Bankruptcy attorneys nervously awaited as Justice Elena Kagan wrote her first opinion for the Supreme Court. They weren’t nervous because it provided clarity to the 2005 amendments to bankruptcy laws, but because she sided with the creditors.
“This case is about proper interpretation of the bankruptcy code,” Kagan wrote. The Court ruled against Jason Ransom, of Nevada, who argued that he should be allowed to take deductions exactly as the law was written, even if it may seem strange to his credit card company.
Like many legal issues, the argument stemmed from the phrasing. Ransom contested that he should be allowed to take advantage of $471 in deductions for monthly car payments and owner expenses. Generally, he would be allowed to do this based on both state and federal law without any problems. However, one of Ransom’s creditors objected to this deduction—mainly because his car was fully paid off.
“Ransom may not deduct loan or lease expenses when he does not have any,” Kagan wrote in her opinion. Under Ransom’s Chapter 13 plan, he would pay back about $200 per month to his creditors. Ransom’s credit card company argued that since Ransom owned the car, he shouldn’t be able to take deductions mean for loan payments and maintenance, and should use the remaining $471 to pay back his unsecured creditors.
Makes sense, right? Wrong. And it’s due to the fact that the rule they are debating is written as “vehicle owner’s expenses”.Now, way-back-when someone may have intended this for loan payments, but in this current form, it includes maintenance, expenses, gas, repairs, etc.
There were members of the court who did not agree with Kagan. Justice Antonin Scalia penned the dissenting opinion. He argued that the law was written in such a way that someone who owns a car is entitled to the car ownership deduction, and furthermore that owing money on the car is not a requirement to take it. He also says Congress understood that there would be some “occasional peculiarities,” in cases like this when it adopted new laws.
Ransom was fortunate that he had an attorney willing to defend his claim and take his appeal all the way to the top of the court system. Most bankruptcy cases aren’t this complicated and drawn out (Ransom first filed his Nevada Chapter 13 back in 2006), but sometimes creditors will challenge a repayment plan. When looking for a bankruptcy attorney make sure you pick one who will stick with you if your plan is changed.
James Brown is a personal bankruptcy attorney in St. Louis, Missouri. He has filed over 30,000 bankruptcy cases and published many books and articles. You can request his free Missouri and Illinois bankruptcy guide for the best tips on how to prepare for your bankruptcy and find a great bankruptcy attorney.
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