Chapter 7 Trustee Larry Simons job as bankruptcy trustee is to review the means test (form 22A). Mr. Simons, like the other Chapter 7 trustees pays special attention to lines 23 and lines 24 of the form that deal with “Local Standards: transportation ownership/lease expense” for vehicles.
“Check the number of vehicles for which you claim an ownership/lease expense. (You may not claim an ownership/lease expense for more than two vehicles.)”
These two lines ask for the payment that the debtor makes for each auto he drives. In order to claim this expense on line 23 and line 24, the debtor must have an auto payment.
The forms software will populate the box with the “IRS Local Standard” if you check that he has an auto, but to claim the deduction, the debtor must actually have a payment that he makes.
In the Supreme Court case from 2011 Ransom v. Fia Card services, the Court held Held: “A debtor who does not make loan or lease payments may not take the car-ownership deduction”. This was a Chapter 13 case in which after taking the “phantom expenses” for car payments he did not actually have, the debtor was able to only pay back 25% of his debts. The bank objected to the plan and said that the debtor was not actually making the payments and the “phantom expense” should be not allowed. The Supreme Court agreed with the creditor in the Chapter 13 case and the reasoning follows for Chapter 7 as well.
So even though the software will indicate that the debtor is entitled to the IRS deduction, the Supreme Court has ruled that in order to take Lines 23 and lines 24, the debtor must actually have an auto or lease payment.
This $450 “phantom expense” may make a difference whether your client qualifies for Chapter 7 or not under the means test, so make sure that he has an on-going expenses to justify the use of these lines.