I was conducting some research on expenses allowed and not allowed with regard to the Chapter 7 means testing provision of the U.S. Bankruptcy code and found some interesting information. In a case out of the Southern District of Florida, In re Koch, 408 B.R. 539 (Bankr. S.D.Fla. 2009), which is a precursor case to Ransom v. FIA Card Services, the court held in part that ownership expenses on vehicles that have no lease or loan payment obligation associated with it will not be allowed. With regard to this issue, it was argued before the United States Supreme Court in Ransom v. FIA Card Serv. 131 S.Ct 716 (2011) and was basically put to rest. The court held the same as the court in the 2009 Koch case that without any debts associated with a vehicle, i.e. the vehicle is owned free and clear, ownership expenses pursuant to the IRS standards are not allowed to be taken in a Chapter 7 means test calculation.
There is, however, a $200 old car allowance that can be used for vehicles that are more than six (6) model years old or have more than 75,000 miles on them. However, according to a bankruptcy attorney in the Southern District of California, a Chapter 13 Trustee has been challenging the use of this allowance. This allowance has generally been conceded by trustees but for some unknown reason, this trustee is trying to disallow it in Chapter 13 cases. In the article blog written by Raymond Schimmel, the California bankruptcy attorney, this $200 allowance has been allowed by the Executive Office of the United States Trustee (“EOUST”) even though it is not specifically covered by any language in the U.S. Bankruptcy Code. Rather, the EOUST referred to the Internal Revenue Manual wherein it states in I.R.M. 5.8.5.20.3 (10-22-2010) under Transportation Expenses, item numbered 5, “In situations where the taxpayer has a vehicle that is currently over six (6) years old or has reported mileage of 75,000 miles or more, an additional monthly operating expense of $200 will generally be allowed per vehicle.” Although this language in the IRS Manual is not legally binding, it has generally been accepted as an expense and I see no reason that the EOUST would change there position on this matter in the future. Therefore, if you have an older car that fits this category, I would take the deduction as it may just help you qualify for Chapter 7.