Bankruptcy attorneys have struggled to explain the logic to their clients why the U.S. Trustee takes the position that you cannot deduct the ownership expenses for vehicles unless you owe debt or a lease payment on it.
The Fifth Circuit Court of Appeals whose rulings apply to Texas, Louisiana, and Mississippi has ruled in the Tate case No. 08-60953, that you can deduct ownership expenses in the means test on a vehicle even if you do not have a debt payment or lease payment on it.
This means that many bankruptcy attorneys need to advise their clients who have fewer than two cars to go out and buy one or two old cars. The attorneys should encourage the client to pay cash, because we are prohibited from advising clients to incur debt.
The cars should also be at least 6 years old by model year or have at least 75,000 miles so you can get the additional $200 per vehicle deduction per vehicle. This is per the IRS manual 5.85. Some bankruptcy courts may not allow this deduction, but they should!
In short where the vehicle expense is $489 per vehicle with the additional $200, a debtor with only one vehicle could get an additional $689 deduction on the means test. In Chapter 7 it might make you pass easier and avoid a dismissal and in Chapter 13 it might save you money you would otherwise have to pay to the unsecured creditors.
I am not telling consumers themselves to go out and buy the additional car, talk to your attorney first and make sure it helps in your case.
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by Alex Wathen, Board Certified Consumer Bankruptcy Law – Texas Board of Legal Specialization
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“Honest people are routinely taken advantage of by powerful banks and finance companies who know the rules. I work to level the playing field.”
Alex Wathen, San Antonio Bankruptcy Attorney-Lawyer
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