debtor in claiming this transportation ownership expense was $335, which is a lot when you are talking about the standard in the tarp being 471.
There are many debtors who are getting this expense either above their amount or when they have no such expense at all, and so even if the Court doesn't resolve these other issues that are implicated by this case, the decision here is a simple one, which is: This debtor has no applicable monthly expense amount for transportation ownership costs, and he shouldn't be allowed to expense any amount for that.
If there are no further questions, the Respondent requests that the Court would affirm the judgment below.
Chief Justice John G. Roberts: Thank you, Counsel.
ORAL ARGUMENT OF NICOLE A. SAHARSKY, ON BEHALF OF THE UNITED STATES, AS AMICUS CURIAE, SUPPORTING RESPONDENT
Ms Saharsky: Mr. Chief Justice, and may it please the Court:
The only question this Court needs to resolve in this case is whether the vehicle ownership expense is applicable to Petitioner.
The answer is no.
The ownership cost is for loan and lease payments, the cost to acquiring the vehicle, and he just doesn't have any payments of that type.
To allow him to pretend that he does would create absurd results.
He would be able to shield approximately $28,000 from his unsecured creditors, and he would be better off than lower income Chapter 13 debtors.
And we just don't think that that's a result that Congress intended.
Chief Justice John G. Roberts: And if he pays--
Justice Anthony Kennedy: Well, I -- excuse me, Chief Justice.
Chief Justice John G. Roberts: --If he paid a dollar, he would be able to shield $27,999, and you are comfortable with that result.
Ms Saharsky: --Well, that goes to the question of whether the amount in the table is the amount to be used or a cap on actual expenses.
In our view, it is--
Chief Justice John G. Roberts: And I understood your brief to say it was the amount -- you get the whole amount, not simply as a cap.
Ms Saharsky: --That's right.
Now, of course, we haven't seen -- the executive office for U.S. Trustees has not seen any $1 payments.
It doesn't know of any such commercially available payments.
It suspects the payments would be--
Chief Justice John G. Roberts: If the point of the $1, Counsel, is to lead to the extreme hypothetical that would flesh out your position, what if it were $10,000 and the amount would give him $30,000?
The trustees have probably seen loans like that.
Ms Saharsky: --What I'm saying, Your Honor, is that there are many circumstances in which an expense amount is a standard amount, but you still need to make a threshold showing that it's applicable to you.
And if I could give the Court one example: When an individual does his Federal income tax forms, you can take a deduction for your dependents, but you can't just take a deduction for any child you have.
You have to take a deduction -- you can take a deduction if the person lives at home with you for more than one year and have you a certain amount of expenses to support them, and that is a standard deduction that you get on your tax forms.
The IRS doesn't ask everyone to figure out their actual costs.
It is the case in real life that there are allowance amounts that are average amounts that are given to people once they meet the criteria.
And that's what we are saying happens here.
Now, that is, again, only a disagreement as to what you do with people who actually have vehicle ownership expenses.
Justice Antonin Scalia: Why aren't -- why isn't one of the criteria the provision that says maximum allowances for housing and utilities and transportation, known as the local standards, vary by location and unlike the national standards, the taxpayer is allowed the amount actually spent or the standard, whichever is less?
Why doesn't that apply?
Ms Saharsky: Well, because, Your Honor, in that case it's the IRS commentary we are referring to that is on page 1A of the red brief appendix.
And that -- what that's referring to is, it says the amount actually spent or the standard.
And that's distinguishing between the amount that is actually spent or the standard, which is the standard--
Justice Antonin Scalia: Right.
Ms Saharsky: --amount in the table.
And of course, we look to what -- the text that Congress enacted in the Bankruptcy Code, and that says that the debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the national standards and local standards.
Justice Antonin Scalia: It's not applicable.
It's not applicable if, in fact, you haven't spent that much.
Just as you claim it's not applicable if you have no payment at all.
Ms Saharsky: I think that it would further Congress's purposes to say that you have to -- that you look to the actual costs that the debtor has.
But we just don't think the text goes that far, because it says that if the expense amounts, the category, is applicable to the debtor, that then you use the expense amounts specified under the table.
Justice Anthony Kennedy: No, but the -- but the gravamen of Justice Scalia's question is: Why are you running away from 1A, which is what Respondent's counsel relied on?
And if that were clearly relevant to this statute, it would seem to me to answer the question.
Are you saying we -- we don't look at this because it's just simply an interpretation, it's not a regulation?
What is -- what is -- in your view, what effect do we give to this language that Justice Scalia quoted?
Nothing at all?
Ms Saharsky: --It would not be relevant in the bankruptcy context, in our view, and the reason is because the statutory text refers to the standards.
And in our view, you can look to the IRS commentary to see what the standards mean, what their scope is, as Justice Breyer was discussing with his apples hypothetical.
But this additional language is guidance to IRS agents in tax delinquency cases about how to collect taxes.
Justice Anthony Kennedy: Suppose we -- suppose we think the word "applicable" is ambiguous and difficult to construe.
Do we then look at this language at 1A, or do you say it is irrelevant in all instance -- in all -- in all respects?
Ms Saharsky: --You -- Your Honor, you could look at this language, but we think that it reflects not the standards, but what -- how the IRS uses the standards in individual cases of tax delinquency.
To the extent that the IRS is defining what the standards are, what the scope of the standards are -- for example, that ownership costs are loan and lease payments -- of course we would think that you would look to that, but this additional guidance to IRS agents we don't think is what Congress meant when it said
"expense amounts specified under the standards. "
But we do think that the text could be read the way you suggest.
Justice Sonia Sotomayor: So then you would be comfortable with a person who owns a house outright who only pays $100 in utilities taking the full amount of the housing and utilities allowable living expenses because that's the amount specified?
Ms Saharsky: Well, the housing and utilities expenses have been broken out into a mortgage and rent component and utilities component.
So in that circumstance we would say the individual only is allowed the utilities component, but it would be the allowance amount that is specified, it would not be this actual amount.
But again, this was a question that was not considered by the courts below.
In fact, the Bankruptcy Appellate Panel said in footnote 20 of its brief, said this question is not in this case, it's not before us whether you use the actual amounts in the table or whether you use the actual amounts.
Chief Justice John G. Roberts: Ms. Saharsky, I should probably know this, but if you do have amounts that are excluded from the disposable income because of car ownership, in other words, you actually have, in your point of view, expenses, do they have to go to the pay off the car loan or are they available for everybody?
All the creditors?
Ms Saharsky: They are not available for the creditors.
The idea behind this calculation is that there, of course, are secured debts that have priority and then this calculation is used to figure out how much money is left to pay unsecured creditors, and the idea is that the debtor has certain expenses, that he needs to keep money for himself so he can continue with the every day business of life.
For example, the car ownership payment is designed to ensure that a vehicle can still use and have access to a car, and if someone has a loan or lease payment they need to be able to continue making that payment in bankruptcy, but if they don't have any such payment then they don't have this additional need for additional funds.
Chief Justice John G. Roberts: If there is more food expense than is allowed, can he decide of the amount that would otherwise go for the car payment that he is going to pay some of that for the food expenses?
Ms Saharsky: Well, certainly the Bankruptcy Court doesn't scrutinize, you know, what happens to that regard.
What it's just trying to do is figure out the disposable income that is available to pay unsecured creditors that the debtor doesn't need.
And I should just note with respect to this question of whether there is an overall budget that the debtor is allowed, you know, that is certainly not the case in any of the other provisions that follow this applicable monthly standards and local standards.
You have the actual other necessary expenses, actual continuation of taking care of chronically ill family members, and Petitioner himself acknowledges that he has to show that he has a car.
So it's not the case that every debtor is just getting some set amount of money to do what they will with.
Congress has referenced the standards, the standards break this out into certain expenses, it says just take the applicable ones and we just don't think it makes sense to interpret applicable in that circumstance.
Justice Elena Kagan: Ms. Saharsky, could you explain to me the Government's position on when a debtor with loan and lease payments gets to deduct them under Romanette II?
In other words, this goes back to Justice Kennedy's question, the notwithstanding clause and whether the notwithstanding clause effectively excludes all loan and lease payments from Romanette II?
Ms Saharsky: It does not have that affect, Your Honor.
What it does is to take out the actual debt payments that are part of the other necessary expenses, these are on page 25-A of the red brief that counsel on our side mentioned.
These are other necessary expenses that are actual debt payments and the local and national standards are expense amounts.
We don't think that Congress defined those to be debt payments.
So the function of the payments for debts language, we agree with Respondent's counsel would be twofold.
First, it would excise the other necessary expenses that actually are debt payments, which makes complete sense.
One of them is an unsecured debt payment, and you wouldn't want to consider that one of your expenses because the whole point of the calculation is to figure out how much money you have left to pay unsecured debt.
And then the other function that it serves is in Romanette III because you were getting secured debt payments there to not double-count them in Romanette II.
Justice Elena Kagan: But, in other words, the loan and lease payments don't count as debt for purposes of the notwithstanding clause, they count as expense amounts?
Ms Saharsky: We say that those are expense amounts that are specified, they're not payments for debts.
I should note, because Justice Kennedy asked this question, that this was not something that was relied upon by the courts below.
I don't believe there is any definitive court of appeals opinion that goes through in detail what that provision is designed to do.
So I would urge this Court that it need not resolve it in this case and instead do what the court of appeals did, which is to say that just looking at the plain text, the word applicable means not everybody can get these amounts in the national and local standards and it needs to be someone who actually has those payment amounts.
The whole point of this part of this statute is to figure out what money is available to pay unsecured creditors and it's payments that need to be made for expenses that matter, it's not whether the individual debtor has a car.
I also note just because it came up earlier and is a very important point, that to the extent that the Court only wants to look at the tables to figure out what are ownership costs, are they loan and lease payments.
Just looking at the title of the table, ownership costs, you need to have costs.
Looking at the fact that there are two different ones, there is ownership costs as opposed to operating costs, makes clear that some of the things that Petitioner suggests might be ownership costs are, in fact, operating costs.
Chief Justice John G. Roberts: Thank you, counsel.
Mr. Burke, have you four minutes remaining.
REBUTTAL ARGUMENT OF CHRISTOPHER P. BURKE ON BEHALF OF THE PETITIONER
Mr. Burke: Thank you.
The means test knows when to say actual when it wants to say actual.
It didn't say actual in this case, it said applicable.
Justice Ruth Bader Ginsburg: Mr. Burke, would you explain one facet of this case to me.
Given the deduction, the $471 deduction, projected disposable income comes down to $210?
Mr. Burke: Correct.
Justice Ruth Bader Ginsburg: As opposed to it would be $600 some if you didn't count the $471?
Mr. Burke: Correct.
Justice Ruth Bader Ginsburg: Even though the disposable income figure was $210, the debtor was willing -- the debtor proposed paying $500.
Why did the debtor come up with a $500 figure when projected disposable income without the car ownership would be -- if he gets the car ownership would only be $210?
Mr. Burke: This is exactly why our view of the law works.
The means test is a minimum amount.
It's a bottom line quick figure based on standard deductions.
It was $200 based on our calculation if he's given his deduction based on age, location, et cetera.
We then go back to I and J, and J, which is on page 44 of the Joint Appendix, is his current expenses.
And if we look at line 13-A, there is no vehicle payment.
He is not taking $471.
He took his income and expense, the bottom line was 500, he knew he had to pay at least 200, he is willing to pay the 500.
He is not getting a $471 deduction because there is no car payment on his Schedule J.
And if we look at the formula that way, the means test is a general form to give standard deductions, to give us a quick bottom line, and the debtor is either going to pay that amount or more based on his income and expense, and he would pay more if he really didn't have that expense.
So if he didn't have a rent expense of $1,000 a month it would show up on Schedule J that he didn't have 1,000, so his payment would go to $1,500 a month.
That's the good faith that is involved in this case.
Justice Antonin Scalia: It would have to go to 1,500 a month or he, out of the goodness of his heart, would decide to pay that amount?
Mr. Burke: He's going to have to pay an amount of at least $200.
It would be hard to confirm a case if he doesn't pay somewhere in that range.
Justice Antonin Scalia: Fine.
So why would we assume, I don't know -- your client is an extraordinarily generous fellow.
I don't think most people when they go through bankruptcy are going to cough up any more than they have to.
Mr. Burke: It's the only way for the form and the law to work.
The means test is a bottom line number.
If you don't have one of those expenses, it shows up on Schedule J and it gives you a number.
If it's higher, we think you should probably pay it or in that range.
If it's lower, Congress isn't saying you get away with it, it says you get out of Chapter 13 if you are not going to pay this amount.
So the formula is just to come up with a bottom line.
Nobody is shielding anything, it's all black and white on his current expenses.
If he doesn't have it, he is not getting it.
Justice Samuel Alito: Do you think that the Bankruptcy Code provision freezes the national and local standards to some degree or completely as they existed at the time when the statute was enacted?
Mr. Burke: At the time the debtor files, those numbers are frozen.
Justice Samuel Alito: But the IRS can change, otherwise going forward they could completely change the national and local standards?
Mr. Burke: The numbers, but not the structure.
They can do anything they want when they are collecting taxes, but the numbers -- and I think the numbers change on an annual basis.
Chief Justice John G. Roberts: Thank you, counsel.
The case is submitted.
Justice Elena Kagan: This case is about the proper interpretation of the Bankruptcy Code.
In what's called Chapter 13 Bankruptcy, a person can get relief from all his debts in exchange for an agreement, an agreement to repay his creditors a certain amount of his future income for the next several years.
The Bankruptcy Code instructs a person in this situation how to calculate the exact amount that he has to repay his creditors.
The Code says to that person, first, you take your current income then you deduct certain defined living expenses.
Those defined expenses, the Bankruptcy Code says, are set amounts, not necessarily your actual expenses, but set amounts that the IRS decides are reasonable for various necessary things like housing, or transportation, or food.
You deduct those expenses from your income and what's left over is the amounts that you are required to repay creditors.
Now, the issue in this case is whether the Bankruptcy Code allows a debtor, who's making this calculation, to deduct an expense that he simply does not have.
The expense at issue is for car ownership.
The IRS, and again that's the agency that's authorized to set these reasonable expenses.
The IRS says that the average loan or lease payment for a car nationwide is $471 a month.
And so the IRS says, that's the amount that a person typically can deduct in Chapter 13 Bankruptcy.
That's the amount of the car-ownership deduction.
The petitioner here, whose name is Jason Ransom, he claims this deduction even though he owned his car free and clear, and he didn't in fact make any loan or lease payments on this car.
And claiming this deduction, allowed him to shield about $28,000 that he otherwise would've had to pay his creditors over the life of his bankruptcy plan.
And he took the car-ownership deduction in addition to claiming another deduction that the IRS sets for car-operating costs like fuel, and insurance, and repairs.
So one of his creditors, perhaps not surprisingly, objected.
That creditor said that Mr. Ransom wasn't eligible to claim the car-ownership deduction because he didn't in fact incur any car-ownership costs.
Today, we hold that this was a valid objection, that Mr. Ransom was not entitled to this deduction under the Bankruptcy Code.
We reached this conclusion by looking closely at the language of the statute.
The statute authorizes a debtor to deduct, “His applicable monthly expense amounts that are set by the IRS.”
"Applicable," if you go and you look it up in the dictionary, means appropriate, or relevant, or fit and we conclude that when the statute says, “Applicable expense amounts”, what the statute means is the expense amounts or deductions, that's another word for it, the deductions that are appropriate for that debtor.
And the deductions that are appropriate for that debtor are the ones that correspond to his own financial circumstances.
So a person who doesn't have any car-ownership expenses can't take a deduction for car ownership.
We also think that this understanding of the statutory language accords with the context and purpose of the statute.
Other provisions of the statute made clear that Congress intended the deductions to approximate the debtor's reasonable expenditures on basic necessities.
And Congress' essential purpose in enacting this part of the Code was to ensure that debtors who can pay creditors do pay them.
So once again, we think this means that a person like Mr. Ransom who doesn't have any car-ownership expenses shouldn't be able to deducts them when calculating how much he has available to repay creditors.
We therefore affirm the judgment of the Court of Appeals for the Ninth Circuit, which previously disapproved this deduction.
Justice Scalia has filed a dissenting opinion.