By Ryan C. Wood

If you have an old car chances are you are paying more in operational expenses for the old car than a newer one would cost. Most people would agree they have to pay more for repairs such as changing worn out brakes, needing new tires, may be needing a new transmission, timing belt, car engine and other maintenance and service needs for their old car. The bottom line is you need to put more money into your car for the wear and tear. For years bankruptcy attorneys have added an extra $200 pursuant to the IRS standards for old vehicles due to additional maintenance costs. The Ninth Circuit Bankruptcy Appellate Panel in Drummond v. Luedtke (In re Luedtke), BAP No. MT-13-1313, 9th Cir. BAP (Apr. 9, 2014), the 9th Circuit said this extra expense can no longer be used in Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (Official Form 22C).

Different jurisdictions have different rulings when it comes to this issue. Some jurisdictions allow an additional $200 deduction for an “older vehicle operating expense” in the Official Form 22C because they acknowledge the fact that older cars do cost more to maintain. Some jurisdictions do not. Unfortunately for debtors, last week the Ninth Circuit Bankruptcy Appellate Panel moved the Ninth Circuit to the “not allowed” side.

Mr. & Mrs. Luedtke filed a Chapter 13 bankruptcy case in Montana. They had two cars and claimed an additional $200 deduction for an “older vehicle operating expense” on their Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income because one of their cars was a 1993 Ford Taurus with 118,000 miles. The trustee objected to the Chapter 13 plan the Luedtkes proposed because the trustee indicated that the additional $200 expense deduction could have been paid into the plan to benefit general unsecured creditors. The bankruptcy court overruled the trustee’s objection and the trustee appealed to the Bankruptcy Appellate Panel for the Ninth Circuit.

According to 11 U.S.C. §1325(b)(1), all of the debtors’ projected disposable income (this figure is derived from the Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income, Line 59) needs to be paid to general unsecured creditors. What is this statement determining how much unsecured creditors should receive in the plan? The statement of disposable income takes into account your income averaged over the last six months and compares this average income with the median income for the number of people in your household in the county you live. If you are below the median income in your county then the commitment period can be 36 months. If you are above the median (meaning your income is higher than the median income for your county based on the number of people in your household) the minimum commitment period for the plan has to be 60 months and the statement of disposable income is filled out further. Most of the expenses or deductions from your income are based on IRS National Standards and Local Standards, not your own personal monthly expenses. If your personal expenses are higher than the IRS National Standards and Local Standards you still only receive the deductions calculated by the IRS and not what you actually spend. If you are spending more than the IRS standards, in theory it means you are spending above what you can afford. After all allowable expenses are deducted from your income you end up with the “projected disposable income” figure. This is the minimum amount the general unsecured creditors must receive in the Chapter 13 plan. If you need more help understanding this process you should speak with bankruptcy lawyers in your jurisdiction.

The Bankruptcy Appellate Panel in Luedtke case held that the additional $200 deduction for the older vehicle expense is not listed in the IRS’s Financial Analysis Handbook. The only place that references the extra $200 deduction is under a chapter that only dealt with compromise proposals from taxpayers that are late in paying their taxes. That chapter has to incorporate the chapter in the IRS manual that provides for the National Standards and Local Standards but it is not reciprocal, meaning the National Standards and Local Standards do not incorporate the $200 older vehicle expense. Therefore the court indicated the $200 additional deduction for an older vehicle expense is not allowed to be used in the Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income to reduce bankruptcy filer’s monthly disposable income.