ransom.amicusnacba

8/6/2019 Ransom.amicusNACBA

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No. 09-907

IN THE

Supreme Court of the United States

JASON M.RANSOM,

Petitioner,

v.

MBNAAMERICABANK,N.A.,Respondent.

ON WRIT OF CERTIORARITO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF OFAMICUS CURIAE

NATIONAL ASSOCIATION OF CONSUMERBANKRUPTCY ATTORNEYS IN SUPPORT OF

PETITIONER URGING REVERSAL

TARATWOMEY JONATHAN S.MASSEYNATIONALASSOCIATION OF Counsel of RecordCONSUMER BANKRUPTCY MASSEY&GAIL,LLP

ATTORNEYS 1325 G St. NW1501 The Alameda Suite 500San Jose, CA 95126 Washington, D.C. 20005

(202) 652-4511June 2010BATEMAN & SLADE, INC. BOSTON, MASSACHUSETTS


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QUESTION PRESENTED

Whether, in calculating the debtors projecteddisposable income during the plan period, thebankruptcy court may allow an ownership costdeduction for vehicles only if the debtor is actuallymaking payments on the vehicles.


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ii

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iiiTABLE OF CONTENTS

QUESTION PRESENTED ....................................... i

TABLEOFAUTHORITIES ..................................... iv

INTEREST OFAMICUS CURIAE .......................... 1

SUMMARY OF ARGUMENT ................................... 2

ARGUMENT ............................................................. 5

A. The Plain Language of theStatute Demonstrates ThatPetitioner Is Entitled To AnOwnership Deduction. ......................... 6

B. The Contrary Reading of theStatutory Text Is Unsupportable.............................................................. 12

C. The Legislative History

Demonstrates That ThePetitioner Is Entitled To ADeduction. .......................................... 18

D. Policy Considerations Militate InFavor Of Petitioner. ........................... 22

E. The Decision inLanningSupports Petitioner. .......................... 26

CONCLUSION ........................................................ 28

APPENDIX:Allowable Living Expenses for

Transportation .................................... A. 1


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ivTABLE OF AUTHORITIES

CASES:

CSX Transp., Inc. v. Georgia State Bd. ofEqualization, 552 U.S. 9 (2007) ................... 12-13

Dawson Chemical Co. v. Rohm & Haas Co.,448 U.S. 176 (1980) .............................................21

Hamilton v. Lanning,

No. 08-998 (U.S. June 7, 2010) ........... 1, 26, 27, 28

In re Frederickson,545 F.3d 652 (CA8 2008), cert. denied,129 S.Ct. 1630 (2009) ..........................................28

In re Washburn,579 F.3d 934 (CA8 2009) ....................................28

Kawaauhau v. Geiger,523 U.S. 57 (1998) .................................................1

Lamie v. U.S. Trustee,540 U.S. 526 (2004) ...............................................6

Patterson v. Shumate,504 U.S. 753 (1992) .............................................13

Schwab v. Reilly,No. 08-538 (U.S. June 17, 2010) ...........................1

Transcontinental & Western Air, Inc. v. CivilAeronautics Bd., 336 U.S. 601 (1949) ................ 21


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vUnited States v. Enmons,

410 U.S. 396 (1973) .............................................21

United States v. Ron Pair Enterprises,489 U.S. 235 (1989) .........................................9, 10

STATUTES:

11 U.S.C. 506(a) ......................................................1011 U.S.C. 707(b) ........................................................2

11 U.S.C. 707(b)(2) ............................................... 5, 611 U.S.C. 707(b)(2)(A)(i) ...........................................511 U.S.C. 707(b)(2)(A)(ii) ..........................................811 U.S.C. 707(b)(2)(A)(ii)(I) ............................passim11 U.S.C. 707(b)(2)(A)(ii)(V) .....................................911 U.S.C. 707(b)(2)(A)(iii)...................................4, 1011 U.S.C. 707(b)(7)(A) ..............................................511 U.S.C. 1325(b) ......................................................511 U.S.C. 1325(b)(1) ................................... 26, 27, 2811 U.S.C. 1325(b)(2) .................................................611 U.S.C. 1325(b)(3) .................................................5

OTHERAUTHORITIES:

6 COLLIER ON BANKRUPTCY 707.05[2][c],at p. 707 (15th ed. Rev. 2009) .................. 11, 22, 26

145 Cong. Rec. H2718 (daily ed. May 5, 1999)......... 20

Bankruptcy Abuse Prevention and Consumer

Protections Act of 2005 (BAPCPA) ....................5


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viConsumer Reports, Used Car Buying Kit,

Reliability History (Average ProblemRates) available athttp://www.consumerrreports.org/cro/cars/ratings/reliability-histories-406/index.htm ....... 24

Eugene R. Wedoff,Means Testing in the New 707(b),79 Am. Bankr. L.J. 231 (2005) ..................... 12, 26

Executive Office of the President Office ofManagement and Budget, Statement of

Administration Policy H.R. 833 Bankruptcy Reform Act of 1999, at 1 (May5, 1999), available athttp://clinton2nara.gov/OMB/legislative/sap/ HR833-h.html, reprinted in Jensen, 79

AM.BANKR. L.J. at 526 .......................................20

Financial Analysis Handbook of the IRSsInternal Revenue Manual (IRM) ................. 7, 14

H.R. 833 ...............................................................19, 20

H.R. Rep. 105-540 (May 18, 1998), H.R. 3150,105th Cong. (1998) ...............................................21

IRS Collection Financial Standards (March 1,2009) ....................................................................14

IRS Internal Revenue Manual (IRM) ........ 14, 15, 24
http://www.consumerrreports.org/cro/cars/%20ratings/reliability-histories-406/index.htmhttp://www.consumerrreports.org/cro/cars/%20ratings/reliability-histories-406/index.htmhttp://clinton2nara.gov/OMB/legislative/sap/%20HR833-h.htmlhttp://clinton2nara.gov/OMB/legislative/sap/%20HR833-h.htmlhttp://clinton2nara.gov/OMB/legislative/sap/%20HR833-h.htmlhttp://clinton2nara.gov/OMB/legislative/sap/%20HR833-h.htmlhttp://www.consumerrreports.org/cro/cars/%20ratings/reliability-histories-406/index.htmhttp://www.consumerrreports.org/cro/cars/%20ratings/reliability-histories-406/index.htm


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viiReport of the Committee on the Judiciary,

House of Representatives, to AccompanyS. 256, H. Rep. No. 109-31, Pt. 1, 109thCong., 1st Sess. (2005), reprinted in 2005U.S. Code Cong. & Admin. News 88 ..... 5, 19, 21

Susan Jensen, A Legislative History of theBankruptcy Abuse Prevention andConsumer Protection Act of 2005, 79 Am.Bankr. L.J. 485 (2005) .................................. 19, 20

http://www.irs.gov/businesses/small/article/0,,id= 104623,00.htm .................................... 7, 13, 23

http://www.irs.gov/individuals/article/0,,id=96543,00. html ................................................. 14, 18

http://www.irs.gov/irm/part5/ch15s01.html.House Report at 13-14 ....................................7, 14

IRM Section 5.15.1.10, available athttp://www.irs.gov/irm/part5/ch15s01.html#d0e216108 ...........................................................8

IRM, Section 5.15.1.7.5 (available athttp://www.irs.gov/irm/part5/irm_05-015-001.html#d0e1012) .............................................17
http://www.irs.gov/businesses/small/article/0,,idhttp://www.irs.gov/businesses/small/article/0,,idhttp://www.irs.gov/individuals/article/0,,id=96543,00.%20htmlhttp://www.irs.gov/individuals/article/0,,id=96543,00.%20htmlhttp://www.irs.gov/irm/part5/ch15s01.htmlhttp://www.irs.gov/irm/part5/ch15s01.html#d0e216108http://www.irs.gov/irm/part5/ch15s01.html#d0e216108http://www.irs.gov/irm/part5/irm_05-015-001.html#d0e1012http://www.irs.gov/irm/part5/irm_05-015-001.html#d0e1012http://www.irs.gov/irm/part5/irm_05-015-001.html#d0e1012http://www.irs.gov/irm/part5/irm_05-015-001.html#d0e1012http://www.irs.gov/irm/part5/ch15s01.html#d0e216108http://www.irs.gov/irm/part5/ch15s01.html#d0e216108http://www.irs.gov/irm/part5/ch15s01.htmlhttp://www.irs.gov/individuals/article/0,,id=96543,00.%20htmlhttp://www.irs.gov/individuals/article/0,,id=96543,00.%20htmlhttp://www.irs.gov/businesses/small/article/0,,idhttp://www.irs.gov/businesses/small/article/0,,id


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INTEREST OFAMICUS CURIAE

The National Association of ConsumerBankruptcy Attorneys (NACBA) is a non-profitorganization of more than 4,800 consumerbankruptcy attorneys nationwide. It is the onlynational association of attorneys organized for thespecific purpose of protecting the rights of consumerbankruptcy debtors. Member attorneys and their lawfirms represent debtors in an estimated 800,000bankruptcy cases filed each year.1

NACBA seeks to protect the rights of consumerbankruptcy debtors and advocates nationally onissues that cannot adequately be addressed byindividual member attorneys. Among other things,NACBA works to educate the bankruptcy bar andthe community at large on the uses and misuses ofthe consumer bankruptcy process. NACBA hasparticipated as amicus in numerous cases, including

Hamilton v. Lanning, No. 08-998 (U.S. June 7,2010), Schwab v. Reilly, No. 08-538 (U.S. June 17,2010), andKawaauhau v. Geiger, 523 U.S. 57 (1998).

NACBA and its membership have a vital interestin the resolution of the question presented, becausethe proper interpretation of the means test is of vitalinterest to consumer debtors. NACBA memberattorneys represent individuals in a large portion ofall consumer debtor cases filed. Through its

1 This brief has been filed with the written consent of theparties, which is on file with the Clerk of Court. Pursuant to

Rule 37.6, amicus affirms that no counsel for a party authoredthis brief in whole or in part, nor did any person or entity, otherthan amicus or its counsel, make a monetary contribution tothe preparation or submission of this brief.


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2educational and representational functions, NACBAseeks to ensure the predictability of bankruptcyrelief for both consumer bankruptcy debtors and theconsumer bankruptcy bar.

SUMMARY OF ARGUMENT

As part of its 2005 revision of the BankruptcyCode, Congress added a new means test forconsumer bankruptcies. This new test functions todetermine whether chapter 7 cases filed by higherincome debtors are presumed to be abusive under

Section 707(b), 11 U.S.C. 707(b). The test is alsoused for purposes of determining the amount ofprojected disposable income available to be paidover the course of a chapter 13 plan, particularly forexpenses of debtors with above median income. Itreplaces a case-by-case analysis of the debtorsability to pay with a simplified, more objectivecomputation.

The means test computation depends largelyon the use of standardized expense amounts for food,

clothing, housing and transportation, instead of anindividualized analysis of the reasonableness of aparticular debtor households expenditures.

According to the words of the statute, a debtorsexpense allowances shall be the applicablemonthly expense amounts specified under theNational Standards and Local Standards . . . issuedby Internal Revenue Service for the area in whichthe debtor resides. 11 U.S.C. 707(b)(2)(A)(ii)(I).

By moving from a regime of case-by-case

determinations of reasonableness to a more uniformapproach, Congress relieved the bankruptcy courtsof the difficulty of adjudicating highly individualized


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3disputes about debtors lifestyle decisions. It alsomoved the focus from the reasonableness ofparticular expenses for above-median-incomedebtors to an aggregated standard budget that ispresumed to represent a reasonable total level ofspending for different size households in particulargeographic regions of the country.

As is often the case with statutory schemes thatinvolve standardized approaches to minimizetransaction costs, application of the means testcomputation to a particular debtor household can,occasionally, produce disputes about the perceivedfairness of the test when a particular debtors actualexpenditures depart from the standardizedassumptions. As with all conflicting interpretationsof the Bankruptcy Code, however, resolution of suchdisputes must begin and end with a determination ofthe statutory language and what Congress intended.

The question presented by this case concerns onedisputed step in the means test calculation,namely, whether above-median-income chapter 13

debtors who own vehicles they use for transportationmay take the ownership expense deduction underthe means test, regardless of whether they areobligated for debt payments on the vehicle at themoment they file their bankruptcy petition. Theproper answer to this question is Yes, for severalreasons.

First and foremost, the plain meaning of thestatutory language enacted by Congressdemonstrates that all above-median-income chapter

13 debtors with cars are entitled to an ownershipdeduction, even if they are not actually makingpayments on their vehicles. That is the view taken


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4by the leading COLLIER ON BANKRUPTCYtreatise andother authorities. For purposes of computing theamount of monthly payments required to be paid bya higher income chapter 13 debtor, Section 707(b)(2)establishes a formula that uses standardizedexpense allowances for several categories ofhousehold expenses, including transportation, ratherthan the debtors actual expenses. The statutetreats applicable monthly expense amounts in acategorical fashion based on a debtors geographiclocation and number of vehicles, rather than making

such expense amounts available only on condition ofa vehicle-related debt.

Congress did not premise the applicability of theNational and Local Standards on the nature oramount of debtors actual expenses. Rather,Congress dealt with loan payments in a completelyseparate section of the means test, 11 U.S.C. 707(b)(2)(A)(iii). This Court has warned against

judicial interpretations that add words to provisionsof the Bankruptcy Code that Congress specifically

did not include. That warning is particularly salienthere, given that an earlier version of BAPCPA which was rejected in the final legislation that wasenacted included the very language that theRespondent would have this Court insert into thestatute.

Moreover, the objective interpretation advancedhere is completely consistent with a rational policychoice made by Congress. To hold otherwise wouldcreate perverse incentives penalizing thrifty debtors

who continue to drive cars they have paid off, whileencouraging debtors contemplating chapter 13 tofinance the purchase of a new car.


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5The judgment below should be reversed.

ARGUMENT

The provision at issue, 11 U.S.C. 707(b)(2), wasadded to the Bankruptcy Code by the Bankruptcy

Abuse Prevention and Consumer Protections Act of2005 (BAPCPA). This new section of the Code,commonly referred to as the means test,represented the heart of BAPCPAs consumerbankruptcy reform. H.R. Rep. No. 109-31, pt. 1 at 2(2005), 2005 U.S. Code Cong. & Admin. News 88, 89

(House Report). The test which is applicableonly in the case of debtors with income in excess ofthe median income in their state, see 707(b)(7)(A)is used to determine whether a chapter 7 filing ispresumptively abusive. 707(b)(2)(A)(i) (the courtshall presume abuse exists if the debtors currentmonthly income reduced by the amounts determinedunder clauses (ii), (iii) and (iv) is above listed dollarthresholds).

The means test is incorporated into chapter 13

by 11 U.S.C. 1325(b), which governs the extent towhich a chapter 13 plan must provide for the claimsof unsecured creditors. Under that provision anobjecting creditor or trustee can force a chapter 13debtor to pay all of his or her projected disposableincome to the chapter 13 trustee over a period ofthree to five years. Under the BAPCPAamendments to this section for debtors whoseincome exceeds the applicable median family income,see 11 U.S.C. 1325(b)(3), disposable income is

defined as being the debtors current monthlyincome less amounts reasonably necessary to beexpended, as determined in accordance with


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6subparagraphs (A) and (B) of section 707(b)(2). 11U.S.C. 1325(b)(2). Petitioners income is abovemedian. For chapter 13 debtors at or below medianincome, means test expenses do not apply.

This case involves a dispute over what amountsreasonably necessary to be expended should havebeen used by the bankruptcy court to calculatePetitioners disposable income with regard to themonthly transportation expenses attributed to his2004 Toyota Camry, which he owned in full. Underthe plain language of the statute, as well as itslegislative history and relevant policyconsiderations, an above-median-income debtorshould be allowed a deduction for the ownershipcosts of a vehicle regardless of whether the debtor isstill making loan or lease payments.

A. The Plain Language of the StatuteDemonstrates That Petitioner Is

Entitled To An Ownership Deduction.

The starting point in discerning congressional

intent underlying a provision of the BankruptcyCode is always the existing statutory text. Lamiev. U.S. Trustee, 540 U.S. 526, 534 (2004).

Section 707(b)(2) provides in pertinent part:

The debtors monthly expenses shall bethe debtors applicable monthly expenseamounts specified under the National

Standards and Local Standards, andthe debtors actual monthly expenses for the

categories specified as Other NecessaryExpenses issued by the Internal Revenue


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7Service for the area in which the debtorresides . . .

11 U.S.C. 707(b)(2)(A)(ii)(I) (emphasis added).

The applicable standards referenced in thestatute, including the applicable standards fortransportation expenses, are located in the Financial

Analysis Handbook of the IRSs Internal RevenueManual (IRM), which the IRS uses in determininga taxpayers ability to pay a delinquent tax liability.

See http://www.irs.gov/irm/part5/ch15s01.html.

House Report at 13-14. The standards themselvesare located at http://www.irs.gov/businesses/small/article/0,,id=104623,00.html.

The plain language of the statute demonstratesthat Congress decided to use the IRS standards ontransportation expenses, not the debtors actualexpenses, as the appropriate figure to be used in themeans test for transportation expenses.

First, Congress was very much aware of thedifference between using the IRS published

standards and actual monthly expenses. Thestatute explicitly distinguishes between the debtorsapplicable monthly expense amounts specified underthe National Standards and Local Standards, on theone hand, and the debtors actual monthlyexpenses (emphasis added), on the other. Thestatute specifies the use of the latter with regard tothe categories specified as Other Necessary
http://www.irs.gov/irm/part5/ch15s01.htmlhttp://www.irs.gov/businesses/small/http://www.irs.gov/businesses/small/http://www.irs.gov/irm/part5/ch15s01.html


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8Expenses issued by the Internal Revenue Service forthe area in which the debtor resides.2

Thus, the statute draws a clear distinctionbetween actual expenses and the applicableamounts specified under the IRS publishedstatements. Congress used applicable to meansomething other than actual. If the Court is to giveeffect to all the words of the statute, the termapplicable monthly expense amounts cannot meanthe same thing as actual monthly expenses. Underthe statute, a debtors actual monthly expenses arerelevant only with regard to the IRSs OtherNecessary Expenses; they are not relevant todeductions taken under the National and LocalStandards, including the transportation ownershipdeduction.

Certainly, Congress knew how to say actualwhen it meant to refer to actual expenses. In fact,when Congress intended to condition a deduction ona debtors actual expenditure or showing of need, itdid so. For example, Section 707(b)(2)(A)(ii) uses the

following phrases to describe the nature of variousother deductions: debtors reasonably necessaryexpenses incurred, 707(b)(2)(A)(ii)(I) (Family

Violence Prevention and Services Act expenses);expenses paid by the debtor that are reasonable andnecessary, 707(b)(2)(A)(ii)(II) (expenses for elderly,

2 The Other Necessary Expense category includes expensessuch as legal and accounting fees, charitable donations,childcare and education. IRM Section 5.15.1.10, available at

http://www.irs.gov/irm/part5/ch15s01.html#d0e216108. Thefollowing line of 707(b)(2)(ii)(I) directs the bankruptcy courtalso to allow for reasonably necessary health insurance,disability insurance and health savings account expenses.
http://www.irs.gov/irm/part5/ch15s01.html#d0e216108http://www.irs.gov/irm/part5/ch15s01.html#d0e216108


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9chronically ill or disabled immediate familymembers); reasonable and necessary [expenses], 707(b)(2)(A)(ii)(I) (additional allowances for foodand clothing up to 5%); and actual expenses [thatare] are reasonable and necessary, 707(b)(2)(A)(ii)(V) (additional home energy costs).

The language of these provisions shows thatwhen Congress intended to condition a deduction ona debtors actual expenditure or a showing of need, itdid so. The absence of this type of language withregard to the National and Local Standards again,the statute refers only to the debtors applicablemonthly expense amounts specified under theNational Standards and Local Standards suggests that courts should not require more of thedebtor other than to show that the amountspecified under the Local Standard be applicable by

virtue of the debtors geography and number ofvehicles.

This reading of Section 707(b)(2)(A)(ii)(I) ismandated by the grammatical structure of the

statute. United States v. Ron Pair Enterprises, 489U.S. 235, 241 (1989). The category of applicablemonthly expense amounts specified under theNational Standards and Local Standards isseparated by a comma and the conjunctive andfrom the category of Other Necessary Expenses,thereby emphasizing the separate and independenttreatment of the two categories. The wording of thestatute specifically differentiates betweenapplicable and actual monthly expenses and

therefore, applicable expenses are all those thatcould possibly apply regardless of whether suchexpenses are actual.


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10The grammatical structure of Section

707(b)(2)(A)(ii)(I) parallels that of the provisionconstrued in Ron Pair, and the same reasoning isapplicable. See 489 U.S. at 241-42 (in interpreting 506(a) of the Bankruptcy Code, [t]he phraseinterest on such claim is set aside by commas, andseparated from the reference to fees, costs, andcharges by the conjunctive words and any. As aresult, the phrase interest on such claim standsindependent of the language that follows.).

There is another reason that the statute shouldbe interpreted as requiring the application of IRSstandards on transportation expenses: the contraryinterpretation (tying a transportation expense to theexistence of a loan or lease payment) would createtension with another portion of the same statutorysection. Two sentences after the opening referenceto National and Local Standards, Section707(b)(2)(A)(ii)(I) contains additional language:Notwithstanding any other provision of this clause,the monthly expenses of the debtor shall not include

any payments for debts. This provision furtherindicates that Congress intended to allow anownership expense even when a debtor has no debtpayment on a vehicle. Otherwise, if Congress hadnot so intended, there would be little reason for thislimitation.3

3 The limitation against including loan payments waslikely included because the means test allows separately for adeduction for monthly payments on secured debts and leases.

707(b)(2)(A)(iii). The means test excludes debt paymentsother than secured debt payments but allows an expense for

vehicle ownership independent of whether there is a debtpayment.


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11Our statutory interpretation is shared by an

influential bankruptcy treatise as well:

The better view is that, because the languagerefers to deducting the amounts specifiedin the standards, and not actual expenses,the ownership allowance specified in thestandards is the minimum amount to bededucted for the expense of car ownership,rather than the remaining car payments on a

vehicle, if any . . . .

6 COLLIER ON BANKRUPTCY 707.05[2][c], at p. 707-43 (15th ed. Rev. 2009). The treatise continues:

[T]he better reasoned decisions consideringthis issue have permitted debtors to deductthe amounts specified for the transportationownership expense allowance even if they donot have an obligation to make car loanpayments or are intending to surrender the

vehicle.

Id. at p. 707-44. Bankruptcy Judge Eugene R.

Wedoff has reached the same conclusion:

[T]here is a question of whether anownership expense may be claimed by adebtor who owns a car free of any lien. . . .[S]ince the means test treats the LocalStandards not as caps but as fixedallowances, it is more reasonable to permit adebtor to claim the Local Standardsownership expense based on the number of

vehicles the debtor owns or leases, rather

than on the number for which the debtormakes payments.


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12Eugene R. Wedoff,Means Testing in the New 707(b),79 AM.BANKR.L.J. 231, 257-58 (2005).

For all these reasons, Section 707(b)(2)(A)(ii)(I)should be interpreted as requiring the use of the IRSstandards on transportation expenses, not thedebtors actual expenses.

B. The Contrary Reading of the StatutoryText Is Unsupportable.

The Ninth Circuits judgment below would

condition the Ownership Expense component of thetransportation standards on whether the particulardebtor had an existing loan or lease payment on the

vehicle at the time of filing a bankruptcy petition.This alternative reading of the statute has no merit.

First, the Ninth Circuit suggested that theownership cost deduction is applicable (within themeaning of the statute) only if the debtor is in factincurring such an expense in the form of a loan orlease payment on that vehicle. But such a

suggestion is misplaced. The Ninth Circuit construedSection 707(b)(2)(A)(ii)(I) as though it provided thatthe debtors monthly expenses would be the monthlyexpense amounts specified under the IRS standards,only if the debtor is actually incurring suchexpenses, or perhaps only if the IRS standards areequal to or lower than the debtors actual expenses.But the statute does not contain any such languageor qualifications. The statute does not provide thatapplicable means that a debtor actually is makinga loan or lease payment, and the Ninth Circuits

approach would require adding words to the text ofthe statute, in violation of basic principles ofstatutory construction. See CSX Transp., Inc. v.


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13Georgia State Bd. of Equalization, 552 U.S. 9, 29(2007) (rejecting statutory interpretation thatdepends upon the addition of words to a statutoryprovision) (internal quotation marks and citationomitted); Patterson v. Shumate, 504 U.S. 753, 758-59(1992) (refusing to limit phrase applicablenonbankruptcy law to state law, on the ground thatit would require adding limiting language tostatute).

Furthermore, applicable is an adjective thatmodifies the amounts specified in the Standards. Itdoes not modify the phrase debtors monthlyexpenses, which appears at the beginning of Section707(b)(2)(A)(ii)(I). The adjective applicablefunctions to narrow the reference to amountsspecified; it does not refer to, modify nor restrict thedebtors actual monthly expenses.

Thus, Section 707(b)(2)(A)(ii)(I) is bestinterpreted to mean that the Local Standard vehicleownership deduction is applicable to the debtor by

virtue of his or her geographic region and number of

cars, regardless of whether that deduction is anactual expense. The IRS standards ontransportation expenses are presented in chart formand vary according to number of vehicles owned,geographical region, and whether the debtor residesin a metropolitan statistical area (MSA).4 Thesefactors determine precisely what transportationexpense amount is applicable to a debtorsparticular circumstances. Hence, in using the wordapplicable (rather than the phrase if applicable)

4 See http://www.irs.gov/businesses/small/article/0,,id=104623,00.htm.
http://www.irs.gov/businesses/small/article/0,,idhttp://www.irs.gov/businesses/small/article/0,,id


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14in Section 707(b)(2)(A)(ii)(I), Congress directedbankruptcy courts to determine (based on aparticular debtors place of residence and number ofcars) which of the Standard deductions wasapplicable to a particular debtor, in light of thatdebtors location and number of vehicles. Congressdid not direct bankruptcy courts to inquire as to adebtors actual transportation expenses.

The Ninth Circuit noted (but did not rely upon inits decision) the IRS Collection Financial Standards,which are used in calculating repayment ofdelinquent taxes, see IRS Collection FinancialStandards (March 1, 2009), and the IRS InternalRevenue Manual (IRM), which the IRS uses indetermining a taxpayers ability to pay a delinquenttax liability.5 The IRS tables recognize twocomponents of transportation expenses connected tothe ownership of motor vehicles: an OwnershipExpense and an Operating Expense keyed todifferent regions of the nation.6 The IRS CollectionFinancial Standards with respect to Allowable

Living Expenses for Transportation currentlyprovide:

If a taxpayer has a car payment, theallowable ownership cost added to theallowable operating cost equals the allowabletransportation expense. If a taxpayer has a

5 The portion of the current Internal Revenue ServiceManual, Financial Analysis Handbook discussing

transportation cost deductions can be found at:http://www.irs.gov/irm/part5/irm_05-015-001.html#d0e1005.

6http://www.irs.gov/individuals/article/0,,id=96543,00.html.
http://www.irs.gov/individuals/article/0,,id=96543,00.%20htmlhttp://www.irs.gov/individuals/article/0,,id=96543,00.%20htmlhttp://www.irs.gov/individuals/article/0,,id=96543,00.%20htmlhttp://www.irs.gov/individuals/article/0,,id=96543,00.%20html


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15car, but no car payment, only the operatingcosts portion of the transportation standardis used to figure the allowable transportationexpense. In both of these cases, thetaxpayer is allowed the amount actuallyspent, or the standard, whichever is less.

When Congress enacted the BAPCPA in 2005,and when this bankruptcy case was filed, the then-extant version of IRS Collection Financial Standards(which are reprinted in relevant part in the

Appendix to this brief) did not contain this language.In fact, the 2005 version of the standards did notaddress the issue of whether the transportationownership expense should be limited to taxpayerswho actually make car payments.7

The IRS commentary does not control the properinterpretation of Section 707(b)(2)(A)(ii)(I) in thiscase, for several reasons. First, the IRS is not anadministrative agency that administers theBankruptcy Code, so there is no basis for a court todefer to its administrative expertise.

7 To be sure, section 5.15.1.7 of the IRS Manual (05-01-2004) provided as follows: If a taxpayer has a car payment,the allowable ownership cost added to the allowable operatingcost equals the allowable transportation expense. If a taxpayerhas no car payment only the operating cost portion of thetransportation standard is used to figure the allowabletransportation expense. Another section stated: Note: If thetaxpayer has no car payment, or no car, question how the

taxpayer travels to and from work, grocer, medical care, etc.The taxpayer is only allowed the operating cost or the cost oftransportation. But the Financial Standards did not containthese comments.


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16Next, Section 707(b)(2)(A)(ii)(I) does not

incorporate the IRM or the IRS commentary into theBankruptcy Code. Rather, the statutory languageadopts only the IRS transportation standards anddoes not mention the IRM or the Financial

Analysis sections of the IRM. If Congress hadintended to incorporate the entire IRS methodology,and not merely the transportation standards, itwould have said so directly. Instead, according tosubparagraph (A) of Section 707(b)(2), the expensededuction to be used in the calculation shall be the

debtors applicable monthly expense amountsspecified under the National Standards and LocalStandards, . . . issued by the Internal RevenueService. Therefore, it would be error to rewrite thestatute by incorporating not only the IRSs NationalStandards and Local Standards for the applicablecategories of expenses and geographic areas, but alsoall of the IRS commentary and methodologies thatIRS has attached to those standards.

There is a good reason that Section

707(b)(2)(A)(ii)(I) incorporates only the expensestandards and not the entire IRM: the IRM has acompletely different purpose from that of the Code.The pertinent portion of the IRM governs therepayment of delinquent taxes, not the computationof the means test or the calculation of the debtorsprojected disposable income during the plan period.The IRS itself has discretion to depart from thestandards, based on the facts and circumstances onthe individual taxpayer8 which demonstrates that

8 For example, the IRM provides: National and localexpense standards are guidelines. If it is determined astandard amount is inadequate to provide for a specific


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17Section 707(b)(2)(A)(ii)(I), meant to establish anobjective test, does not adopt the IRM or the IRScommentary.

Indeed, to incorporate the entire IRScommentary into Section 707(b)(2)(A)(ii)(I) woulddelegate to the IRS the power to make (and change)the Bankruptcy Code itself. The IRS could createqualifications never enacted by Congress. Forexample, the IRS could decide administratively thata debtor owing a car loan should not be allowed atransportation expense for an automobile if he or sheshould be able to take public transportation instead.The IRS could seek to review the necessity of a carin circumstances where it believes a debtor could dowithout one. The IRS could decide whether certainclasses of cars are ineligible for transportationexpenses. If the approach of the IRS commentarywere adopted, there would be no logical stoppingpoint to vesting the IRS with the authority to alterbankruptcy law.

The IRS itself disavows any intent to have the

financial standards from the IRM apply in anycontext other than tax collection and specificallydisclaims any intent to have the IRM apply in thecontext of bankruptcy expense calculations:

taxpayers basic living expenses, allow a deviation. Require thetaxpayer to provide reasonable substantiation and documentthe case file. IRM, Section 5.15.1.7.5 (available athttp://www.irs.gov/irm/part5/irm_05-015-001.html#d0e1012).A taxpayer who claims more than the total allowed by thenational standards must provide documentation to

substantiate and justify as necessary those expenses thatexceed the total national standard amounts. IRM, Section5.15.1.8.3 (available at http://www.irs.gov/irm/part5/irm_05-015-001.html#d0e1012).


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18Disclaimer: IRS Collection FinancialStandards are intended for use in calculatingrepayment of delinquent taxes. TheseStandards are effective on March 1, 2010 forpurposes of federal tax administration only.Expense information for use in bankruptcycalculations can be found on the website forthe U.S. Trustee Program.9

Thus, the intent of the IRS the administrativebody that formulated the IRM supports a refusal toincorporate the IRM or other IRS commentary intothe means test for determination of disposableincome. The IRSs view is consistent with the intentof Congress.

C. The Legislative History DemonstratesThat The Petitioner Is Entitled To A

Deduction.

The legislative history supports our constructionof Section 707(b)(2)(A)(ii)(I) as well. The legislativehistory establishes that Congress was aware that the

IRS standards were not the same as a debtors actualexpenses and that Congress did not intend to limitthe bankruptcy means test expense deductions to thedebtors actual expenses. Instead, Congress adopteda uniform and readily applied formula that createsan objective test.

Congress squarely confronted the question ofwhether to use a debtors actual expenses in themeans test calculation, or whether to use IRSstandards that might differ markedly from the

9 Available at http://www.irs.gov/individuals/article/0,,id=96543,00.html.
http://www.irs.gov/individuals/article/0,,idhttp://www.irs.gov/individuals/article/0,,id


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19debtors actual situation. During the markup of H.R.833 (the House legislation which ultimately becameBAPCA), Rep. Henry J. Hyde, chairman of theHouse Judiciary Committee, and a central figure inthe enactment of BAPCA, sought to replace themeans tests IRS expense standards with areasonably necessary expense standard.10 Rep.Hyde explained that a reasonably necessarystandard provided more flexibility for the courtsdetermination of a debtors expenses than the IRSexpense standards allowed.11

The House Judiciary Committee ultimatelyrejected Rep. Hydes proposed approach and retainedthe IRS expense standards as part of the means test.In the words of the members of the House JudiciaryCommittee who opposed the bill that eventuallybecame law, [t]he bill . . . makes substantialchanges to chapter 13 by substituting the IRSexpense standards to calculate disposable income . . .[T]he formula remains inflexible and divorced fromthe debtors actual circumstances. Report of the

Committee on the Judiciary, House ofRepresentatives, to Accompany S. 256, H. Rep. No.109-31, Pt. 1, 109th Cong., 1st Sess. 553 (2005),reprinted in 2005 U.S. Code Cong. & Admin. News88.

Even after the House mark-up of H.R. 833, Rep.Hyde continued to press for the deletion of the IRSexpense standards and the enactment of a more

10

Susan Jensen, A Legislative History of the BankruptcyAbuse Prevention and Consumer Protection Act of 2005, 79 AM.BANKR. L.J. 485, 523 (2005).

11Id. at 524 n.222.


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20flexible approach. During floor debate, Rep. Hydecriticized the expense standards as rigid andinflexible.12 The Majority Leader defended them asclear, defined standards.13 The Clinton

Administration released a statement warning thatthe House bill would limit access to Chapter 7 todebtors who meet an inflexible and arbitrary meanstest. . . . H.R. 833 simply takes IRS expensestandards, which were not developed for bankruptcypurposes, and applies them rigidly to determineability to repay in bankruptcy.14 The House

shrugged off the criticism and enacted the bill, andthe Senate followed suit.

As one commentator has remarked, the rejectionof a chairmans position on legislation considered byhis or her own committee by members of his or herown political party is highly unusual.15 Thedecision to adopt the IRS expense standards ratherthan the debtors actual expenses, in other words,was not lightly made, and this Court should notundo the congressional judgment after the fact.

Congress chose a bright-line approach that did notvary according the debtors actual expenses.

There is further relevant legislative history aswell. An earlier draft of the means test component

12 145 Cong. Rec. H2718 (daily ed. May 5, 1999).

13Id. at H2719.

14 Executive Office of the President Office ofManagement and Budget, Statement of Administration Policy

H.R. 833 Bankruptcy Reform Act of 1999, at 1 (May 5, 1999),available at http://clinton2nara.gov/OMB/legislative/sap/HR833-h.html, reprinted in Jensen, 79 AM.BANKR. L.J. at 526.

15 Jensen, 79 AM.BANKR. L.J. at 524.
http://clinton2nara.gov/OMB/legislative/sap/%20HR833-h.htmlhttp://clinton2nara.gov/OMB/legislative/sap/%20HR833-h.htmlhttp://clinton2nara.gov/OMB/legislative/sap/%20HR833-h.htmlhttp://clinton2nara.gov/OMB/legislative/sap/%20HR833-h.html


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21of BAPCA required calculation of projected monthlynet income, which provided for expense allowancesas determined under the Internal Revenue Servicefinancial analysis for expenses in effect as of the dateof the order for relief. H.R. Rep. 105-540 (May 18,1998), H.R. 3150, 105th Cong. (1998). In the versionthat Congress passed in 2005, the reference to theIRS financial analysis was removed and replacedwith the language referencing expense allowancesunder the applicable monthly expense amountsspecified under the National and Local Standards.

707(b)(2)(A)(ii)(I). This change evidences Congressintent that bankruptcy courts not be bound by theIRS commentary contained in the IRM and confirmsthat courts should look only to the IRS standardstables, which were incorporated into the statute.This Court has recognized that the legislativehistory of a prior bill that was not enacted can beuseful to interpret language in a bill that wasultimately enacted.See e.g., Dawson Chemical Co. v.

Rohm & Haas Co., 448 U.S. 176, 204 (1980); United States v. Enmons, 410 U.S. 396, 404 (1973);Transcontinental & Western Air, Inc. v. Civil

Aeronautics Bd., 336 U.S. 601, 606 (1949).16

16 Respondent may point to language in the House Reportbroadly stating that the bill contains an income/expensescreening mechanism (needs-based bankruptcy relief ormeans testing), which is intended to ensure that debtors repaycreditors the maximum they can afford. H.R. Rep. No. 109-31,pt.1 at 2 (2005), reprinted in 2005 U.S. Code Cong. & Admin.News 88, 89. But this comment is general and cannot be taken

to mean that every dispute regarding the interpretation of themeans testing provisions must be resolved in favor of creditors.In fact, the comment supports our position. It demonstrateswhy Congress adopted an objective test -- to limit courts


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22

D.Policy Considerations Militate In FavorOf Petitioner.

BAPCA moved bankruptcy courts from a systemof case-by-case determinations of reasonableness to amore uniform approach, based on standardizeddeductions listed in IRS tables. It also sought toavoid disputes about the reasonableness ofparticular expenses and instead create anaggregated standard budget that is presumed to

represent a reasonable total level of spending fordifferent size households in particular geographicregions of the country. Thus, [t]he provisions ofsection 707(b)(2) create a bright line test todetermine whether a debtors chapter 7 case is to bepresumed abusive for purposes of section 707(b). 6COLLIER ON BANKRUPTCY 707.05[2][a], at 707-40(15th ed. Rev. 2009).

The statutory interpretation advanced here isentirely consistent with that congressional purpose.

The transaction costs saved by reliance onstandardized, uniform tables more than compensatefor any perceived unfairness in allowing debtors totake an Ownership Expense for used cars they ownfree and clear when deciding how much disposableincome they have available to pay their unsecuredcreditors.17 Every objective test creates questions of

perceived discretion in letting debtors pay less than they canafford as determined by expense standards Congress itself

incorporated into the Code.17 The Ninth Circuits construction is subject to the same

criticism of line-drawing inherent in any objective test. To theextent that the statute were interpreted to mean that the


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24expenses may change over the duration of thebankruptcy case.19

For example, a debtors vehicle-related costs canbe significant, over and above what he or she mightexpend towards a loan or lease payment. Some ofthose expenses are included in the OperatingExpense component of the IRS transportationstandards, but not all. According to the IRM, theOperating Expense standard includes insurance,registration fees, fuel, parking and tolls, and onlynormal maintenance. IRM 5.19.1.4.3.4. It doesnot include depreciation or major repairs. Fordebtors driving older vehicles, recognition of theseitems as components of their Ownership Expense isentirely sensible.20 Given the purpose of the meanstest in a chapter 13 case determining the monthly

19 The statutes formula, which ultimately looks to a totalof allowed expenses, also allows debtors budget flexibility toscrimp on one category of expenses in order to pay more onothers. For example, in NACBAs experience, debtors often

scrimp on some allowed expenses (such as food or carownership) to be able to send children to religious schools,despite the small allowance in the statute for childrenseducational expenses. If the means test had been intended topermit eliminating or limiting allowances based on actualexpenses, it would not have looked to the total of allowedexpenses, but instead stated that the debtors disposableincome is computed using an expense-by-expense comparison ofthe debtors actual expenses and the allowances.

20 Automotive reliability studies show, for example, thatthe average 2000 vehicle is 2.5 to 5 times more likely than a2005 vehicle to need major repairs to the engine, cooling

system, air conditioning and suspension. Consumer Reports,Used Car Buying Kit, Reliability History (Average ProblemRates) available at http://www.consumerrreports.org/cro/cars/ratings/reliability-histories-406/index.htm.
http://www.consumerrreports.org/cro/cars/%20ratings/reliability-histories-406/index.htmhttp://www.consumerrreports.org/cro/cars/%20ratings/reliability-histories-406/index.htmhttp://www.consumerrreports.org/cro/cars/%20ratings/reliability-histories-406/index.htmhttp://www.consumerrreports.org/cro/cars/%20ratings/reliability-histories-406/index.htm


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25amount that a debtor has available in excess ofnecessary expenses over the course of a five-yearplan consideration of a factor for depreciation andmajor repairs is entirely appropriate.21

Indeed, it is the contrary interpretation of thestatute that would produce an odd policy result. Ifonly debtors with car payments were allowed theOwnership Expense, then debtors driving older, fullypaid vehicles would be encouraged to finance thepurchase of a new car, or to encumber an old carwith new debt, just prior to filing a bankruptcypetition, in order to be sure of having the resourcesto provide for reliable transportation over the courseof a plan of up to five years. Certainly, none of thecore purposes of bankruptcy would be served byencouraging the creation of new debt and penalizingmore thrifty debtors. It makes little sense to denyan ownership deduction to a frugal debtor who,although he has fully paid for his used car, findshimself in need of bankruptcy relief, while allowingthe deduction to a less thrifty debtor who has

acquired a late-model car by incurring a largesecured debt. As one treatise has observed:

Moreover, the concept of an ownershipallowance should encompass both debtorswho borrow money to purchase their cardsand those who save money to purchase theircars. Borrowers who have saved money topurchase their current vehicles and aresaving to replace them should be treated the

21 Although the IRS manual provides an additional $200for an older car for extra operating expenses, that additionalallowance is nowhere in the standards, and some chapter 13trustees have opposed it when debtors have sought it.


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26same as those who are making loanpayments. Certainly, the Bankruptcy Codeshould not encourage debtors to borrow,rather than save, to purchase cars.

6 COLLIER ON BANKRUPTCY 707.05[2][c], at 707-45(15th ed. Rev. 2009).

In addition, a debtor who owns an old caroutright at filing likely will need to buy a new onebefore completion of a five-year chapter 13 plan. Torecognize this eventual expense through the use of a

monthly, standard Ownership Expense is completelyconsistent with the purposes of bankruptcy. SeeEugene R. Wedoff,Means Testing in the New 707(b),79 AM.BANKR.L.J. 231, 258 (2005) (This approachreflects the reality that a car for which the debtor nolonger makes payments may soon need to bereplaced (so that the debtor will actually haveownership expenses), and it avoids arbitrarydistinctions between debtors who have only a few carpayments left at the time of their bankruptcy filingand those who finished making their car payments

just before the filing.).

E. The Decision in Lanning SupportsPetitioner.

This Courts recent decision in Hamilton v.Lanning, No. 08-998 (June 7, 2010), is consistentwith our interpretation of Section 707(b)(2)(A)(ii)(I)as well. Lanning concerned the interpretation of thephrase projected disposable income in a section ofchapter 13. 11 U.S.C. 1325(b)(1). Lanning held

that,when a bankruptcy court calculates a chapter13 debtors projected disposable income, the courtmay account for changes in the debtor's income or


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27expenses that are known or virtually certain at thetime of confirmation.

There is an important difference betweenLanning and this case. Lanning concerned theinterpretation of the word projected in Section1325(b)(1), rather than any of the language inSection 707(b)(2)(A)(ii)(I). Nevertheless, to theextent Lanning is relevant here, it supportsPetitioner rather than Respondent.

Lanning eschewed a case-by-case determination

of future disposable income and stressed that a courthas discretion to depart from past patterns of incomeonly when a future event is known or virtuallycertain. This Court emphasized the important rolethat the statutory formula for calculating disposableincome plays under the forward-looking approach.

[A] court taking the forward-lookingapproach should begin by calculatingdisposable income, and in most cases,nothing more is required. It is only in

unusual cases that a court may go furtherand take into account other known or virtually certain information about thedebtors future income or expense.

Slip op. at 12-13.

Lanning thus underscored the importance ofpredictability and ease of administration ofbankruptcy proceedings. In this case, anyinterpretation of Section 707(b)(2)(A)(ii)(I) thatwould involve the debtors actual expenses would

entail numerous individual variations and case-by-case inquiries that would defeat the purpose of themeans test.


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28Further, although Lanning adopted a forward-

looking approach to Section 1325(b)(1), thatapproach is entirely consistent with the statutoryinterpretation we urge. For example, in In reWashburn, 579 F.3d 934, 940-42 (CA8 2009), theEighth Circuit explained that it was adoptingPetitioners interpretation of Section707(b)(2)(A)(ii)(I), even though inIn re Frederickson,545 F.3d 652 (CA8 2008), cert. denied, 129 S.Ct. 1630(2009), the Eighth Circuit had previously adopted aforward-looking approach to defining projected

disposable income under Section 1325(b)(1). TheEighth Circuits reasoning illustrates thatPetitioners statutory construction in this case iscompletely consistent with the rule articulated in

Lanning.

CONCLUSION

The judgment below should be reserved.

Respectfully submitted,

TARATWOMEY JONATHAN S.MASSEYNATIONALASSOCIATION OF Counsel of RecordCONSUMER BANKRUPTCY MASSEY&GAIL,LLP

ATTORNEYS 1325 G St. NW1501 The Alameda Suite 500San Jose, CA 95126 Washington, D.C. 20005

(202) 652-4511

June 2010


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