Posted on Jan 17, 2011
On January 11, 2011, the U.S. Supreme Court, in an 8-1 decision in the case of Ransome v. FIA Card Services, dealt a significant blow to many people who are considering filing bankruptcy.  Under the changes to the bankruptcy laws in 2005, Congress added a "Means Testing" component requiring people in upper income brackets to go through a standardized and complicated analysis of their cash flow (income less expenses) to see if they have an amount of money left over that could make a significant enough payment towards their debt in a chapter 13 repayment plan.  If there is too much left over, they can be prevented from filing a chapter 7 bankruptcy.

Two of the standardized deductions for living expenses in this analysis have to do with a debtor's car.  He or she can deduct for the expense of its operation (items like gas, tolls, parking and repairs) and ownership.  Prior to this ruling in Ransome, the courts in this country were split over whether a debtor could use the Cost of Ownership deduction if he or she did not have a car loan or lease payment for the vehicle.  Now, the answer is clear: no loan/lease payment = no Cost of Ownership deduction.  Unfortunately, this lack of a deduction may result in the means testing calculation showing more disposable income available to creditors than the debtor might otherwise, realistically, have.

What this means is that people without a car loan or lease payment who are considering filing for a chapter 7 bankruptcy to wipe out debt and get a fresh start may have more difficulty doing so, and those that have a car that will be paid off in the near future, should consider filing as soon as possible.  Most South Jerseyans  do not earn enough income to qualify for full means testing (a household must earn above the NJ median income for its size), but those that do should consult with a lawyer to see whether this ruling creates an issue as to whether they will be able to file a chapter 7.  It could make a very big difference in their case.

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Steven J. Richardson
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Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.


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