Ransom v. FIA Card Services, N.A.

PETITIONER:Jason M. Ransom
RESPONDENT:FIA Card Services, N.A., fka MBNA America Bank, N.A.
LOCATION:U.S. Capitol Building

DOCKET NO.: 09-907
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 562 US 61 (2011)
GRANTED: Apr 19, 2010
ARGUED: Oct 04, 2010
DECIDED: Jan 11, 2011

Christopher P. Burke – for the petitioner
Deanne E. Maynard – for the respondent
Nicole A. Saharsky – Assistant to the Solicitor General, Department of Justice, for the United States, as amicus curiae

Facts of the case

Jason Ransom filed for Chapter 13 bankruptcy in Nevada in 2006 and proposed a plan to make $500 monthly payments over a period of 60 months. The chapter 13 trustee and two creditors objected to confirmation of the plan, arguing that $500 per month was not Ransom’s projected disposable income as defined in the Bankruptcy Code. They argued that Ransom improperly included a deduction against income for “vehicle ownership expense” of $471. The trustee and creditors claimed that the deduction should be disallowed and that the monthly payment should be increased. The Bankruptcy Court agreed with the trustee and refused to confirm the plan. The Bankruptcy Appellate Panel, agreeing to hear the appeal on this interlocutory issue, affirmed the Bankruptcy Court. The U.S. Court of Appeals for the Ninth Circuit affirmed the Bankruptcy Court’s decision.


In calculating a debtor’s “projected disposable income” during a Chapter 13 bankruptcy plan period, can a bankruptcy court allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles?

Media for Ransom v. FIA Card Services, N.A.

Audio Transcription for Oral Argument – October 04, 2010 in Ransom v. FIA Card Services, N.A.

Audio Transcription for Opinion Announcement – January 11, 2011 in Ransom v. FIA Card Services, N.A.

Elena Kagan:

This case is about the proper interpretation of the Bankruptcy Code.

In what’s called Chapter 13 Bankruptcy, a person can get relief from all his debts in exchange for an agreement, an agreement to repay his creditors a certain amount of his future income for the next several years.

The Bankruptcy Code instructs a person in this situation how to calculate the exact amount that he has to repay his creditors.

The Code says to that person, first, you take your current income then you deduct certain defined living expenses.

Those defined expenses, the Bankruptcy Code says, are set amounts, not necessarily your actual expenses, but set amounts that the IRS decides are reasonable for various necessary things like housing, or transportation, or food.

You deduct those expenses from your income and what’s left over is the amounts that you are required to repay creditors.

Now, the issue in this case is whether the Bankruptcy Code allows a debtor, who’s making this calculation, to deduct an expense that he simply does not have.

The expense at issue is for car ownership.

The IRS, and again that’s the agency that’s authorized to set these reasonable expenses.

The IRS says that the average loan or lease payment for a car nationwide is $471 a month.

And so the IRS says, that’s the amount that a person typically can deduct in Chapter 13 Bankruptcy.

That’s the amount of the car-ownership deduction.

The petitioner here, whose name is Jason Ransom, he claims this deduction even though he owned his car free and clear, and he didn’t in fact make any loan or lease payments on this car.

And claiming this deduction, allowed him to shield about $28,000 that he otherwise would’ve had to pay his creditors over the life of his bankruptcy plan.

And he took the car-ownership deduction in addition to claiming another deduction that the IRS sets for car-operating costs like fuel, and insurance, and repairs.

So one of his creditors, perhaps not surprisingly, objected.

That creditor said that Mr. Ransom wasn’t eligible to claim the car-ownership deduction because he didn’t in fact incur any car-ownership costs.

Today, we hold that this was a valid objection, that Mr. Ransom was not entitled to this deduction under the Bankruptcy Code.

We reached this conclusion by looking closely at the language of the statute.

The statute authorizes a debtor to deduct, “His applicable monthly expense amounts that are set by the IRS.”

“Applicable,” if you go and you look it up in the dictionary, means appropriate, or relevant, or fit and we conclude that when the statute says, “Applicable expense amounts”, what the statute means is the expense amounts or deductions, that’s another word for it, the deductions that are appropriate for that debtor.

And the deductions that are appropriate for that debtor are the ones that correspond to his own financial circumstances.

So a person who doesn’t have any car-ownership expenses can’t take a deduction for car ownership.

We also think that this understanding of the statutory language accords with the context and purpose of the statute.

Other provisions of the statute made clear that Congress intended the deductions to approximate the debtor’s reasonable expenditures on basic necessities.

And Congress’ essential purpose in enacting this part of the Code was to ensure that debtors who can pay creditors do pay them.

So once again, we think this means that a person like Mr. Ransom who doesn’t have any car-ownership expenses shouldn’t be able to deducts them when calculating how much he has available to repay creditors.

We therefore affirm the judgment of the Court of Appeals for the Ninth Circuit, which previously disapproved this deduction.

Justice Scalia has filed a dissenting opinion.