Drury v. U.S. Trustee (In re Drury)

In re Drury, No. CC-15-1441-KuFD (9th Cir. B.A.P. Aug. 23, 2016). Not for publication.
In determining disposable income, a chapter 7 debtor may deduct loan payments that the debtor does not owe on a car that the debtor uses, but does not own.
Procedural context:
The U.S. trustee moved to dismiss the chapter 7 case filed by Drury, contending that, for disposable-income purposes, she could not deduct loan payments that she did not owe on a car that she did not own. Thus, according to the U.S. trustee, the case was presumptively abusive under section 707(b)(2) and, alternatively, should be dismissed as abusive under the totality of the circumstances under section 707(b)(3)(B). The bankruptcy court granted the motion to dismiss. On Drury’s appeal, the BAP vacated and remanded.
Drury’s sister bought a car on credit on Drury’s behalf because Drury lacked sufficient credit to buy the car in her own name. Drury drives the car and makes the loan payments. She is not legally obligated to make the payments, but her continued possession and use of the car depends on her continued payments on the loan. In her Form 22A, she claimed that she was entitled to deduct from her income a vehicle-ownership expense of $517 and a vehicle-operating expense of $400. The U.S. trustee asserted that, because Drury did not own the car, she was entitled to claim only a $295 operating expense and no ownership expense. The bankruptcy court granted the motion to dismiss. Under section 707(b)(1) and (b)(2)(A), a bankruptcy court may dismiss as abusive certain chapter 7 cases, and a case is presumed abusive if the debtor fails the means test. Under the expense side of the means-test equation, section 707(b)(2)(A)(ii)(I), the deductible expenses are those in the IRS National and Local Standards. The relevant version of the Local Standards tables for transportation expenses states that a taxpayer may claim an expense of $517 in vehicle-ownership costs and an expense of $295 in vehicle-operating costs. According to the BAP, nothing in the Bankruptcy Code or the Standards suggests that a debtor may claim a car-loan or -lease payment as a local-transportation expense only if the debtor is liable for the loan or owns the car. Nothing in the Supreme Court’s decision in Ransom v. FIA Card Servs., N.A., requires otherwise. The Court in Ransom held that car ownership is not sufficient to entitle a debtor, who makes no car-loan or -lease payment, to claim that expense; but the Court did not address whether car ownership was necessary to entitle a debtor to claim that expense. The BAP concluded that, when Drury’s disallowed vehicle-ownership expense of $517 is considered, she has negative disposable-income. Thus, the presumption of abuse does not arise. The bankruptcy court made insufficient findings to permit the BAP to determine whether to affirm dismissal of the case on alternative grounds, so the BAP vacated the dismissal and remanded for further findings.
Frank L. Kurtz, Robert J. Faris, and Randall L. Dunn, Bankruptcy Appellate Panel Judges.

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