Topeka Debtors Allowed Means Test Deduction for Cars With No Liens

EDITOR UPDATE:  This post is out of date.  Judge Karlin reverted to her original ruling in In re Law after the Pearson decision was vacated.  This issue is currently pending the the U.S. Court for the Tenth Circuit  so we should have a binding ruling soon.  December 13, 2009.

Topeka Bankruptcy Judge Janice Miller Karlin announced last week that she is reversing course and will follow the Pearson decision to allow debtors a means test deduction for ownership of a car without a debt against it.

Judge Karlin had earlier disallowed the car ownership deduction in In re Law, 2008 WL 1867971 (Bankr. D. Kan. 2008), following the decision by Kansas District Court Judge John W. Lungstrum in Wieland v. Thomas, 382 B.R. 793 (D. Kan. March 4, 2008), reversing Judge Robert D. Berger of Kansas City, KS, in In re Thomas, 2007 WL 2903201 (Bankr. D. Kan. Oct. 02, 2007).

The Bankruptcy Appellate Panel for the U.S. Courts of Appeal for the Tenth Circuit (BAP) issued its decision, In Re Pearson, WY-07-097, on July 28, 2008, ruling 11 U.S.C. 707(b)(2)(A)(ii) (I) allows a debtor to take the full vehicle ownership/lease expense deduction even when the debtor’s vehicle is unencumbered by lease or secured payments at the time of the bankruptcy filing.

Chief Bankruptcy Judge Robert E. Nugent of Wichta had disallowed the allowance in In re Howell, 366 B.R. 153 (Bankr. D. Kan. 2007).

None of these court decisions are binding on any other bankruptcy cases.  Pearson has been appealed to the U.S. Court of Appeals for the 10th Circuit, whose ultimate ruling will be binding on courts in Kansas.  Judge Karlin, newly appointed to the BAP, said she was obliged to follow a decision by her BAP colleagues despite her great respect for Judge Lungstrum.

Whether or not a car ownership allowance can be taken for a paid for car on the means test is the subject of many opposing bankruptcy court opinions  around the country.  See the Bankruptcy Law Network for more information.

About Jill Michaux

Jill Michaux is a Kansas bankruptcy attorney. She can be found on Google+. She and her partner, Mark Neis, are Topeka's only board certified consumer bankruptcy law specialists.