Holding the Debtor’s Fresh Start Hostage: Bankruptcy Courts Incorrectly Interpret Ransom v. Fia Card Services to Deny Debtors a Car Ownership Expense Deduction

Emory Bankruptcy Developments Journal Emory Bankruptcy Developments Journal

Holding the Debtor’s Fresh Start Hostage: Bankruptcy Courts Holding the Debtor’s Fresh Start Hostage: Bankruptcy Courts

Incorrectly Interpret Ransom v. Fia Card Services to Deny Debtors Incorrectly Interpret Ransom v. Fia Card Services to Deny Debtors

a Car Ownership Expense Deduction a Car Ownership Expense Deduction

Creola Johnson

Part of the Bankruptcy Law Commons

HOLDING THE DEBTOR’S FRESH START HOSTAGE: BANKRUPTCY COURTS INCORRECTLY INTERPRET RANSOM V. FIA CARD SERVICES TO DENY DEBTORS A CAR OWNERSHIP EXPENSE DEDUCTION

Creola Johnson*

With the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Congress adopted for the first time a standardized income-based test for measuring an individual debtor’s “disposable income,” which is the amount a debtor must pay to unsecured creditors in a chapter 13 proceeding. Under the means test, debtors calculate their disposable income by deducting from income various standard expenses established by the Internal Revenue Service. One of those standard expenses is a vehicle ownership expense, which debtors can deduct if they have auto loan or lease payments.

This Article is about bankruptcy courts who deny the car ownership expense to some debtors based on a mere technicality and an incorrect interpretation of the U.S. Supreme Court’s holding in Ransom v. FIA Card Services, N.A.

Imagine that twin brothers file a chapter 13 case. Prior to filing, Ron obtained an auto loan to finance the purchase of a pre-owned vehicle and granted his lender a perfected security interest in that vehicle. Don borrowed the same amount from a car title lender, which obtained a perfected security interest in a vehicle that Don already owned. Don used the loan to pay off medical bills. If Ron is allowed to take a standard deduction of $500 for car ownership expenses, but Don is not, Ron’s disposable income will be much lower than his twin brother’s disposable income. Ron’s lender has a purchase-money security interest (“PMSI”) while Don’s lender has a non-PMSI. However, both Ron and Don must repay the lenders, or else the brothers will lose possession of their vehicles. Both lenders enter the bankruptcy legal system with their rights intact under the Uniform Commercial Code and both experience equality of treatment, one of the fundamental goals of the bankruptcy system. However, only

Ron—the debtor with the PMSI auto loan—benefits from a fresh start, the other fundamental goal of the bankruptcy system. Because debtors with PMSI loans as well as non-PMSI loans must repay the loans to keep their vehicles, both groups should be allowed to take the ownership expense deduction, in accordance with the Ransom holding.

Congress should amend BAPCPA to allow debtors with non-PMSI loans to take the car ownership expense deduction and receive the full fresh start Congress intended for them. Otherwise, such debtors will be required to pay artificially inflated disposable incomes, will most likely struggle to make, and occasionally miss, payments for the duration of their plans—or even worse, be forced to surrender their means of getting to and from work.

INTRODUCTION ............................................................................................... 163

A. Some Debtors Use the Equity in their Vehicles to

Obtain Extremely High-Cost, Non-Purchase-Money Loans from Car Title Lenders ..................................................... 168

B. A Plain Reading of the Code Makes Clear that

Debtors with Non-Purchase Auto Loans Can Take the Vehicle Ownership Expense Deduction ........................ 171

C. Anti-Deduction Courts Ignore the Plain Language

of the Text and Rely on IRS Sources that are not Referenced or Incorporated in the Code ..................................... 173

A. The Supreme Court Held in Ransom that Debtors with Paid-Off Vehicles are not Entitled to Deduct the IRS Standard Ownership Expense ......................................... 178

B. Pro-Deduction Courts Correctly Apply the Ransom

Holding and Allow Debtors with Non-PMSI Auto Loans to Take the Expense Deduction ......................................... 180

C. Courts Further the Fundamental Goals of the

Bankruptcy System When They Treat Both PMSI and Non-PMSI Auto Loans the Same .......................................... 181

A. The Supreme Court Should Act to Reinforce

Congress’s Intent that the Means Test Be Applied Using a Uniform Set of Standard Expenses ................................. 184

B. The Supreme Court Should Caution Bankruptcy

Courts Against Selectively Choosing When to Allow Debtors to Deduct the IRS Standard Ownership Expenses ......... 186

C. Courts Should Embrace the Built-in Repair

Cushion that Occasionally Arises from a Uniform Set of Deductions Afforded to Non-PMSI Debtors ............................ 188

D. Congress’ Silence Regarding the Car Ownership

Expense is an Indication that it Knows When PMSI and Non-PMSI Loans Deserve Different Treatment.................... 190

E. Congress May Need to Amend BAPCPA to Accord the Same Treatment to Debtors with PMSI and Non-PMSI Car Loans in Chapter 13 Cases ................................ 193 CONCLUSION ................................................................................................... 196

Check City lent Janet and David Traylor $5,286, at an interest rate of 118.8%, and required them to repay the loan in twelve monthly payments of $772.1 To secure the couple’s obligations to repay this high-interest loan, known as an auto or car title loan, Check City obtained a perfected security interest in their 2011 Chevrolet Impala and took the vehicle’s certificate of title.2 Unfortunately, Check City’s car title loan did not solve the Traylors’ financial problems. A few months later, the Traylors filed for bankruptcy relief under chapter 13 of the Bankruptcy Code (the “Code”) and proposed a chapter 13 debt repayment plan.3 It would allow the Traylors to pay off some of their unsecured debts and repay the title loan balance in affordable, lower monthly payments over five years.4

In 2005, Congress required, for the first time, a test for measuring an individual debtor’s “disposable income,” which is the amount a debtor must pay to unsecured creditors via the chapter 13 plan.5 As required under this test, better known as the means test, the Traylors deducted from their income certain allowed expenses, including expenses based on standards issued by the Internal Revenue Service (“IRS”).6 One deduction was for a car ownership expense because the Traylors’ loan was secured by Check City’s perfected security interest in their vehicle.7 After taking the allowed deductions, the Traylors’ disposable income equaled $85 per month, or $5,100 over five years.8 However, the bankruptcy trustee objected, arguing that the Traylors should not be allowed to deduct the car ownership expense because their loan was not used to buy the

car—that is, it was not a “purchase-money” auto loan.9 The court agreed with the trustee.10 After removing the ownership expense and adding an adjustment for the trustee’s fees, the court recalculated the Traylors’ monthly disposable income to equal $515, which amounted to total payments of $30,900 ($515 x 60 months) to unsecured creditors.11 This meant the Traylors would pay, over the five-year plan, an amount that was six times the original amount.

Debtors who own motor vehicles face robust litigation over whether they can deduct ownership and operating expenses allowed by the IRS. For example, in Ransom v. FIA Card Services., N.A., the United States Supreme Court resolved a split among bankruptcy courts regarding whether a debtor who owns a vehicle free and clear of any interests may deduct the car ownership expense when calculating the debtor’s disposable income.12 Based on the text of the relevant statute, along with its context and purpose, the Supreme Court held that a debtor who does not actually make car loan or lease payments, cannot deduct the car ownership expense allowed by the IRS.13

This Article focuses on a current split among bankruptcy courts over whether debtors who have auto title loans and other non-purchase-money loans can deduct the car ownership expense allowed by the IRS standards.14 Many debtors file under chapter 13 of the Code to propose affordable payments while keeping their vehicles.15 Because debtors with loans that are not purchase-money security interest (“PMSI”) loans must repay the loans to avoid losing ownership of their vehicles,16 courts should conclude, under Ransom, that debtors can deduct car ownership expenses when calculating their disposable income under the Means Test.

Unfortunately for debtors, an incorrect application of the Supreme Court’s analysis in Ransom has led most bankruptcy courts to hold hostage the debtor’s car ownership deduction. These courts conclude that if debtors do not obtain personal loans to purchase their vehicles, they do not qualify to take the car ownership expense deduction.17 Stated differently, debtors with personal loans cannot take the deduction because their vehicles are secured by a regular security interest, not a PMSI. Yet, the statutory provision at issue does not mention PMSIs at all.18 Therefore, courts are incorrectly imposing a requirement that debtors must have “purchase-money” loans to qualify for the car ownership expense deduction.19

Because courts are incorrectly applying the Ransom decision, they are artificially inflating the debtor’s disposable income. That is, courts are creating the appearance that debtors with car non-PMSI loans have thousands of dollars—more than they actually have—to pay over the course of a five-year plan and are creating the false appearance that such debtors are, financially, on solid ground.20 Consider again the Traylors.21 Because the court denied them the car ownership expense deduction, their monthly disposable income payments increased from $85 to $515 per month for a total of $30,900 paid over the sixtymonth plan.22 Yet, in 2019, at the time of the court’s decision, the Traylors’ Chevrolet Impala was already eight years old and was only worth $4,000.23 The age and value of the vehicle alone serve as an indication that the court’s ruling would leave the Traylors in a precarious financial situation.24 As is typical of debtors in chapter 13 cases,25 the Traylors had income disruptions that caused

them to miss several plan payments and put them at risk of not completing their plan.26 For example, halfway through his five-year plan, Mr. Traylor was negatively impacted by the COVID-19 pandemic and was temporarily laid off from work.27

When courts deny the ownership deduction to debtors with non-PMSI loans, they are not only greatly increasing the debtors’ financial burden, but they are ignoring the plain language of the statute. As explained in Part II of this Article, a major goal of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”)28 was to replace judicial case-by-case scrutiny of a debtor’s actual expenses and require the debtor’s use of IRS standard expenses for the Means Test calculation.29 Because the non-PMSI loans discussed in this Article are secured by a perfected interest in a debtor’s vehicle, the loans are expenses directly related to the debtor maintaining ownership of the vehicle.30 Part II, however, demonstrates how many courts have veered away from the relevant text and muddied a straightforward analysis by consulting IRS manuals and collection data, resources not incorporated into the Code.31 By relying on these resources, courts have incorrectly imposed a requirement that debtors must have a PMSI car loan to qualify for the vehicle ownership deduction.32

Part III analyzes the Ransom decision and demonstrates that debtors with non-PMSI loans should be able to deduct the vehicle ownership expense when calculating their disposable income.33 The Supreme Court’s proper application of statutory construction should lead them to conclude that debtors with nonPMSI loans are eligible to take the ownership deduction. A proper application of the Ransom holding would also further bankruptcy law’s two fundamental

goals: a fresh start for debtors through a chapter 13 plan and equality of treatment of lenders with both PMSI and non-PMSI.34

Part IV analyzes other sections of the Code that deal specifically with PMSI loans.35 Congress was silent about a PMSI requirement for debtors to be permitted to take the car ownership expense deduction in the means test.36 Although allowing debtors to deduct ownership expenses may cause some debtors’ disposable incomes to be lower, those lower amounts will provide debtors with a built-in cushion to afford auto repairs when they arise.37 Bankruptcy courts should not resort to exercising discretion but should follow Congress’ intent that a uniform set of standard deductions be used when determining a debtor’s disposable income under a chapter 13 plan. If the Supreme Court fails to resolve the split among the courts, Congress needs to amend BAPCPA to require courts to follow the standardized Means Test and ensure that debtors with car title and other non-PMSI loans are treated fairly and not hindered in their ability to obtain a fresh start.

A growing number of bankruptcy courts are denying debtors with nonpurchase-money car loans the ability to deduct a vehicle ownership expense when calculating their disposable income under the means test.38 This Article focuses on debtors with car title loans because most of the anti-deduction cases involve car title loans.39 However, the reader should be aware that, in addition to title lenders, traditional financial institutions (i.e., banks and credit unions), finance companies, and financial technology (“fintech”) companies issue nonpurchase-money loans secured by a borrower’s personal property, including motor vehicles.40 As explained further below, courts have denied the ownership

expense deduction to debtors with title loans, auto refinance loans, and personal loans secured by the debtors’ vehicles.41 The majority of the courts have denied the deduction on the basis that IRS manuals and collection data suggest that the deduction is available only to debtors with PMSI loans.42

Below is a brief explanation of car title loans to provide context to the issue at hand. Following that explanation will be a discussion showing that a plain reading of the text at issue and the IRS standards support the conclusion that debtors with car title loans should be allowed to take the ownership expense deduction.43

A. Some Debtors Use the Equity in their Vehicles to Obtain Extremely High-

Cost, Non-Purchase-Money Loans from Car Title Lenders

Car title loans are marketed to cash-strapped individuals who own a paid-infull vehicle but need money to cover emergency expenses or routine bills.44 Borrowers receive cash ($500 or more) within minutes of applying, and in exchange, they give the lender a security interest in their vehicles and their certificates of title.45 This constitutes asset-based lending because title lenders do not perform any credit checks or assess the debtor’s ability to repay the loan.46 Also, lenders charge triple-digit interest rates and require loan repayment in a short period, typically within thirty days or a few months.47 Most borrowers cannot repay the loan by its initial due date and end up refinancing the loan or paying rollover fees, which extend the loan’s due date but do not reduce the principal loan amount owed.48

Consumers who obtain title loans live under the threat of car repossession unless they continue to pay rollover fees or manage to pay the loans off in full.49 The number of vehicles repossessed by title lenders is high.50 For example, a Texas-based non-profit organization reported that title lenders repossessed more than 10,000 vehicles in 2022 in the Houston area alone.51

While title loans are considered predatory,52 existing federal law only protects active-duty military personnel and their families from loans deemed predatory.53 This law, known as the Military Lending Act (“MLA”), covers several financial transactions that military persons may enter into, but it specifically regulates car title loans by capping interest rates on them at 36%54 and by banning lenders from taking a security interest in a vehicle’s certificate of title.55 Thus, most Americans (non-military personnel) are not afforded express protections from title loans, although several attempts have been made to pass federal legislation and agency regulations to afford all Americans

nationwide protections.56 Moreover, at this time, the outlook for consumer protection from federal regulators is bleak.57 President Donald Trump, through the Department of Government Efficiency (“DOGE”), has fired most of the employees at the Consumer Financial Protection Bureau (“CFPB”) and has installed new leadership that has dropped numerous cases.58 The CFPB is continuing enforcement actions in only a handful of cases, notably one case alleging that lenders have harmed military personnel by violating the MLA and other consumer protection laws.59

Debtors who are not protected by the MLA often resort to filing for chapter 13 bankruptcy relief so they can retain their vehicles while they repay their title loan debts through a chapter 13 plan.60 In Grand Theft Auto 2.0, I explained that, despite the predatory nature of car title loans, title lenders have been successful in persuading courts to interpret bankruptcy law in a manner that results in debtors forfeiting ownership of their vehicles.61 After detailed analyses of provisions of federal bankruptcy law, state secured transactions law, and pawnshop laws, I concluded that these courts incorrectly defer to state pawnshop laws to cause debtors to lose their vehicles.62

As explained below, car title loans are, once again, at the center of chapter 13 cases where debtors are attempting to repay their title loans while retaining possession of their vehicles.

B. A Plain Reading of the Code Makes Clear that Debtors with Non-Purchase

Auto Loans Can Take the Vehicle Ownership Expense Deduction

In a growing number of cases, chapter 13 trustees, not title lenders, are objecting to debtors’ plans that propose retention of their vehicles while making monthly payments to creditors.63 In these cases, the bankruptcy trustees file objections on the basis that debtors with car title loans are not allowed to take a car ownership expense deduction and, therefore, are not paying all their disposable income through their plans.64 As explained further below, the plain language of the relevant statute supports the conclusion that a debtor with a motor vehicle secured by a non-PMSI loan is allowed to deduct from income the car ownership expense allowed by the IRS standards. Therefore, such debtors can demonstrate they are paying all disposable income required under their chapter 13 plans.

When Congress enacted BAPCPA, it implemented the means test to calculate “debtors’ disposable income . . . ‘to ensure that [they] repay creditors the maximum they can afford.’”65 Prior to BAPCPA, “projected disposable income” was determined by a court considering a debtor’s filed Schedules I and J, that is, by comparing the debtor’s actual income (on Schedule I) to the debtor’s expenses (on Schedule J) as of the petition date.66 This approach gave judges broad discretion to reduce expenses and, thereby, increase a debtor’s disposable income.67

Under BAPCPA’s amended section 1325(b)(3), chapter 13 debtors calculate their disposable income by following the means test set forth in a new provision, section 707(b)(2)(A).68 This provision identifies which expenses can be deducted from the debtor’s income to arrive at the debtor’s disposable income under the means test:

The debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the

categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides . . . .69

The Supreme Court’s analysis of this provision in the Ransom case will be discussed later.70 But for now, the discussion below addresses what is meant by “reasonably necessary” expenses that are specified under the National Standards and Local Standards.

The “National Standards” and “Local Standards” referenced in the Code are tables prepared by the IRS which list categories of “standardized expense amounts for basic necessities,” such as food, housing, and transportation.71 One of the expense categories is for transportation and is represented in a table titled “Allowable Living Expenses Transportation Standards.”72 In this table, the IRS splits transportation costs into two sub-categories: “Ownership Costs” and “Operating Costs.” 73 Neither this table nor the Code section quoted above limits which type of loan counts as an ownership cost. Stated differently, neither mentions a “purchase-money” loan or “purchase-money security interest”. As a result, if the debtor owes debt secured by a vehicle that the debtor owns or leases, then, based on the plain language of the statutory provision and the tables, the debtor has an “applicable” ownership expense and, therefore, should be able to deduct the expense.

As additional support for this conclusion, consider Form 122C-2 (titled “Chapter 13 Calculation of Your Disposable Income”), which is the official form for debtors with above-median income to show their disposable income calculation in chapter 13 cases. In part 13 of the form, the debtor must supply the following information related to “vehicle ownership or lease expense” 74:

Note the pertinent instructions: “You may not claim the [vehicle ownership] expense if you do not make any loan or lease payments on the vehicle.”75 In accordance with these instructions, debtors with car title loans can claim the expense deduction because they must make monthly loan payments to the title lender to keep their vehicles.

C. Anti-Deduction Courts Ignore the Plain Language of the Text and Rely on

IRS Sources that are not Referenced or Incorporated in the Code

Despite the clear language in the official form, In re Alexander was the first case to address whether the car ownership expense deduction is available to debtors with a car title loan.76 As explained below, the court held that the debtor could not take the deduction because the title loan was a non-PMSI loan.77 However, the court could have denied the deduction solely on the grounds that the debtors’ chapter 13 plan was not proposed in good faith or that the deduction was not taken in good faith.78

In January 2012, the debtors, Danny and Mary Alexander, completed the pre-bankruptcy credit counseling required under BAPCPA.79 Then, a week later, Mr. Alexander obtained a car title loan in the amount of $513.50 from Quick Cash and granted the title lender a security interest in his 2004 Toyota Tacoma.80 Four days later, the debtors filed for chapter 13 and proposed a five-year plan to pay Quick Cash $600, as its allowed secured claim, in monthly installments of $10 ($600 ÷ 60).81 The car ownership deduction at the time was $496.82 If allowed to take this car ownership deduction, the debtors’ disposable income calculation would have yielded a negative number and, therefore, unsecured creditors would receive zero payments under the plan.83

The trustee argued that confirmation of the plan should be denied because the debtors’ chapter 13 case was not filed in good faith, the plan was not proposed in good faith, and the plan did not commit all their disposable income to the plan.84 The court denied confirmation, reasoning that that the deduction was not available where the car loan is not a purchase-money loan.85 The court justified its decision by consulting an IRS published manual “which contains guidance for its agents in interpreting and applying the standards.”86 The manual used the following clause in two different places: “vehicle payment (lease or purchase)” and contained a similar third reference in another section.87 The court, therefore, concluded that the deduction is only for debtors who have a payment arising from the debtor’s agreement to lease or purchase the vehicle.88 The court stated that by denying the ownership expense, the debtors’ disposable income would increase from zero to approximately $195.98.89 This recalculation meant that the debtors’ disposable income payments to unsecured creditors over the five-year plan would total approximately $11,760 ($196 x 60 months).90

The court’s holding is erroneous and unjustifiable for several reasons. First, although the court explained that it consulted the IRS Manual as an interpretive aid to the National and Local Standards, it did not explain why that guidance should be treated as imposing a substantive eligibility limitation—namely, a purchase-money requirement—that does not appear in section 707(b)(2), the ownership expense tables, or the official means-test form.91 Second, IRS manuals are not referenced or incorporated in the Means Test under section 707(b)(2)(A)(ii).92 Third, neither this subsection nor the IRS ownership expense table makes a distinction between a PMSI car loan and a non-PMSI loan. Therefore, the IRS manual should not have been consulted.

The Alexander court could have rested its decision entirely on the debtors’ lack of good faith—an issue the court itself found dispositive—without resolving the broader statutory question of whether a non-purchase-money title loan categorically disqualifies a debtor from claiming the vehicle ownership deduction.93 Remember, the debtors obtained a small title loan ($513.50) four days before filing their chapter 13 case.94 Their paid-off vehicle was worth $3,305, more than six times the amount borrowed.95 Allowing the debtors to take the vehicle deduction would have allowed them to succeed in confirming a plan with zero payments to general unsecured creditors.96 Simply put, the bankruptcy court could have denied confirmation of the plan due to lack of good faith— because the debtors’ actions were indicative of attempts to manipulate the Means Test to contrive an expense deduction aimed at eliminating any disposable income.97 The Alexander court did not need to impose a requirement that the debtors must have a purchase-money auto loan to qualify for the car ownership deduction.

Unfortunately, several courts have followed Alexander and prevented debtors with non-PMSI loans from taking the ownership expense deduction.98 These cases are notable because: (1) they put unnecessary focus on the terms of the non-PMSI loan and (2) they consult the IRS manuals and other sources used by IRS agents.

In an unpublished summary order denying confirmation of the debtors’ plan, the Idaho Bankruptcy Court in In re Carroll relied on the Alexander opinion to deny the car ownership deduction to debtors with title loans.99 The Carroll court described the title loan as a “short-term loan with a high interest rate” and highlighted the fact that the debtors had pawned their vehicles more than once

“to obtain cash to help make ends meet.”100 This description appears to be the court questioning the debtors’ motive in getting such a loan on a vehicle that had been lien free.

Besides highlighting the high cost of the title loan, the Carroll court referred to the IRS manual, which it found “not exactly clear on this point.”101 Despite not finding clarity in the IRS manual and without doing a plain meaning analysis, the Carroll court decided “the intent of the deduction for vehicle ownership expenses is to accommodate the costs of acquiring a vehicle, and not expenses incurred by a debtor using the vehicle as collateral for some other sort of debt, such as a title loan.”102

Subsequently, the Utah Bankruptcy Court in In re Traylor cited the Alexander and Carroll opinions when it denied the debtors a deduction for their vehicle.103 The Traylor court went a step further by referring to and quoting IRS Collection Financial Standards, which it used as “interpretive assistance” to determine which type of vehicle ownership expense qualified as deductible under the IRS standards.104 The Traylor court cited to the Collection Financial Standards, explaining “that the IRS Local Standards for the vehicle ownership expense are ‘base[d] . . . on the five-year average of new and used car financing data compiled by the Federal Reserve Board.’” 105 The court did not explain why it was necessary to rely on data collected by the Federal Reserve Board, an agency charged with implementing U.S. monetary policy, not federal bankruptcy policy.106 Nor did the court acknowledge the fact that such data has been collected for decades—long before title loans existed.107 The Traylor court

held that because the data was about “car financing data,” debtors with nonPMSI loans secured by their vehicles did not qualify for the car ownership deduction.108

Relying on Traylor, a Louisiana bankruptcy court in In re Litton decided that even a non-PMSI loan issued by a credit union made the debtors ineligible for the car ownership deduction.109 Unlike the debtors in the Traylor case, the debtors’ non-PMSI loan was neither high-interest nor short-term, like a typical car title loan.110 Nevertheless, the court decided that only debtors with a PMSI loan were allowed to take the car ownership deduction.111 The court also consulted IRS Collection Financial Standards and the “statistical information compiled” by the Federal Reserve Board to discern the meaning of the term “ownership costs.”112 Because the Federal Reserve Board “separately classified loans made to consumers for nonpurchase-money obligations,”113 the court concluded that the debtor could only deduct loan payments if they were for “the lease or purchase of up to two automobiles if allowed as a necessary expense.”114 The Litton court grounded its analysis in Ransom’s instruction that the National and Local Standards are “not self-defining” and that courts may consult the IRS Collection Financial Standards and related sources to determine whether a listed expense is “applicable” to a debtor’s circumstances. However, in doing so, the Litton court effectively treated acquisition-based financing as a substantive eligibility requirement for the ownership deduction—despite the absence of any purchase-money distinction in the Code, the Local Standards tables, or the Official Form 122C-2.115

Courts that deny debtors with non-PMSI loans the ability to take the ownership expense deduction assert that they are following the analysis of the Supreme Court in Ransom.116 As explained further below, these bankruptcy courts have ignored parts of the Supreme Court’s reasoning and have incorrectly denied the deduction. They have also overstepped Congress and imposed a requirement that denies chapter 13 debtors their fresh start.

A. The Supreme Court Held in Ransom that Debtors with Paid-Off Vehicles

are not Entitled to Deduct the IRS Standard Ownership Expense

In Ransom, the Supreme Court resolved a split among the circuits regarding whether a debtor can take the IRS standard deduction for a car ownership expense if the debtor owns the car free and clear of any interests.117 One of the steps taken in the Means Test calculation is for the debtor to determine which of their expenses are “reasonably necessary,” and therefore deductible, by looking at the “applicable monthly expense amounts specified under the [IRS] National Standards and Local Standards.”118 The Supreme Court began with the text of the statute and concluded that a debtor with a paid-off vehicle does not have an applicable expense and therefore cannot take the ownership deduction:

in

its correspondence

this sense What makes an expense amount “applicable” (appropriate, relevant, suitable, or fit) is most naturally understood to be financial circumstances. Rather than authorizing all debtors to take deductions in all listed categories, Congress established a filter: A debtor may claim a deduction from a National or Local Standard table (like “[Car] Ownership Costs”) if, but only if, that deduction is appropriate for him.119

individual debtor’s

to an

The Court then explained that the IRS’s deductions were generally permitted because Congress intended the Means Test to “approximate the debtor’s reasonable expenditures on essential items.”120 Then the Court explained

Congress’s specific purpose in allowing the car ownership deduction: “The carownership allowance thus safeguards a debtor’s ability to retain a car throughout the plan period. If the debtor already owns a car outright, he has no need for this protection.”121

A debtor’s vehicle—as an essential asset—was not questioned in any of the cases discussed in this Article.122 If the Supreme Court were to apply its reasoning to the cases involving non-PMSI loans, one would expect the Supreme Court to hold that debtors with non-PMSI loans are allowed to take the car ownership deduction because it safeguards the debtors’ ability to afford the car loan payments while retaining an essential item.123

While the Supreme Court in Ransom did consult the IRS’s Collection Financial Standards as guidelines, it recognized the fact that “the statute does not incorporate the IRS’s guidelines.”124 The Court stated that “courts may consult this material in interpreting the National and Local Standards” but that the “guidelines of course cannot control if they are at odds with the statutory language.”125 The Court also stated that the “Collection Financial Standards’ treatment of the car-ownership deduction reinforces our conclusion that, under the statute, a debtor seeking to claim this deduction must make some loan or lease payments.”126

Based on the Supreme Court’s reasoning in Ransom, a bankruptcy court should hold that a debtor with a car title or other non-PMSI loan is making “some loan” payments related to retaining the car. The debtor’s failure to make the payments would result in the loss of ownership of the vehicle. Therefore, the car ownership expense deduction safeguards the debtor’s ability to maintain nonPMSI loan payments throughout the plan period.

B. Pro-Deduction Courts Correctly Apply the Ransom Holding and Allow Debtors with Non-PMSI Auto Loans to Take the Expense Deduction

Only two bankruptcy court decisions—In re Feagan127 and In re Lopez128— correctly applied the deduction. Unfortunately, the bankruptcy court’s decision in Feagan was reversed by the district court, which relied on the Alexander and Carroll decisions.129 The Lopez court’s well-reasoned analysis is discussed below.

the reasoning of Ransom

to allow

In Lopez, the trustee objected to the debtor’s deduction of an ownership expense on the basis that the debtor’s vehicle was secured by a refinance loan, and not a purchase-money loan.130 The Lopez court started with the plain meaning of section 707(b) and then referred to the Rules of Bankruptcy Procedure and the Official Form 122C-1.131 The court stated that it would look to the IRS manual “[o]nly if [section] 707(b) and the Official Form cannot be reconciled.”132 Finding that both section 707(b) and the Official Form were consistent, the court rejected the trustee’s argument that it had a mandate under Ransom to consult the IRS manual.133

The Lopez court found that the IRS manual was not helpful and only muddied the waters of interpretation, especially given that the “IRS’s use of the Standards differs in policy and purpose from its application by the Bankruptcy Code.”134 The court noted several expenses that were treated differently for taxpayers by the IRS and for debtors in bankruptcy.135 For example, the Code in section 707(b)(1) and (2) specifically allow debtors to deduct expenses for tithing (i.e., charitable giving to religious organizations), but tithing is only allowed under the IRS collection standards as “reasonable and necessary” expenses “if the taxpayer can pay their taxes in full within five years.”136 Such a difference in treatment buttressed the Lopez court’s conclusion that it should not consult the IRS collection guidelines.137

The Lopez court found the language in the statute and language in the Official Form and its instructions to be clear, and the form and the statute could “be reconciled to produce a logical result.”138 Therefore, the debtor could deduct the car ownership expense notwithstanding the fact that her refinance loan was not a purchase-money loan.139

The Lopez court also critiqued the Alexander decision as well as two other court decisions.140 While those decisions claimed to be following Ransom, the Lopez court stated that those cases involved bad faith on the debtors’ part.141 Recall, in Alexander, the debtor obtained a title loan of just under $600 on a paid-off vehicle, which was worth $3,305, and then, four days later, filed a chapter 13 case.142 Similarly, in In re King, the debtor, 41 days before filing, obtained a $585.29 car title loan secured by his ten-year old vehicle and proposed a chapter 13 plan that paid nothing to unsecured creditors.143

Rejecting these court decisions, the Lopez court held that “[t]he plain meaning of the statute, consistently interpreted with the language in the Official Form, leads to the reasonable conclusion that the [debtor’s refinance car loan constitutes] an ‘applicable expense’ for purposes of the vehicle-ownership expense deduction.”144 The court was convinced that the debt owed “should not be treated differently for Means Test purposes based solely on the fact that it is a refinancing or equity type of transaction instead of a purchase-money or lease transaction.”145

C. Courts Further the Fundamental Goals of the Bankruptcy System When

They Treat Both PMSI and Non-PMSI Auto Loans the Same

The fundamental goals of the U.S. bankruptcy system are best served by courts’ treating both PMSI and non-PMSI loans the same. Those two goals are to (1) treat similarly-situated creditors equally146 and (2) accord to debtors a

financial fresh start.147 The anti-deduction and pro-deduction courts treat lenders that issue PMSI and non-PMSI auto loans the same, but only the anti-deduction courts are interfering with the ability of chapter 13 debtors to get a fresh start.

The anti- and pro-deduction cases allow lenders that issue PMSI auto loans and non-PMSI auto loans to achieve the fundamental goal of equality of treatment of similarly situated creditors.148 That is because both sets of lenders, assuming their interests in the vehicles are properly perfected, have the right to have their loan balances paid as allowed secured claims under section 506 through a debtor’s chapter 13 plan.149 It does not matter (1) if the debtor’s nonPMSI loan was from a traditional bank, a credit union, or a title lender or (2) if the debtor’s PMSI loan was from an auto financing lender. If the debtor fails to make the loan payments, these secured lenders have the right to seek relief from the automatic stay because, in bankruptcy proceedings, they still have the right accorded under the Uniform Commercial Code (“UCC”) to repossess the vehicle after the debtor’s default.150 In summary, when a court allows the debtor to take the ownership expense deduction, such allowance has no negative impact on the lenders, as secured parties with protections accorded to them under both the Code and the UCC.

However, the anti-deduction cases disadvantage debtors in chapter 13 cases by denying them the car ownership expense deduction and, thereby, cause their disposable incomes to become artificially inflated.151 As a result, these courts

unfairly burden chapter 13 debtors by greatly increasing the amounts they must pay to get their plans confirmed. This burden in turn increases the likelihood that some debtors will not be able to complete their plans.152

Even for debtors that successfully complete their plans, these debtors do not receive the full benefit of their fresh start when they struggle to make monthly payments. As a case in point, consider again the Litton case where the debtors were denied the ownership expense deduction.153 Their disposable income increased by $534.80 and resulted in their paying $32,088 over the course of their sixty-month plan.154 The court rejected their argument that they were unfairly penalized and deprived of a full fresh start.155

Similarly, the Traylor court’s decision to deny debtors the ownership expense deduction actually hindered their fresh start. The court’s denial led to their monthly disposable income payments increasing from $85 to $515 per month and totaling $30,900 over the sixty-month plan.156 About halfway through the sixty-month plan period, Ms. Traylor had to have knee replacement surgery and wound up losing her job.157 Then Mr. Traylor was negatively impacted by the COVID-19 pandemic and was temporarily off from work.158 The trustee moved to dismiss their case even though it was the trustee’s initial plan objection that put the Traylors in a precarious financial situation.159 The court’s first decision to deny the deduction, at a minimum, hindered the deduction’s purpose, which the Supreme Court stated was “to ensure that debtors in bankruptcy can afford essential items.”160 The goal of the deduction was never to impose a restriction not required by the Code that causes debtors to struggle at every turn in a chapter 13 case.

At this writing, courts are denying the car ownership expense deduction in almost every case involving a debtor with a motor vehicle secured by a nonPMSI loan.161 The Supreme Court or Congress needs to act to stop the lower courts from denying debtors the benefit of the car ownership expense deduction.

A. The Supreme Court Should Act to Reinforce Congress’s Intent that the Means Test Be Applied Using a Uniform Set of Standard Expenses

The Supreme Court needs to curtail the tendency of some courts to deny debtors with non-PMSI loans a car ownership expense deduction because these courts dislike an outcome that substantially lowers the disposable income that must be paid to unsecured creditors. Prior to the passage of BAPCPA, Congress knew that some debtors would end up paying less under the new Means Test than under a judge’s discretionary analysis of the debtor’s actual income and expenses.162 Chapter 13 trustees testified before Congress and warned about lower disposable income calculations.163

The Traylor court reasoned that debtors with non-PMSI auto loans were receiving a “windfall”—but-for the debtors’ taking of the car ownership deduction, the debtors could pay a much greater amount of disposable income over a five-year plan.164 Likewise, the trustee in the Lopez case argued that “an interpretation of a code section should not create a result wherein the Debtor gets more than they need.”165 However, what these courts and trustees are essentially doing is reinstating a discretionary analysis of the debtor’s expenses and are, thereby, penalizing debtors with non-PMSI loans—not simply removing any perceived windfall!

In Ransom, the Supreme Court addressed this “windfall” possibility as

acceptable to Congress when it passed BAPCPA:

Indeed, a debtor with only a single car payment remaining . . . is eligible to claim a monthly ownership deduction. . . . But this kind of oddity is the inevitable result of a standardized formula like the means test . . . . Such formulas are by their nature over- and under-inclusive. In eliminating the pre–BAPCPA case-by-case adjudication of abovemedian-income debtors’ expenses, on the ground that it leant itself to abuse, Congress chose to tolerate the occasional peculiarity that a brighter-line test produces.166

Because the Supreme Court in Ransom concluded that Congress intended the occasional peculiar outcomes under the standardized means test,167 the antideduction courts do not have the discretion to ignore the relevant text by simply claiming the debtors are getting a windfall.168

Moreover, courts are also incorrectly reinstating a discretion analysis by relying on information in IRS manuals and guidelines used by IRS agents, who actually have discretion to evaluate offers-in-compromise of tax debts owed.169 Several courts have pointed out that these resources give IRS agents discretion in determining a taxpayer’s ability to repay tax debts and, therefore, do not advance the purposes of the standardized Means Test.170 For instance, in In re Kimbro, the Bankruptcy Appellate Panel (“BAP”) for the Sixth Circuit discussed several examples of IRS agents having discretion in interpreting the standards.171 The Sixth Circuit BAP rejected the trustee’s assertion that the IRS manual should be followed:

The substantial discretion allowed to a revenue officer under the IRM [IRS manual] is inconsistent with the purpose of the means test to adopt a uniform, bright-line test that eliminates judicial discretion. Congress intended that there be uniform and readily-applied formula for determining . . . an above-median debtor’s disposable income in chapter 13. By explicitly referring to the National and Local Standards, Congress incorporated a table of standard expenses that could be easily and uniformly applied . . . . Plainly, Congress determined that these policies were more important than accuracy. However, if the IRM were

used to determine the amounts of expenses, as the trustee argues, the means test would of necessity again be a highly discretionary test, because under the IRM, a revenue officer is afforded significant discretion in determining a taxpayer’s ability to pay a tax debt.172

In summary, the anti-deduction courts are simply finding a way to exercise discretion perhaps because they do not approve of a debtor’s use of title loans to deal with a financial crisis.173 According to the Supreme Court, however, the IRS deductions are not about “effecting any broad federal policy as to saving or borrowing.”174

B. The Supreme Court Should Caution Bankruptcy Courts Against Selectively

Choosing When to Allow Debtors to Deduct the IRS Standard Ownership Expenses

The anti-deduction courts usually claim to be following the Supreme Court’s Ransom decision, but they are selectively choosing when they want to follow the IRS manuals and guidelines.175 For example, in several cases involving debtors with old vehicles, debtors have tried to deduct an additional $200 as an expense allowed by IRS manuals for an older vehicle operating expense.176 However, this additional $200-per-month deduction is not included in the tables promulgated by the IRS for standardized expense amounts.177 Several courts have interpreted the absence of this $200 deduction from the Code as the reason for not allowing chapter 13 debtors to take the older-vehicle deduction even though IRS agents allow taxpayers to take the deduction.178

Another example of courts selectively choosing how to interpret section 707(b)(2) involve debtors seeking to deduct car ownership costs even when they do not legally own the vehicle in their possession and do not have a legal obligation to make loan payments. Ordinarily, debtors taking the ownership costs deduction are obligated to make payments under an auto lease or purchase contract that they signed. Trustees have objected to the debtor’s attempt to take the deduction in circumstances where the debtor is not legally obligated to pay.179 For example, a bankruptcy court in In re Drury agreed with the trustee and held that a debtor could not take a deduction because the debtor had no legal obligation to make auto loan payments for a vehicle purchased by her sister due to the debtor’s poor credit.180

On appeal, the United States BAP of the Ninth Circuit reversed and stated

the following:

[W]hen one considers the means test as a whole and its underlying purpose—to assure that debtors pay what they can to their creditors— it makes no sense to focus on the absence or presence of a legally enforceable debt. Most necessities of life . . . are not debts. And yet it still is essential for debtors to pay these amounts in order to maintain a certain minimal standard of living . . . . Even without a legally binding obligation to make the payments for the car loan in her sister’s name, if Drury is going to continue to use the car, she needs to continue to make the payments. Otherwise, the lender will repossess the vehicle, and Drury will be forced to get around Los Angeles without an automobile.181

The BAP’s rationale in Drury is applicable here. Just like the debtor in Drury, debtors with title loans or refinance loans must repay them or they will lose possession and ownership of their vehicles.182 Because neither the Code nor the IRS standards restrict what type of secured loan qualifies for the car

ownership expense, courts should permit debtors to take the ownership expense deduction even when their vehicles are secured by non-PMSI loans.

C. Courts Should Embrace the Built-in Repair Cushion that Occasionally

Arises from a Uniform Set of Deductions Afforded to Non-PMSI Debtors

Anti-deduction courts that speculate about a debtor’s receipt of a possible windfall are preventing debtors from being better prepared to cover auto repairs during the term of the chapter 13 plan. The anti-deduction courts deny the car ownership expense primarily to debtors with car title loans,183 and, practically speaking, that means courts are denying deductions to debtors with older cars. Because car title lenders usually lend to debtors with paid-off, lien-free vehicles,184 these debtors have older cars.185 Undisputedly, debtors with older cars will need money to cover the cost of repairs.186 Instead of characterizing the car ownership expense deduction as a windfall, courts should recognize that application of the standardized Means Test simply affords some debtors with title loans a built-in repair cushion to cover expenses associated with having older cars. The resulting lower disposable income means that debtors will have money available to make costly repairs or to replace a vehicle if its useful life is depleted during the plan.187

Preserving this cushion is important for the following two reasons: (1) debtors can avoid the costs and time of trying to modify the chapter 13 plan and

(2) debtors are more likely to be able to complete plan payments.188 Filing a post-confirmation motion to modify the chapter 13 plan is costly and timeconsuming.189 If the debtor cannot afford to pay additional attorney fees to seek a plan modification, the debtor is left to struggle to make payments or default on plan payments. Such a struggle increases the chances of the debtor failing to complete the plan.190 This is exactly the predicament that the Traylors were in when, after plan confirmation, Mr. Traylor was temporarily laid off due to the negative impact of the COVID-19 pandemic and Mrs. Traylor was unable to work after getting knee replacement surgery.191 The Traylors eventually succeeded in completing their plan payments despite the trustee’s attempts to have their case dismissed.192 However, they should not have been burdened with financial impediments simply because they had a non-PMSI, car title loan.

D. Congress’ Silence Regarding the Car Ownership Expense is an Indication

that it Knows When PMSI and Non-PMSI Loans Deserve Different Treatment

Congress already knows the difference between PMSI and non-PMSI loans, and, when it passed BAPCPA, it could have imposed a PMSI loan requirement for the car ownership expense deduction.

The Code does not define a “purchase-money security interest.”193 However, when a PMSI status arises as an issue in bankruptcy cases, courts generally look to the definition found in the UCC, which has been adopted in every state.194 One example of a non-PMSI versus PMSI distinction is found in section 522(f) of the Code.195 Under that section, an individual debtor can avoid specific types of interests that impair the debtor’s exemption in certain property.196 Specifically, subsection 522(f)(1)(B) allows the debtor to avoid non-PMSI, nonpossessory security interests in certain household personal property.197 Thus, a debtor could use this provision to avoid a lender’s non-PMSI loan to exempt (and keep) an inexpensive sofa located in her living room. But that same debtor could not avoid a non-PMSI interest held by a car title lender in her Chevrolet

Chevette.198 That is because a motor vehicle is not considered “household” property under the Code for exemption avoidance purposes.199

In addition to section 522(f)(1)(B), Congress’s 2005 amendments to section 1325(a) provide a recent example demonstrating that it knows how to impose a PMSI or non-PMSI requirement. Pre-BAPCPA, a chapter 13 debtor could file a plan proposing to retain a vehicle and modifying the rights of a secured creditor that had a perfected PMSI in the debtor’s vehicle, by bifurcating the creditor’s claim into secured and unsecured parts based on the vehicle’s value.200 This is known as the “cramdown” and that meant the secured part of the claim would get paid in full through the debtor’s chapter 13 plan, but the unsecured portion would not get paid at all or only a fraction of it would get paid.201

The auto loan industry was not happy with the cramdown practice and lobbied Congress to amend section 1325(a) by adding a hanging paragraph, which limits a debtor’s ability to cramdown a claim held by a creditor with a perfected PMSI in a debtor’s vehicle.202 For instance, if the secured creditor has a PMSI in a motor vehicle acquired (for personal use) by an individual debtor

less than 910 days before the filing of the chapter 13 case, the debtor must pay the full amount of the debt owed.203

Congress’s amendment to section 1325(a) is presumed intentional204 and, therefore, protects lenders’ claims from cramdown if they satisfy the conditions of the hanging paragraph.205

Unlike its amendments in section 1325(a), Congress was silent about PMSI loans when it added the Means Test to section 707(b).206 Moreover, the IRS standards are silent about motor vehicles secured by PMSI loans.207 The Supreme Court has expressed the relevant rule of construction poignantly: “[W]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.”208 Thus, Congress’s silence about a PMSI loan in relation to the car ownership expense is presumed to be intentional and, therefore, debtors with non-PMSI loans can deduct the expense.

In the face of statutory silence, courts should focus on the purpose of the car ownership deduction and how it aligns with the fresh start Congress intended to

give chapter 13 debtors. As the Supreme Court stated in Ransom, one determines meaning by looking at “the text, context, and purpose of the statutory provision.”209 The purpose of the car-ownership deduction is to “safeguard[] a debtor’s ability to retain a car throughout the plan period.”210 The deduction is not Congress signaling “any broad federal policy as to saving or borrowing.”211 Instead, “the deductions serve merely to ensure that debtors in bankruptcy can afford essential items.”212

Courts should then adhere to the Ransom holding, which denied the deduction to a debtor with a lien-free, paid-off vehicle.213 Courts should allow debtors with non-PMSI loans to take the deduction because their vehicles are not lien free.

E. Congress May Need to Amend BAPCPA to Accord the Same Treatment to

Debtors with PMSI and Non-PMSI Car Loans in Chapter 13 Cases

Congress may need to act so that debtors with non-PMSI loans are treated the same as debtors with PMSI loans and receive the full benefit of a fresh start through chapter 13 proceedings.

Many consumers with paid-off vehicles have accumulated equity and can use their vehicles as collateral to secure loans from car title lenders as well as traditional financial institutions. Unlike home ownership, which has declined since the Great Recession,214 most Americans own an automobile.215 Over 284

million vehicles are owned by U.S. residents,216 and most were purchased as used.217 That means the automobile is the one asset most adults own that can easily be used as collateral to get a non-PMSI loan.218

Title lenders know the automobile is the single most valuable asset that adults own, and that explains how these lenders have expanded over the last two decades into a billion-dollar industry that continues to grow.219 Moreover, an increasing number of traditional banks and finance companies offer loans—nonPMSI loans—to individual debtors that are secured by their motor vehicles.220

In addition to banks and finance companies, fintech companies are now offering their own version of a non-PMSI title loan and are, thereby, expanding the number of debtors who may eventually seek to deduct the car ownership

expense in a chapter 13 case.221 For example, Yendo, Inc., has a digital platform that uses artificial intelligence to issue “secured credit cards,” that is, revolving lines of credit secured by consumers’ existing vehicles.222 The consumer borrower retains possession of their vehicle and is allowed to use the credit card to make purchases or cover expenses.223 Yendo perfects its lien in the consumer’s vehicle by filing the same required paperwork as a car title lender.224

One can soon expect a bankruptcy trustee to object to fintech secured debts qualifying as a car ownership expense because a few debtors with Yendo secured debts have already filed for bankruptcy relief.225 Borrowers with such debts can nevertheless argue that a purchase-money requirement is doctrinally unsound for debtors performing the Means Test calculation. Like a debtor with a car title loan or a bank-issued non-PMSI loan, a consumer borrower with a Yendo secured credit card does not incur debt to purchase the vehicle but must nevertheless make periodic payments to avoid repossession of the vehicle.226 The Code focuses on whether the debtor has loan or lease payments associated with retaining the vehicle—not on whether the credit extension financed the vehicle’s acquisition.227 Accordingly, a chapter 13 debtor with asset-based secured debt should, under a proper reading of section 707(b)(2)(A)(ii), have an “applicable” vehicle ownership expense and should be permitted to deduct the standardized ownership amount in the Means-Test calculation.

Because an increasing number of individuals are incurring non-PMSI debts secured by their vehicles,228 debtors who eventually need to file for bankruptcy relief should not be disadvantaged just because their vehicles are secured by nonPMSI loans. As previously explained in detail,229 no justifiable reason exists to deny the car ownership expense deduction, especially since equality of treatment is already accorded to lenders with both PMSI and non-PMSI loans.230

Equality of treatment ought to be accorded to debtors with non-PMSI loans. Chapter 13 debtors with non-PMSI loans securing their vehicles should enjoy the full benefit of the fresh start just like debtors with PMSI auto loans. This argument is sound, especially given the fact that consumer debtors legally used the equity that is available to them, and most debtors do not know, at the time they sign non-PMSI loan contracts, that non-bankruptcy laws are stacked in the lenders’ favor.231

Imagine that, after an emergency room visit, Dan and Mary took out a title loan on their ten-year-old minivan to cover medical bills. If a bankruptcy court rejects their car ownership expense deduction based on a technicality—their loan was a non-PMSI—the couple’s chapter 13 payments could increase by $300 per month because their disposable income would dramatically increase under the Means Test. Dan and Mary would most likely be forced to struggle making payments for the duration of the plan and miss plan payments, or even worse, be forced to surrender their means of getting to and from work.

Whether consumers obtain a non-PMSI loan from a car title lender, a traditional bank, or a fintech company, the loan may not solve their financial

problems and, therefore, a chapter 13 bankruptcy proceeding should be a viable option. Their ability to get a fresh start should be the same as debtors with PMSI auto loans. Like title lenders and auto finance lenders, consumers with nonPMSI loans should also benefit from the primary goals of the federal bankruptcy system. Therefore, Congress should amend the Code to allow debtors with car title loans, as well as other non-PMSI loans, to take the car ownership expense deduction and receive the full fresh start Congress intended for them.

--- FOOTNOTES ---

ABSTRACT

* Creola Johnson ([email protected]), Presidents’ Club Professor of Law, The Ohio State University, Michael E. Moritz College of Law. Thanks to my mentor, Professor Emeritus Patrick Bauer, for helpful feedback.

TABLE OF CONTENTS

I. DEBTORS WITH AUTO TITLE LOANS AND OTHER

NON-PURCHASE-MONEY AUTO LOANS ARE DENIED A DEDUCTION FOR IRS STANDARD CAR OWNERSHIP COSTS .............. 167

II. THE SUPREME COURT’S DECISION IN RANSOM AND CANONS OF STATUTORY INTERPRETATION WOULD PERMIT DEDUCTION OF A CAR OWNERSHIP EXPENSE ......................... 178

III. CONGRESS MAY NEED TO AMEND BAPCPA TO ACCORD THE SAME TREATMENT TO DEBTORS WITH PMSI AND NON-PMSI LOANS .............................................................................. 184

INTRODUCTION

1 In re Traylor, 595 B.R. 419, 420 (Bankr. D. Utah 2019). The stated interest rate is based on compounding

interest at a monthly rate of 9.9%.

2 Id. (indicating that the debtor had signed a title loan agreement and stating that Check City was listed as

the lienholder on the vehicle’s certificate of title).

3 Id. 4 See id. at 421; see also Berliner v. Pappalardo (In re Puffer), 674 F.3d 78, 82 (1st Cir. 2012) (stating that

“[t]he fundamental purpose undergirding Chapter 13 is to allow a debtor to pay his creditors over time”).

5 See 11 U.S.C. § 707(b)(2)(A)(ii)(I); 11 U.S.C. § 1325(b)(2)–(3). 6 In re Traylor, 595 B.R. at 421–22. 7 See id. at 420–21 (Bankr. D. Utah 2019); see also Creola Johnson, Grand Theft Auto 2.0: Bankruptcy Courts Allow Auto Title Lenders to Ride Off in Consumer Debtors’ Vehicles and Rip Off the Cash Payout Owed to Unsecured Creditors, 97 AM. BANKR. L.J. 542, 558 (2023) (“To perfect an interest in a motor vehicle owned by an individual, the secured party [including a car title lender] notes its interest on the vehicle’s certificate of title and then files the certificate with the state’s bureau or department of motor vehicles.”).

8 In re Traylor, 595 B.R. at 421.

9 See Trustee’s Objection to Confirmation and Recommendation of Dismissal Under 1307(c) if Unable to Resolve at 1, In re Traylor, (Bankr. D. Utah 2019) (No. 18-23314); In re Traylor, , 419–20 (Bankr. D. Utah 2019).

10 In re Traylor, 595 B.R. at 425 (finding that “non-purchase money loans, such as title loans, are not an

applicable monthly expense specified under the IRS Local Standards”).

11 Id. at 421. 12 See Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 68 (2011). 13 See id. 14 See In re Litton, 655 B.R. 101, 107 (Bankr. W.D. La. 2023) (acknowledging that courts are divided over whether a debtor can deduct a car ownership expense for a non-purchase-money loan secured by an interest in the debtor’s vehicle but stating that the majority view is that a debtor with such a loan cannot take the deduction).

15 Johnson, supra note 7, at 572. 16 Title lenders, as secured creditors, have the right to repossess the collateral after the debtor’s default. See U.C.C. § 9-609(b) (AM. L. INST. & UNIF. L. COMM’N 2022) (allowing a secured party to conduct a repossession, via self-help, if it can be done without breaching the peace).

17 For a full discussion of cases that deny the deduction of ownership costs arising from non-PMSI loans,

see infra notes 79–121 and accompanying text. 18 See 11 U.S.C. § 707(b)(2)(A)(ii)(I). 19 See infra Section II.B–C. 20 See infra notes 79–121 and accompanying text. 21 See supra notes 1–11 and accompanying text (discussing the case filed by the Traylors as illustrative of

the anti-deduction cases).

22 In re Traylor, , 421, 427 (Bankr. D. Utah 2019). 23 See id. at 420; Objection to the Trustee’s Motion to Dismiss for Non-compliance with Confirmation Order & Motion to Modify Chapter 13 Plan & Request for Attorney’s Fees & Costs at 2 , In re Traylor, (Bankr. D. Utah 2019) (No. 18-23314), ECF No. 65 [hereinafter “Traylors’ Objection to Trustee’s Motion to Dismiss”].

24 The average age of vehicles owned by U.S. consumers is 12.6 years. Paul McCarthy, Opinion, The Automotive Aftermarket Can Tell Economists a Lot About the American Consumer, NEWSWEEK (May 8, 2025, at 07:30 ET), https://www.newsweek.com/automotive-aftermarket-can-tell-economists-lot-about-americanconsumer-opinion-2069176 (stating that older vehicles are more costly to maintain and repair and that, in 2024, U.S. consumers “spent more than $400 billion on light vehicle repairs and maintenance”).

25 See, e.g., Katarina A. Essenmacher & Henry A. Callaway, Too Broke to File Bankruptcy: Why We Need the Alabama Bankruptcy Assistance Project, 83 ALA. LAW. 400, 402 (2022), (reporting that of the Alabama

residents who file for chapter 13 relief, roughly half of those cases failed, “mostly because the debtors cannot make their plan payments”).

26 See Traylors’ Objection to Trustee’s Motion to Dismiss, supra note 23, at 1. 27 See id.; infra notes 173–78 and accompanying text (discussing the trustee’s attempt to have the Traylors’

case dismissed after they missed several payments for various reasons).

28 See Bankruptcy Abuse Prevention and Consumer Protection Act, Pub. L. No. 109-8, 119 Stat. 23 (2005). 29 See infra notes 168–81 and accompanying text. 30 See infra notes 168–81 and accompanying text (explaining that because title lenders obtain perfected security interests in a debtor’s vehicle, such perfection means that the debtor must make payments to maintain ownership of the vehicle and, therefore, the loan is a car ownership expense).

31 See infra Section II.C. 32 See infra notes 84–98 and accompanying text (discussing case where debtors were not allowed to deduct

a car ownership expense for non-PMSI loans).

33 See infra Section III.A.

I. DEBTORS WITH AUTO TITLE LOANS AND OTHER NON-PURCHASE-MONEY AUTO LOANS ARE DENIED A DEDUCTION FOR IRS STANDARD CAR OWNERSHIP COSTS

34 See infra Section III.C. 35 See infra Section IV.A–D. 36 See infra Section IV.D. 37 See infra Section IV.C. (explaining the need for a financial cushion built into a chapter 13 plan to cover

vehicle repairs).

38 For a full discussion, see infra Section II.C. 39 See infra Section II.C. 40 See, e.g., In re Sires, 511 B.R. 719, 721–25 (Bankr. S.D. Ga. 2014) (holding that the deduction was not available to a debtor who had obtained a non-PMSI loan from Wells Fargo Bank); Grégoire Legrand, OneMain Financial: Lending to the Non-Prime Economy, MARKETSCREENER (July 7, 2025, at 02:51 ET), https://www.marketscreener.com/quote/stock/ONEMAIN-HOLDINGS-INC-25209977/news/OneMain-

Financial-Lending-to-the-Non-Prime-Economy-50442352/ (stating that OneMain Financial issues several types of loans to credit-risky borrowers, including personal loans with fixed interest rates and loans secured by a vehicle’s title).

41 See, e.g., In re Litton, , 102–08 (Bankr. W.D. La. 2023) (denying the deduction where

debtors obtained a personal loan by using their vehicle as collateral).

42 See infra notes 82–124 and accompanying text. 43 See infra notes Section II.B.–C. 44 Car title loans are extremely “high cost, high risk loans targeting cash strapped American consumers.” Midwest Title Loans, Inc. v. Mills, 593 F.3d 660, 662 (7th Cir. 2010) (quoting JEAN ANN FOX & ELIZABETH GUY, CONSUMER FED’N OF AM., DRIVEN INTO DEBT: CFA CAR TITLE LOAN STORE AND ONLINE SURVEY 1 (2005 .

45 See, e.g., id.; Jim Hawkins, Credit on Wheels: The Law and Business of Auto-Title Lending, 69 WASH. & LEE L. REV. 535, 541–42 (2012); Nathalie Martin & Ozymandias Adams, Grand Theft Auto Loans: Repossession and Demographic Realities in Title Lending, 77 MO. L. REV. 41, 47–48 (2012).

46 See Johnson, supra note 7, at 555. 47 See id. 48 See id.

49 CFPB, CONSUMER RESPONSE ANNUAL REPORT: JANUARY 1 – DECEMBER 31, 2023 at 54 (2024) (stating that consumers complained about various alleged unlawful practices, including title lenders repossessing their vehicles without notice).

50 See, e.g., CAL. DEP’T OF BUS. OVERSIGHT, NATIONAL FINANCIAL INSTITUTE SANCTIONS AND LEGAL

ACTIONS, (2019) (reporting about the high level of repossession by title lender Fast Money in California).

51 Ann Baddour & Steve Wells, Opinion, The Agency That Protects You from Predatory Lenders Is Under ET),

Attack, https://www.houstonchronicle.com/opinion/outlook/article/student-loans-predatory-consumer-protectionscotus-18431242.php.

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52 See U.S. DEP’T OF DEF., REPORT ON PREDATORY LENDING PRACTICES DIRECTED AT MEMBERS OF THE ARMED FORCES AND THEIR DEPENDENTS 16 (Aug. 9, 2006), https://apps.dtic.mil/sti/pdfs/ADA521462.pdf (finding that “[t]he high cost and risk of car title loans traps borrowers in repeated loan renewals in order to keep from losing essential transportation and key family assets”).

53 See John Warner Defense Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364, 120 Stat. 2083 (2006) (codified at 10 U.S.C. § 987); see also Limitations on Terms of Consumer Credit Extended to Service Members and Dependents, 72 Fed. Reg. 50580 (Aug. 31, 2007) (codified at 32 C.F.R. pt. 232) (explaining that the existing rules under the MLA “do not effectively provide the protections intended to be afforded Service members and their families”). Military personnel also have access to personal financial managers to help those struggling with debts. See Personal Financial Managers (PFMs), Financial Counselors (PFCs), and Legal Help, MIL. CONSUMER, https://www.militaryconsumer.gov/spend/getting-started/personal-financial-managerspfms-other-financial-counselors-and-legal-help (last visited July 24, 2025).

54 See 10 U.S.C. § 987(a)–(b) (prohibiting extensions of “consumer credit” to covered members of the military and their dependents that “impose an annual percentage rate of interest greater than 36 percent”); see also Creola Johnson, Congress Protected the Troops: Can the New CFPB Protect Civilians from Payday Lending?, 69 WASH. & LEE L. REV. 649 (2012) (analyzing a federal law passed to protect military personnel from payday loans, title loans, and other costly credit transactions and arguing that a similar law should be passed to protect all consumers from the negative consequences of payday loans).

55 10 U.S.C. § 987(e)(5).

56 See, e.g., Veterans and Consumers Fair Credit Act, H.R. 5050, 116th Cong. (2019) (proposing legislation that would extend the MLA to all consumers by capping interest rates at thirty-six percent on payday, car title, and other loans).

57 See Jake Pearson, DOGE Aide Who Helped Gut CFPB Was Warned About Potential Conflicts of Interest, PROPUBLICA (May 7, 2025, at 06:00 ET), https://www.propublica.org/article/cfpb-gavin-kliger-dogeconflict-of-interest-consumer-financial-protection-bureau.

58 Christopher K. Friedman, Marci V. Kawski & Jakob Seidler, The State of the CFPB During a Fraught 2025), is

Transition https://www.huschblackwell.com/getpdf.aspx?type=insight&show=97348&format=pdf (stating unclear whether the CFPB is a functioning administrative agency”) (emphasis in original).

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59 See id. (stating that the CFPB intends to proceed in a case alleging that MoneyLion “violated the Military

Lending Act (MLA) and engaged in deceptive acts or practices”).

60 See Johnson, supra note 7, at 571–73. 61 See id. at 576–87. 62 See id. at 587–88 (concluding that “TitleMax and other title lenders have effectively used pawnbroker laws in Alabama and Georgia as smoke and mirrors to detract judges’ attention from the plain language of the Bankruptcy Code,” thereby causing debtors to forfeit ownership of their vehicles and to lose their fresh start).

63 See, e.g., infra notes 82–124 and accompanying text. 64 See id.; see, e.g., In re King, 497 B.R. 161, 163 (Bankr. N.D. Ga. 2013). 65 See Ransom v. FIA Card Servs., N.A., , 71 (2011) (quoting H.R. REP. NO. 109-31, pt. 1, at

2 (2005 .

66 See id. at 65 (“The [means] test supplants the pre-BAPCPA practice of calculating debtors’ reasonable

expenses on a case-by-case basis, which led to varying and often inconsistent determinations.”).

67 See id. 68 See 11 U.S.C. § 1325(b)(3) (referencing subparagraphs (A) and (B) of section 707(b)(2) for purposes of

calculating the debtor’s disposable income under a chapter 13 plan).

69 See 11 U.S.C. § 707(b)(2)(A)(ii)(I). 70 See infra notes 131–40 and accompanying text. 71 Ransom, 562 U.S. at 66 n.2 (stating that the National and Local Standards referenced in section 707(b)(2)(A)(ii)(I) are tables prepared by the IRS that list standardized expense amounts for basic necessities). IRS, https://www.irs.gov/businesses/small-businesses-self-

72 Local Standards: Transportation,

employed/local-standards-transportation (last visited Jan. 31, 2026).

73 Id. 74 U.S. CTS., Chapter 13 Calculation of Your Disposable Income (Official Form 122C–2),

https://www.uscourts.gov/sites/default/files/form_b122c-2.pdf (last visited July 27, 2025).

75 Id. (emphasis added). 76 See In re Alexander, No. 12-40408-jwv13, 2012 WL 3156760, at *3 (Bankr. W.D. Mo. Aug. 1, 2012). 77 See id. 78 See id. at *2 (stating that the plan was not filed in good faith but holding that because the title loan was “taken out for a purpose unrelated to the ownership or operation of a vehicle,” it was not a valid vehicle ownership expense); see also In re Wareham, 553 B.R. 875, 880 (Bankr. D. Utah 2016) (“Under § 1325(a)(7), Courts have authority to deny confirmation of a chapter 13 plan if the petition is not filed in good faith, which is a less drastic step than a request for dismissal or conversion under § 1307(c).”).

79 In re Alexander, 2012 WL 3156760, at *1. 80 Id. 81 See Ch. 13 Plan & Plan Summary at 4, In re Alexander, No. 12-40408-jwv13 (Bankr. W.D. Mo. Feb. 7,

2012), ECF No. 2 [hereinafter “Alexander Ch. 13 Plan”].

82 In re Alexander, 2012 WL 3156760, at *2. 83 Id. at *1.

84 Id. 85 See id. at *3. 86 Id. at *2. 87 See id. 88 See id. at *3. 89 See id. at *1 n.4 (providing an approximate amount because plan payments had not been readjusted

upward for the trustee’s fees).

90 See id. at *1. 91 See id. at *2–3. The court relied primarily on provisions of the Internal Revenue Manual stating that ownership expenses are allowed for “purchase or lease” payments, and reasoned that the more specific terms should govern over more general references to “loan” payments. Id. at *3. This reasoning, however, assumes— rather than demonstrates—that Congress intended the Manual’s internal enforcement guidance to define eligibility for the statutory ownership deduction.

92 See id. (rejecting the debtor’s argument that the court “is not bound by the I.R.S. manual”).

93 See id. (discussing the debtors’ lack of good faith but ultimately deciding that ownership expense “refers solely to expenses related to the purchase or lease of a vehicle”); see also Marrama v. Citizens Bank of Mass., 549 U.S. 365, 375 n.11 (2007) (“Because dismissal is harsh . . . the bankruptcy court should be more reluctant to dismiss a petition . . . for lack of good faith than to reject a plan for lack of good faith under Section 1325(a).”) (quoting In re Love, 957 F.2d 1350, 1356 (7th Cir. 1992 . 94 See In re Alexander, 2012 WL 3156760, at *1. 95 See Alexander Ch. 13 Plan, supra note 81, at 4. 96 In re Alexander, 2012 WL 3156760, at *1. 97 See id. at *4. The court highlighted the possibility that the loan was not obtained in good faith: “The necessity of the loan is questionable, inasmuch as the Debtors appear to have had other liquid assets on the date of filing, and the Debtors’ conduct doesn’t reflect well on their credibility, inasmuch as they represented to the creditor that they had no intention of filing bankruptcy when they obtained the loan.” Id.

98 See, e.g., In re Litton, , 103 (Bankr. W.D. La. 2023); In re Traylor, , 419–20,

425 (Bankr. D. Utah 2019); In re Sires, 511 B.R. 719, 720 (Bankr. S.D. Ga. 2014).

99 In re Carroll, No. 12-41350-JDP, 2013 Bankr. LEXIS 3072, at *5–6 (Bankr. D. Idaho Apr. 15, 2013).

100 Id. at *1, *5. 101 Id. at *3. 102 Id. at *4. 103 In re Traylor, 595 B.R. at 425 n.39. 104 Id. at 423 (citing Ransom v. FIA Card Servs., N.A., , 66 n.2 (2011 . 105 Id. (quoting Ransom v. FIA Card Servs., N.A., , 67 (2011 . 106 See id. 107 See Finance Companies – G.20: Owned and Managed Receivables (Flows), BD. OF GOVERNORS OF THE FED. RSRV. SYS., https://www.federalreserve.gov/releases/g20/hist/fc_hist_c_flows.html (last visited July 27, 2025) (collecting data on owned and securitized motor vehicle loans from 1971 onward); see also Finance Companies – G.20: Owned and Managed Receivables Outstanding, BD. OF GOVERNORS OF THE FED. RSRV. SYS., https://www.federalreserve.gov/releases/g20/current/default.htm (last visited July 27, 2025) (collecting 5-year data on motor vehicle loans and leases). The first indication that some federal regulators were aware of car title loans and their “cousin” payday loans was in a press release, which was issued nearly two decades after the Federal Reserve Board started collecting data on secured financing for automobile purchases. See Press Release, Off. of the Comptroller of the Currency & Off. of Thrift Supervision, Agencies Urge Banks and Thrifts to Evaluate Risks with Vendors Engaged in Practices Viewed as Abusive to Customers (Nov. 27, 2000), https://www.occ.gov/news-issuances/news-releases/2000/nr-ia-2000-88.html (indicating that OCC and OTS

“alerted national banks and federal thrifts that the agencies have significant safety and soundness, compliance and consumer protection concerns with banks and thrifts entering into contractual arrangements with vendors to fund so-called ‘title loans’ and ‘payday loans”‘).

108 See In re Traylor, 595 B.R. at 423. 109 See In re Litton, (Bankr. W.D. La. 2023). 110 Id. at 102 (stating that loan had interest rate of 9.25% per annum and that debtor had agreed to repay the

loan in 75 biweekly installment payments).

111 See id. at 107. 112 Id. at 104–05. 113 The Federal Reserve Board’s reported data includes a category for “other” in its section on consumer lending, but “other” includes “student loans, personal cash loans, mobile home loans, and loans to purchase other types of consumer goods such as appliances, apparel, boats, and recreation vehicles.” Finance Companies – G.20: Owned and Managed Receivables Outstanding, supra note 107, at n.7.

114 See In re Litton, 655 B.R. at 104. 115 Id. at 105–06 (rejecting debtors’ argument that the “court should refrain from considering the Collections Financial Standards because the Standards were created by the IRS to help determine a taxpayer’s ability to pay a delinquent tax liability, not to interpret the Bankruptcy Code”).

II. THE SUPREME COURT’S DECISION IN RANSOM AND CANONS OF STATUTORY INTERPRETATION WOULD PERMIT DEDUCTION OF A CAR OWNERSHIP EXPENSE

116 See, e.g., In re Traylor, , 422–24 (Bankr. D. Utah 2019) (discussing Justice Kagan’s consultation of IRS sources not referenced in the Code and Justice Scalia’s criticism of her consulting such sources).

117 Ransom v. FIA Card Servs., N.A., , 64 (2011). 118 See 11 U.S.C. § 707(b)(2)(A)(ii) 119 Ransom, 562 U.S. at 69–70. 120 Id. at 70.

121 Id. at 79. 122 See, e.g., In re Alexander, No. 12-40408-jwv13, 2012 WL 3156760, at *4 (Bankr. W.D. Mo. Aug. 1, 2012) (questioning the necessity of the title loan–not the vehicle itself–because “[d]ebtors appear to have had other liquid assets on the date of filing” if they needed to pay for an expenditure).

123 See Ransom, 562 U.S. at 79. 124 Id. at 72 (emphasis added). 125 Id. (emphasis added). 126 Id. at 72–73. (emphasis added).

127 In re Feagan, 549 B.R. 811 (Bankr. N.D. Ga. 2016). 128 In re Lopez, 574 B.R. 159 (Bankr. E.D. Cal. 2017). 129 See Feagan v. Townson, 572 B.R. 785, 791 (N.D. Ga. 2016). 130 See In re Lopez, 574 B.R. at 162. 131 See id. at 168–73. 132 Id. at 172 133 See id. at 177–78. 134 Id. at 177. 135 See id. at 166–67. 136 Id. at 166 (emphasis added). 137 See id.

138 Id. at 184. 139 See id. 140 See id. at 174. 141 See id. 142 See In re Alexander, No. 12-40408-jwv13, 2012 WL 3156760, at *1 (Bankr. W.D. Mo. Aug. 1, 2012);

Alexander Ch. 13 Plan, supra note 81, at 4.

143 In re King, 497 B.R. 161, 163 (Bankr. N.D.Ga. 2013). 144 In re Lopez, 574 B.R. at 177. 145 Id. at 176. 146 See In re Orexigen Therapeutics, Inc., 990 F.3d 748, 755 (3d Cir. 2021) (stating that similarly situated

creditors should “enjoy an equality of distribution from a debtor absent a compelling reason”).

147 See Hurlburt v. Black, 925 F.3d 154, 158 (4th Cir. 2019). 148 See, e.g., In re Lopez, 574 B.R. at 176 (stating that “treating both types of encumbrances [PMSI and non-PMSI] the same way furthers the Congressional purpose of permitting a debtor’s retention of an encumbered car.”).

149 See 11 U.S.C. § 506(a) (defining the extent of an allowed secured claim); 11 U.S.C. § 1325(a)(5) (governing how a chapter 13 debtor’s plan must provide for payments on a secured claim absent the consent of the holder of the claim). For a full comparison of the rights of title lenders and purchase-money lenders in chapter 13, see Johnson, supra note 7, at 596–99 (comparing the rights of title lenders to that of auto financing lenders and arguing that bankruptcy courts should not interpret laws at issue in a manner that gives title lenders greater rights than auto financing lenders).

150 Secured creditors have the right to repossess after the debtor’s default. See U.C.C. § 9-609(b) (AM. L. INST. & UNIF. L. COMM’N 2022) (allowing a secured party to conduct a repossession, via self-help, if it can be done without breaching the peace). However, because of the automatic stay, title lenders must seek court approval by showing cause, such as lack of payment, to repossess the car. See, e.g., In re Schwalb, 347 B.R. 726, 760 (Bankr. D. Nev. 2006) (rejecting lender’s argument that its car title loan qualified as a pawnshop lien under Nevada law and holding that lender held only a perfected security interest in debtor’s vehicle and, thus, could only have its debt paid as a secured claim and not a right to lift the stay).

151 See, e.g., infra notes 173–78 and accompanying text (discussing the Traylor case and how the debtors missed several chapter 13 plan payments). Pro-deduction cases facilitate the debtor’s fresh start in chapter 13 cases by allowing the debtor to deduct the car ownership expense. See, e.g., In re Lopez, 574 B.R. at 176 (stating

that “treating both types of encumbrances [PMSI and non-PMSI] the same way furthers the Congressional purpose of permitting a debtor’s retention of an encumbered car”).

152 See infra notes 173–78 and accompanying text (discussing the trustee’s attempt to get the chapter 13

case filed by the debtors in Traylor dismissed).

153 In re Litton, (Bankr. W.D. La. 2023). 154 Id. at 102 155 Id. at 107; Brief in Support of Confirmation of Chapter 13 Plan at 27, In re Litton, (Bankr. W.D. La. July 26, 2023) (“The Trustee’s stance would establish a troubling precedent, enabling procedural technicalities to eclipse the Code’s fundamental protective purpose and unjustly penalizing untold future debtors seeking relief.”).

156 In re Traylor, , 421 (Bankr. D. Utah 2019). 157 See Objection to Trustee’s Motion to Dismiss for Non-compliance with Confirmation Order & Motion to Modify Chapter 13 Plan & Request for Attorney’s Fees & Costs at 1, In re Traylor, (Bankr. D. Utah Dec. 21, 2021) (No.18-23314), ECF. No. 65.

158 See id. 159 See id. 160 Ransom v. FIA Card Servs., N.A., , 79 (2011).

III. CONGRESS MAY NEED TO AMEND BAPCPA TO ACCORD THE SAME TREATMENT TO DEBTORS WITH PMSI AND NON-PMSI LOANS

161 See supra Section II.B. 162 See Marianne B. Culhane & Michaela M. White, Catching Can-Pay Debtors: Is the Means Test the Only Way?, 13 AM. BANKR. INST. L. REV. 665, 682 (2005) (“The chapter 13 trustees repeatedly made their concerns known to Congress . . . . As in Lamie, ‘[t]his alert, followed by the Legislature’s nonresponse, should support a presumption of legislative awareness and intention.’”) (quoting Lamie v. United States Trustee, 540 U.S. 526, 541 (2004 .

163 See id. 164 See In re Traylor, , 427 (Bankr. D. Utah 2019). 165 In re Lopez, 574 B.R. 159, 171 (Bankr. E.D. Cal. 2017).

166 Ransom v. FIA Card Servs., N.A., , 78 (2011). 167 See id. 168 The text at issue does not dictate what type of loan a debtor must have. See supra notes 73–82 and

accompanying text (analyzing section 707(b)(2)(A)(ii)(I) along with IRS tables for standard deductions).

169 In re Lopez, 574 B.R. at 167–68. 170 See, e.g., id. (“The Standards as used by . . . IRS [agents are] not how the Code contemplates their use . . . . A court using the Standard amounts in the same manner they are used by the IRS would nullify this statute by restoring judicial discretion.”).

171 See Hildebrand v. Kimbro (In re Kimbro), 389 B.R. 518, 528–29 (B.A.P. 6th Cir. 2008), rev’d and

remanded on other grounds, 409 F. App’x 930 (6th Cir. 2011).

172 Id. at 527–28 (emphasis omitted). 173 See, e.g., In re Carroll, No. 12-41350-JDP, 2013 Bankr. LEXIS 3072, at *4–5 (Bankr. D. Idaho Apr. 15, 2013) (observing that “[d]ebtors’ vehicles were at one time lien-free, and [d]ebtors had no traditional ‘car payments. . . .’” and that “on more than one occasion, [d]ebtors incurred short-term, high interest loans by granting a security interest in their vehicles to a lender”).

174 Ransom v. FIA Card Servs., N.A., , 79 (2011) (reasoning that the standard deductions allow

debtors to afford essential items).

175 See supra Section II.C. (discussing opinions where courts relied on IRS manuals and guidelines about

collection data to deny deductions for ownership expenses to debtors with non-PMSI loans).

176 W. HOMER DRAKE, JR., PAUL W. BONAPFEL & ADAM M. GOODMAN, CHAPTER 13 PRACTICE & PROCEDURE § 8:40 (2025) (citing several opinions post-Ransom that have not allowed debtors to take a $200 older vehicle expense deduction).

177 See In re Luedtke, 508 B.R. 408, 414 (B.A.P. 9th Cir. 2014) (“If Congress had meant for bankruptcy courts to consider the entirety of IRS policy and procedure in determining which expenses should be considered reasonably necessary for disposable income purposes, Congress could have provided in the Code that a debtor’s monthly expenses shall be determined in the same manner that IRS collection employees determine allowable expenses for purposes of assessing a delinquent taxpayer’s ability to pay, or something along those lines.”).

178 See, e.g., In re Addison, 580 B.R. 24, 35 (Bankr. E.D.N.Y. 2018).

179 See, e.g., In re DeLuna, No. 11-53444-C, 2012 WL 4679170, at *1–4 (Bankr. W.D. Tex. Oct. 2, 2012) (objecting to the debtors’ deduction of a car ownership expense where the vehicle in question was subject to an auto lease obtained by the parents of the debtor-husband).

180 See Drury v. United States Trustee (In re Drury), No. CC-15-1441-KuFD, 2016 WL 4437555, at *1–2 (B.A.P. 9th Cir. Aug. 23, 2016) (summarizing the bankruptcy court’s several bases for dismissing the debtor’s chapter 7 case for abuse under section 707(b .

181 Id. at *6 (“[D]ebtors who make monthly car loan payments or car lease payments as a prerequisite to their continued use of the vehicle may claim this expense under the means test even if they do not own the vehicle.”); see also In re DeLuna, 2012 WL 4679170, at *4 (allowing debtors to make auto lease payments even though they were not co-obligors on the auto lease obtained by the parents of the debtor-husband); In re Demonica, 345 B.R. 895, 901–03 (Bankr. N.D. Ill. 2006) (holding that debtor was entitled to deduct ownership costs for a vehicle he used but did not own and on which he was not obligated to make loan payments).

182 See supra notes 55–57 and accompanying text.

183 See supra Section II.C. 184 See Johnson, supra note 7, at 597. 185 The average time to pay off a car is between five and six years. See Maggie Davis, Average Car Payment and Auto Loan Statistics: 2026, LENDINGTREE (Dec. 28, 2025), https://www.lendingtree.com/auto/debtstatistics/ (“The average auto loan term is 69.1 months for new cars, 67.2 months for used cars and 35.9 months for leased vehicles, according to Experian.”); see also Karen Axelton, What’s the Average Length of a Car Loan?, EXPERIAN: AUTO LOANS (Oct. 3, 2024), https://www.experian.com/blogs/ask-experian/what-is-theaverage-length-of-a-car-loan/ (“The average car loan term is 68.48 months for a new car and 67.41 months for a used car, or close to six years, according to Experian data.”). In several of the cases discussed in this Article, the debtor’s vehicle was at least 8 years old. See supra Section II.C.; In re King, 497 B.R. 161, 163–64 (Bankr. N.D. Ga. 2013) (denying, in a 2013 chapter 13 case, the deduction to a debtor who had secured a title lien on a 2003 Mitsubishi vehicle).

186 Cf. Robert Ferris, Car Repairs Are Getting More Expensive. Here’s Why, CNBC (Feb. 11, 2024, at 08:00 ET) https://www.cnbc.com/2024/02/11/car-repairs-are-getting-more-expensive-heres-why.html (discussing various reasons for increasing repair costs, including “heavier, more complex vehicles, new materials and manufacturing methods, a worsening dearth of talented technicians and pandemic-induced supply shortages”). 187 See Henry J. Sommer, Trying to Make Sense Out of Nonsense: Representing Consumers Under the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005”, 79 AM. BANKR. L.J. 191, 198 (2005) (disallowing the ownership expense deduction would leave debtors “with no funds to replace an old car needed to continue employment, a result that would certainly not enhance either repayment of creditors or a fresh start”).

188 This preservation of cushion argument is based a pre-BAPCPA academic study by Professors Marianne Culhane and Michaela White in an article published in 1999 about the impact of the proposed means test on debtors when various IRS standard deductions are either allowed or disallowed. See Marianne B. Culhane & Michaela M. White, Taking the New Consumer Bankruptcy Model for a Test Drive: Means-Testing Real Chapter 7 Debtors, 7 AM. BANKR. INST. L. REV. 27, 28 (1999). For years prior to BAPCPA’s passage, versions of bankruptcy reform bills had been debated and had included various deductions, including a car ownership expense deduction, for purposes of calculating the proposed means test. See id. at 34. This study showed that denial of a car ownership expense deduction nearly doubled the number of debtors who are failing the proposed means test and increased the likelihood that debtors in chapter 13 would fail to complete their plans. See id. at 46.

189 See Heather McGivern, An Above-Median Debtor Can Make Vehicle Planning Decisions After Ransom and Lanning, 30 AM. BANKR. INST. J. 31, 31 (2011) (discussing the benefits of a debtor purchasing a vehicle prior to filing bankruptcy after the Supreme Court held, in Ransom, that a debtor cannot take the car ownership expense deduction if the debtor’s vehicle is lien-free).

190 The majority of chapter 13 debtors fail to complete their plan payments and, therefore, do not receive a discharge of their debts. Pamela Foohey et al., ‘‘No Money Down” Bankruptcy, 90 S. CAL. L. REV. 1055, 1057 (2017) (“More than 95% of people who file under chapter 7 receive a discharge. In contrast, a mere one-third of chapter 13 cases end in a completed repayment plan such that debtors receive a discharge.”).

191 See Traylors’ Objection to Trustee’s Motion to Dismiss, supra note 23. 192 See In re Traylor, No. 18-23314 (Bankr. D. Utah Jan. 21, 2022), ECF. No. 70 (denying the trustee’s

motion to dismiss the Traylors’ case).

193 Ford Motor Credit Co. v. Dale (In re Dale), 582 F.3d 568, 573 (5th Cir. 2009). 194 Id. (“Because the [Bankruptcy] Code does not define ‘purchase-money security interest’ and that term does not have a common ordinary meaning, we agree with the great majority of courts to address this issue that state UCC law must be used to define the hanging paragraph’s phrase ‘purchase-money security interest.’”). The UCC recognizes two types of PMSI transactions: (1) where a seller of goods takes a security interest in (or retains title in) the goods sold to a debtor to secure the unpaid purchase price; and (2) where a lender or other financier extends credit (lends money) to the debtor to enable the debtor to acquire specific goods in which the security interest is retained. U.C.C. § 9-103(a)(1)-(2) (AM .L. INST. & UNIF. L. COMM’N 2022).

195 11 U.S.C. § 522(f) permits consumer debtors to avoid non-PMSI, non-possessory interests in property secured by certain property owned by the debtor if the interests impair the debtor’s exemption in that property. This avoidance power protects consumer debtors from overreaching by non-PMSI lenders. See Cleaver v. Warford (In re Cleaver), 407 B.R. 354, 358 (B.A.P. 8th Cir. 2009) (stating that “legislative history indicates that Congress intended the lien avoidance provisions to protect unsophisticated consumer debtors from overreaching creditors”).

196 See, e.g., 11 U.S.C. § 522(f)(1)(A) (stating that a debtor may “avoid the fixing of . . . a judicial lien,” other than a lien securing a domestic support obligation, if “such lien impairs an exemption to which the debtor would have been entitled”).

197 See, e.g., 11 U.S.C. § 522(f)(1)(B) (stating that a debtor may avoid “a nonpossessory, nonpurchasemoney security interest in any (i) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor”).

198 See, e.g., McCoy v. Rosemont Auto Title Loan (In re McCoy), Ch. 7 No. 05-77220-DHA, Adv. No. 2:06-cv-344, 2006 WL 2868611, at *1 (E.D. Va. Oct. 3, 2006) (upholding bankruptcy court’s ruling that debtor’s vehicle did not count as a tool of the trade and, therefore, she could not avoid title lender’s security interest in her vehicle), aff’d, 219 F. App’x 326 (4th Cir. 2007).

199 See 11 U.S.C. § 522(f)(4)(B) (stating that the term “household goods” excludes “motor vehicle (including a tractor or lawn tractor), boat, or a motorized recreational device, conveyance, vehicle, watercraft, or aircraft”). If one considers all the implications of section 522(f)(2), one can understand why high-cost lenders chose auto title loans as a profitable (billion-dollar industry) of marketing short-term loans to cash-strapped consumers. In other words, title lenders found the one piece of consumer property to take as collateral that can easily be repossessed and sold and enjoys protections such as section 522(f)(2) of the Code.

200 Assocs. Com. Corp. v. Rash, 520 U.S. 953, 956–57 (1997) (“Under the cram down option, the debtor is permitted to keep the property over the objection of the creditor; the creditor retains the lien securing the claim and the debtor is required to provide the creditor with payments, over the life of the plan, that will total the present value of the allowed secured claim, i.e., the present value of the collateral. The value of the allowed secured claim is governed by § 506(a) of the Code.”) (citations omitted).

201 See id. at 957, 961–62. 202 See Ford Motor Credit Co. v. Dale (In re Dale), 582 F.3d 568, 572 (5th Cir. 2009) (“In apparent response to the undesirable effects of this cramdown on car dealers, Congress enacted the hanging paragraph as part of the BAPCPA.”); William C. Whitford, A History of the Automobile Lender Provisions of BAPCPA, 2007 U. ILL. L. REV. 143, 176–77 (discussing language in BAPCPA later codified as the “hanging paragraph,” which was introduced on the House Floor by Senator Abraham of Michigan); Dienna Ching, Does Negative Equity Negate the Hanging Paragraph?, 16 AM. BANKR. INST. L. REV. 463, 463–64 (2008) (discussing debate over whether the hanging paragraph protects a lender’s claim secured by a PMSI from bifurcation and cramdown in chapter 13 case where the claim includes not only the purchase price of a new motor vehicle but also the “negative equity” from a trade-in of the previously owned vehicle).

203 The hanging paragraph states:

For purposes of paragraph (5), section 506 [cramdown] shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day period preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debtor, or if collateral for that debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.

11 U.S.C. § 1325(a). The hanging paragraph is “an unnumbered paragraph following section 1325(a)(9)” of the Code. Drive Fin. Servs., L.P. v. Jordan, 521 F.3d 343, 346 (5th Cir. 2008).

204 Husky Int’l Elecs., Inc. v. Ritz, 578 U.S. 355, 359 (2016) (“When ‘Congress acts to amend a statute, we presume it intends its amendment to have real and substantial effect.’”) (quoting United States v. Quality Stores, Inc., 572 U.S. 141, 148 (2014 .

205 See Assocs. Com. Corp., 520 U.S. at 965; Ford Motor Credit Co. 582 F.3d at 572 (“In apparent response to the undesirable effects of this cramdown on car dealers, Congress enacted the hanging paragraph as part of the BAPCPA.”); Whitford, supra note 202, at 176–77 (discussing language in BAPCPA later codified as the “hanging paragraph,” which was introduced on the House Floor by Senator Abraham of Michigan); Ching, Ching, supra note 202, at 463–64 (discussing debate over whether the hanging paragraph protects a lender’s claim secured by a PMSI from bifurcation and cramdown in chapter 13 case where the claim includes not only the purchase price of a new motor vehicle but also the “negative equity” from a trade-in of the previously owned vehicle); infra text accompanying notes 222–23.

206 See supra notes 76–82 and accompanying text. 207 See supra notes 76–82 and accompanying text. 208 Field v. Mans, 516 U.S. 59, 67 (1995) (quoting Russello v. United States, 464 U.S. 16, 23 (1983 .

209 Ransom v. FIA Card Servs., N.A., , 64 (2011). 210 Id. at 79. 211 Id. 212 Id. 213 See supra Section III.A. (analyzing the Ransom decision). 214 See Home Ownership Rate in the United States, FED. RSRV. BANK OF ST. LOUIS (Dec. 12, 2025, at 10:14 CT), https://fred.stlouisfed.org/series/RHORUSQ156N; Robert R. Callis, Rate of Home Ownership Higher than Before 2023), U.S. https://www.census.gov/library/stories/2023/07/younger-householders-drove-rebound-in-homeownership.html (while home ownership has risen since the pandemic, that rebound is still below the post-recession drop in home ownership).

Pandemic

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(July

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215 See Baylee Bunce, Car Ownership Statistics 2025, CONSUMER AFFAIRS: J. OF CONSUMER RSCH. (July 25, 2024), https://www.consumeraffairs.com/automotive/car-ownership-statistics.html (“A survey conducted in March 2024 found that for individuals between ages 18 and 64, a majority of people in the U.S. own or have access to a car. As many as 74% of people report having a car that they own, but respondents also shared information about their access to other vehicles.”); see also STATISTA, Car Ownership in the U.S. as of September 2025, in VEHICLES IN USE IN THE UNITED STATES 29 (2025) (reporting that 72% of respondents owned their own car).

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(June

2025),

216 See Clara Haverstic, Car Ownership Statistics 2025: New Registrations, Popularity and Costs, MARKETWATCH GUIDES https://www.marketwatch.com/insurance-services/autoinsurance/car-ownership-statistics/ (“There were 284,614,269 registered motor vehicles in the U.S. in 2023, according to the [Federal Highway Administration]. This includes cars, trucks, buses and motorcycles. . . . [Of these,] 279,945,533 vehicles, or 98.4% [] were privately or commercially owned.”); see also Caitlin Cahalan, How Many Cars are in the U.S.? 2025, CONSUMER AFFAIRS: J. OF CONSUMER RSCH. (Feb. 1, 2024), https://www.consumeraffairs.com/automotive/how-many-cars-are-in-the-us.html (noting that in 2022, there were 278,870,463 private and commercial vehicles registered in the United States); STATISTA, Number of Vehicles in Operation in the United States Between 1st Quarter 2018 and Fourth Quarter 2024 (in Millions), in VEHICLES IN USE IN THE UNITED STATES 11 (2025) (reporting that “in the fourth quarter of 2024, there were around 292.3 million vehicles operating on roads throughout the United States”).

217 See STATISTA, supra note 216, at 11 (reporting that “[a]lmost 39.2 million used vehicles changed owners in the U.S. between the fourth quarter of 2023 and the fourth quarter of 2024, while new registrations of vehicles came to about 15.8 million units during that period”).

218 Since the start of the COVID-19 pandemic in 2020, the cost of new vehicles has increased, making them unaffordable for many Americans. Even though used car prices have increased, the value of used cars has risen— they retain their value longer, thereby causing them to have equity. Used car values are expected to remain relatively high due to President Trump’s tariffs on imported vehicles. See generally John M. Vincent, Trump Tariffs: What You Need to Know if You’re Buying a Car, U.S. NEWS & WORLD REP. (Alex Kwanten & Nate Parsons eds., Apr. 22, 2025, at 16:50 ET), https://cars.usnews.com/cars-trucks/advice/trump-tariffs-what-youneed-to-know-if-youre-buying-a-car (detailing the effects of Trump administration tariff policy on the new and used car markets); Nathan Place, Tariffs Add Pressure on Already Stressed Auto Loans, AM. BANKER (Apr. 3, 2025, at 17:10 ET), https://www.americanbanker.com/news/tariffs-add-pressure-on-already-stressed-auto-loans (same).

Public

219 Terri Friedline & Ameya Pawar, Powerful Alternatives to Predatory Lenders: Postal Service Banking ET),

and https://chicago.suntimes.com/2021/3/16/22334197/public-banks-postal-service-bank-financial-servicespredatory-payday-loans-auto-title-loans (stating that payday lending and title loan lenders “extracts about $90 billion from low and moderate income households annually”).

SUN-TIMES

Banks,

14:20

(Mar.

2021,

CHI.

16,

at

220 See, e.g., In re Sires, 511 B.R. 719, 721–25 (Bankr. S.D. Ga. 2014) (denying the ownership expense deduction to a debtor who owned a vehicle secured by a non-PMSI loan from Wells Fargo Bank); Legrand, supra note 40 (stating that one of the nation’s largest personal finance companies issues several types of loans to credit-risky borrowers, including loans secured by a borrower’s vehicle).

221 See Mari Sato, Yendo Using AI to Bridge Gap of Financial Inequality, HOU. CHRON., Jan. 6, 2026, at B10 (describing significant investment in Yendo—a fintech company offering asset-backed credit products— by venture capitalists Mark Cuban and Logan Green).

222 See id.; A Credit Card Built to Move You Forward, YENDO, https://www.yendo.com/ (last visited Feb.

14, 2026).

223 See Sato, supra note 221. 224 See, e.g., Voluntary Petition, In re Arafa, No. 25-08446, (Bankr. M.D. Fla. Dec. 30, 2025), ECF No. 1 (listing Yendo, Inc., as a secured creditor and stating that, as of the petition date, Yendo was owed $9,916 in debt secured by a lien on the debtors’ 2017 Dodge Charger valued at $14,125); supra note 7 (explaining how a lender perfects its security interest in a vehicle secured by a car title loan).

225 The author’s research has uncovered pending bankruptcy cases filed by consumer debtors. See, e.g., Voluntary Petition, supra note 224, at 63 (containing Official Form 122A-2, deducting $662 in box 13a as a ownership deduction expense, and stating in box 13b that debtors’ owed an average monthly payment of $252 to Yendo for a vehicle secured debt owed to Yendo).

226 See, e.g., Complaint ¶¶ 13, 28–59, Sylven vs. E. Recovery Inc., LLC, No. 25-11642 (E.D. Mass. June 5, 2025) (admitting that plaintiff obtained from Yendo a credit card secured by a lien in his vehicle, but alleging that Yendo’s repossession agents unlawfully repossessed his vehicle).

227 See supra Section III (explaining why the Code affords to debtors with non-PMSI loans the ability to

deduct car ownership expenses when performing the Means Test calculation).

CONCLUSION

and Exchange Commission

228 See, e.g., Press Release, GlobalNewswire, Superstar Platforms, Inc Files Registration Statement with the https://www.globenewswire.com/news1, Securities release/2025/05/01/3072511/0/en/Superstar-Platforms-Inc-Filec s-Registration-Statement-with-the-Securitiesand-Exchange-Commission.html (“TitlePal is an innovative, web-based lender that delivers fast, convenient cash loans to individuals with clear auto titles. By harnessing advanced algorithms and integrating with thirdparty systems, the platform ensures seamless verification of applicants’ identity, financial capacity, and vehicle condition. Approved funds are deposited directly into customers’ bank accounts, often within minutes, setting a new standard for efficiency in title lending.”).

2025),

(May

229 See supra Section III.A.–C. 230 See supra Section III.C. Moreover, as explained previously, lenders with PMSI auto loans that satisfy the requirements of the hanging paragraph in section 1325(a) have the added protection of having their loan balances paid in full through the plan. See supra notes 221–26 and accompanying text.

231 See Johnson, supra note 7, at 558. (analyzing UCC and pawnshop laws and how courts are interpreting

in favor of lenders and to the detriment of consumer borrowers).