Vanessa Patricia Canales

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES DIVISION

In re Case No. LA 2:07-14196 ER

Chapter 7

VANESSA PATRICIA CANALES, MEMORANDUM OF DECISION

Date: September 20, 2007

Time: 11:00 A.M.

Place: Ctrm. 1568, 15° Fl.
255 E. Temple Street
Los Angeles, CA 90012

Debtor.

ee ee ee ee ee ee ee ee ee ee

The means test of 11 U.S.C. § 707(b) stands out as among the
foremost changes to bankruptcy law enacted by the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (*BAPCPA”). At its core,
the means test seeks to determine whether a debtor can repay a portion
of his or her debt. If so, then the debtor will be channeled into
Chapter 13 and will be required to repay a specific amount of debt as
a precondition to relief. If not, however, then the debtor will be
allowed to proceed in Chapter 7 toward liquidation and possible

discharge.

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

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This case requires the Court to examine a subpart of the means test
that has caused considerable disagreement among bankruptcy courts
nationwide. Specifically, the central issue in this case is whether 11
U.S.C. § 707(b) (2) (A) (ii) (I) permits a Chapter 7 debtor who owns her
vehicle free and clear of any loan or lease payments to claim a
transportation ownership deduction for purposes of calculating her
disposable monthly income under the means test. After considering the
issue in depth and for the reasons discussed infra in Part III, the
Court concludes that a debtor in Chapter 7 may not claim a
transportation ownership deduction for a vehicle that she owns free and
clear of any loan or lease payments.

I. Jurisdiction

As a general principle, U.S. bankruptcy courts exercise
jurisdiction by referral over all core bankruptcy proceedings. The Court
has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(a), 28
U.S.C. § 157(a), General Order No. 266 of the United States District
Court for the Central District of California, and 28 U.S.C. § 157(b).
The U.S. Trustee’s Motion to Dismiss Chapter 7 Case Pursuant to 11
U.S.C. § 707{b) (2) and (3) (B) and Contingent Motion to Extend Bar Date
for Filing Complaint Under 11 U.S.C. § 727 Objecting to Debtor's
Discharge is a core proceeding because dismissal of a bankruptcy case

arises only in bankruptcy. See Maitland v. Mitchell {In re Harris Pine

Mills), 44 F.3d 1431, 1435 (9th Cir. 1995).

II. Statement of Facts and Procedural History

On May 22, 2007, Debtor Vanessa Patricia Canales (“Debtor”) filed
a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code. The
Debtor is a school teacher for the Los Angeles Unified School District.

In the months preceding her filing, the Debtor struggled under a new

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payroll system implemented by the school district that resulted in
fluctuating monthly income payments. This system, among other factors,
contributed to the Debtor’s decision to file for bankruptcy.

The Debtor is listed on the title to three vehicles. On the one
hand, the Debtor’s mother and sister drive two of these vehicles. See
Opposition at 4. Both vehicles serve as security for loans, and the
Debtor’s mother and sister make payments on those loans. See id. The
Debtor makes no payments on these vehicles. See id. On the other hand,
the Debtor drives the third vehicle, a 2000 Chevrolet Malibu worth
approximately $3,995. See id. Unlike the other two vehicles, the third
vehicle is paid for in full and thus there are no loan or lease payments
for the vehicle. See id. As a consequence, although the Debtor is listed
on the title to all three vehicles, she makes ownership payments on none
of them. See id.

In filing for bankruptcy, the Debtor submitted a Statement of
Current Monthly Income and Means Test Calculation for Use in Chapter 7
(“Form 22A”). Subsequently, the Debtor twice updated her income and
means test calculations by filing an Amended Statement of Current
Monthly Income and Means Tests Calculation for Use in Chapter 7 (“Form
B22A").* The Debtor filed her most recent Form B22A on June 28, 2007.?

On Form B22A, the Debtor checked the box indicating that the
presumption of abuse of Chapter 7 arises in light of a monthly
disposable income of $301.96. However, the Debtor also listed an

additional monthly expense for union dues of $171.62 in Part VII of Form

* The Debtor first filed Form 22A on May 22, 2007, along with
her original filing. On May 30, 2007, the Debtor amended Form 22A
by filing Form B22A. Finally, on June 28, 2007, the Debtor filed
her second and most recent Form B22A.

* The Court will refer to the Form B22A filed on June 28, 2007
for the relevant income and deduction calculations.

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B22A, which was not taken into consideration when calculating the
Debtor’s monthly disposable income, but which the Debtor contends should
be an additional deduction from her current monthly income.’ Although
uncertainty remains on this issue, the Court will assume for the sake
of argument that the Debtor’s union dues should be deducted from her
monthly disposable income.

In completing Form B22A, the Debtor claimed a deduction of $475
under the Local Standards for transportation ownership or lease expenses
for one vehicle.* See Form B22A, Line 23. In addition, the Debtor
claimed a deduction of $353 under the Local Standards for transportation
expenses related to vehicle operation for one vehicle. See Form B22A,
Line 22. As a result, the Debtor seeks to deduct transportation expenses
both for ownership costs and for operation costs.

On July 27, 2007, the U.S. Trustee filed the Motion to Dismiss
Chapter 7 Case Pursuant to 11 U.S.C. § 707(b) (2) and (3)(B) and
Contingent Motion to Extend Bar Date for Filing Complaint Under 11
U.S.C. § 727 Objecting to Debtor’s Discharge (“Motion”). In the Motion,
the U.S. Trustee argues that the Debtor has erroneously completed the

means test calculations in Form B22A. ee Motion at 9-10. The U.S.

* The U.S. Trustee at times points to the fact that the Debtor
checked the box indicating the presumption arises as apparent
Support for dismissal. See Supp. Brief at 5-6, 7. At other times,
however, the U.S. Trustee argues that the $171.62 deduction for
union dues should be included as part of the Debtor’s mandatory
payroll deductions on Line 26 and thus deducted from her monthly
disposable income figure. See Motion at 9; Sadovnick Decl. at qs.

* The Debtor claims a deduction of $475 for transportation

ownership expenses, but in fact the correct maximum deduction for
transportation ownership expenses is $471. As discussed infra, the
IRM Local Standards applicable to the Central District of
California for bankruptcy cases filed between February 1, 2007, and
October 14, 2007, authorize maximum ownership allowances of $471
for one car.

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Trustee submits the Declaration of Wendy Carole Sadovnick (*“Sadovnick
Decl.”), a bankruptcy analyst employed by the Office of the United
States Trustee for the Central District of California, in support of
numerous corrections to the Debtor’s Form B22A. Sadovnick proposes
multiple changes to the Debtor’s Form B22A, see Sadovnick Decl. 9§ 6-11,
but the most significant correction is eliminating the Debtor’s claimed
deduction for transportation ownership expenses, see id. at | 7. The
U.S. Trustee argues that the Debtor is not eligible for the
transportation ownership deduction because she owns the vehicle free and
clear. See Motion at 10-13; Supp. Brief at 10-17. Additionally, the U.S.
Trustee asserts that, even if the Debtor is eligible for the
transportation ownership deduction, the case should be dismissed under
11 U.S.C. § 707(b) (3) (B) because the totality of the circumstances
underlying the Debtor’s financial situation demonstrate abuse of Chapter
7. See Motion at 13-20; Supp. Brief at 17-28. Lastly, if the Court
rejects dismissal pursuant to § 707(b)(2) and (3), the U.S. Trustee
requests an order extending the bar date for the filing of a complaint
for the denial of discharge under § 727. See Motion at 20-21.

In response, the Debtor filed the Opposition to Motion of the
United States Trustee to Dismiss Case Under 11 U.S.C. § 707({b) (2) and
(3) (b) (“Opposition”). In the Opposition, the Debtor argues that the
case should not be dismissed for abuse. Finally, the U.S. Trustee filed
the Reply to Debtor’s Opposition to Motion to Dismiss Pursuant to 11
U.S.C. § 707(b) (2) of the Bankruptcy Code (“Reply”).

The Court heard argument on the Motion on September 20, 2007. At
that time, the Court requested additional briefing from the parties.
Accordingly, the U.S. Trustee submitted the Supplemental Brief in

Support of United States Trustee’s Notice of Motion and Motion to

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Dismiss Chapter 7 Case Pursuant to 11 U.S.C. § 707(b) (2) and (3) (B)
(“Supp. Brief”) and the Request for Judicial Notice in Support of
Supplemental Brief in Support of United States Trustee’s Notice of
Motion and Motion to Dismiss Chapter 7 Case Pursuant to 11 U.$.c. §
707 {b) (2) and (3) (B). The Debtor filed no supplemental briefing with the
Court.

III. Discussion

In the Motion, the U.S. Trustee requests that the Court dismiss the
Debtor's Chapter 7 petition pursuant to 11 U.S.C. § 707(b) (1). The U.S.
Bankruptcy Code authorizes a court to dismiss a case filed under Chapter
7 after a finding of abuse. See 11 U.S.C. § 707(b) (1). In pertinent
part, § 707(b) (1) provides:

After notice and a hearing, the court, on its own motion or

on a motion by the United States trustee, trustee (or

bankruptcy administrator, if any), or any party in interest,

may dismiss a case filed by an individual debtor under this

chapter whose debts are primarily consumer debts, ... , if

it finds that the granting of relief would be an abuse of the

provisions of this title.

11 U.S.C. § 707(b) (1). Section 707(b) thus vests the court with
discretion to determine whether a case should be dismissed, but
conditions any such dismissal on notice anda hearing, a finding that
the debtor’s debts are primarily consumer debt, and a finding that
granting the debtor relief would be an abuse of Chapter 7. See 11 U.S.c.
§ 707 (b) (1).

As a preliminary matter, the U.S. Trustee brought the Motion on
regular notice and the Court heard the matter on September 20, 2007.
This satisfies the requirement of notice and a hearing. See U.S.C. §
707 (b) (1).

Next, the Court concludes that the Debtor’s debts are “primarily

consumer debts” for purposes of dismissal under § 707 (b) (1). See 11

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U.S.C. § 101(8); 11 U.S.C. § 707(b) (1). In § 101(8), the Bankruptcy Code
defines “consumer debt” as “debt incurred by an individual primarily for
a personal, family, or household purpose.” 11 U.S.C. § 101(8). The U.S.
Court of Appeals for the Ninth Circuit interprets the term “primarily”
in § 707(b}) (1) to require that the overall ratio of consumer to non-

consumer debt is greater than fifty percent. See Zolg v. Kelly (In re

Kelly), 841 F.2d 908, 913 (9th Cir. 1988). Here, the Debtor herself
indicates in her petition that the nature of her debt is primarily
consumer debt. Accordingly, the Debtor falls within the scope of §
707(b) (1) as a debtor with primarily consumer debt.

The remaining hurdle of § 707(b)(1) thus represents the crux of
this case and requires the Court to determine whether granting relief
to the Debtor would be an abuse of Chapter 7. See 11 U.S.C. § 707(b) (1).
The U.S. Trustee argues that the presumption of abuse arises under both
§ 707(b) (2) and § 707(b) (3) (B). Therefore, the Court now turns to a
discussion of those issues.

A. Dismissal Pursuant to 11 U.S.C. § 707({b) (2) Based on

Presumptive Abuse under the Means Test

The U.S. Trustee first requests that the Debtor’s petition be
dismissed pursuant to 11 U.S.C. 8 707(b) (2) for presumed abuse. In
relevant part, § 707(b) (2) (A) (i) provides:

In considering under paragraph (1) whether the granting of

relief would be an abuse of the provisions of this chapter,

the court shall presume abuse exists if the debtor’s current

monthly income reduced by the amounts determined under

clauses (ii), (iii), and (iv), and multiplied by 60 is not

less than the lesser of-- (I) 25 percent of the debtor’s

nonpriority unsecured claims in the case, or $6,000,

whichever is greater; or (II) $10,000.
11 U.S.C. § 707 (b) (2) (A) (i). The U.S. Trustee rests his argument under
§ 707(b) (2) on the claim that the Debtor has failed to complete Form

B22A in an accurate manner. Specifically, the U.S. Trustee argues that

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the Debtor is not eligible for a $471 deduction for transportation
ownership/lease expense on Line 23 of Form B22A. If the Debtor is not
eligible for a $471 deduction, then the Debtor will fail the means test.

In the wake of BAPCPA, courts across the nation have struggled to
determine whether a debtor may claim a transportation ownership
deduction in the absence of any loan or lease payments. Some courts
agree with the U.S. Trustee that a debtor who owns a vehicle free and
clear of any transportation ownership or lease expenses may not claim

the deduction. See Fokkena v. Hartwick, 373 B.R. 645 (D. Minn. 2007);

In_re Ross-Tousey, 368 B.R. 762 (E.D. Wis. 2007); In re Bennett, 371

B.R. 440 (Bankr. C.D. Cal. 2007); In re Brown, -- B.R. --, 2007 WL
3003000 (Bankr. S.D. Tex. 2007); In re Ceasar, 364 B.R. 257 (Bankr. W.D.

La. 2007); In re Cole, 371 B.R. 454 (Bankr. W.D. Wash. 2007); In re

Devilliers, 358 B.R. 849 (Bankr. E.D. La. 2007); In re Howell, 366 B.R.

153 (Bankr. D. Kan. 2007); In re Slusher, 359 B.R. 290 (Bankr. D. Nev.

2007); In re Talmadge, 371 B.R. 96 ({Bankr. M.D. Pa. 2007); In re

Barraza, 346 B.R. 724 (Bankr. N.D. Tex. 2006); In re Carlin, 348 B.R.
795 (Bankr. D. Or. 2006); In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex.
2006); In re Harris, 353 B.R. 304 (Bankr. E.D. Okla. 2006); In re Lara,

347 B.R. 198 (Bankr. N.D. Tex. 2006); In re McGuire, 342 B.R. 608

(Bankr. W.D. Mo. 2006); In re Oliver, 350 B.R, 294 (Bankr. W.D. Tex.

2006); In re Wiggs, No. 06-B-70203, 2006 WL 2246432 (Bankr. N.D. Ill.

Aug. 4, 2006); see also Gary Neustadter, 2005: A Consumer Bankruptcy

Odyssey, 39 Creighton L. Rev. 225, 295 (2006). By contrast, other courts
side with the Debtor in concluding that a debtor may claim the deduction

regardless of whether the vehicle is paid in full. See In re Mcivor, No.

06-42566, 2006 WL 3949172 {E.D. Mich. Nov. 15, 2006}; In re Chamberlain,

369 B.R. 519 (Bankr. D. Ariz. 2007); In re Crews, Nos. 06-13117, 06-

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15255, 2007 WL 626041 (Bankr. N.D. Ohio Feb. 23, 2007); In re Enright,

No. 06-10747, 2007 WL 748432 (Bankr. M.D. N.C. Mar. 6, 2007); In re

Sawdy, 362 B.R. 898 (Bankr. E.D, Wis. 2007); In re Scarafiotti, -- B.R.
--, No. 06-11402 EEB, 2007 WL 2745700 (Bankr. D. Colo. 2007); In re
Swan, 368 B.R. 12 (Bankr. N.D. Cal. 2007); In re Watson, 366 B.R. 523
(Bankr. D. Md. 2007); In re Zak, 361 B.R. 481 (Bankr. N.D. Ohio 2007);

In re Demonica, 345 B.R. 895 (Bankr. N.D. I1l. 2006); In re Fowler, 349

B.R. 414 (Bankr. D. Del. 2006); In re Grunert, 353 B.R. 591 (Bankr. E.D.

Wis. 2006); In re Haley, 354 B.R. 340 (Bankr. D. N.H. 2006); In re

Hartwick, 352 B.R. 867 (Bankr. D. Minn. 2006), rev’d by Fokkena v.

Hartwick, 373 B.R. 645 (D. Minn. 2007); In re Naslund, 359 B.R. 781
(Bankr. D. Mont. 2006); In re Prince, No. 06-10328C-7G, 2006 WL 3501281

(Bankr. M.D. N.C. Nov. 30, 2006); In re Wilson, 356 B.R. 114 (Bankr. D.

Del. 2006); see also Watchdog or Attack Dogq?: Hearing on the United

States Trustee Program Before the Subcomm. on Commercial and Admin. Law

of the H. Comm. on the Judiciary, 110th Cong. (Oct. 2, 2007) (statement

of Eugene R. Wedoff, J.); Eugene R. Wedoff, Means Testing in the New §

707(b), 79 Am. Bankr. L.J. 231, 256-58 (2005).

As of yet, the bankruptcy courts to address the issue have not
reached any clear majority opinion. Rather, the bankruptcy courts have
split on the issue in an increasingly exhaustive search to discover
clarity and principle in the statutory language of § 707(b) (2). Although
some federal district courts have now taken up the question as well, it
seems unlikely that any unanimity in the law will emerge in the Ninth

Circuit and elsewhere until the appellate courts address the issue in

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the years to come.* Nonetheless, neither the Court nor the parties have
the luxury of awaiting future decisions.

11 U.S.C. § 707(b) (2) (A) (ii) sets forth general guidelines that
govern the calculation of a debtor’s monthly expenses in Chapter 7
cases. See i1 U.S.C. § 7O7(b} (2) (A) (ia). In particular, 5
707 (b) (2) (A) (ii) (I) provides:

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

vecessary Expenses issued by the Internal Revenue Service

11 U.S.C. § 707(b) (2) (A) (11) (I) (emphasis added). The House Report that
accompanied BAPCPA explains that the relevant standards are those listed
in the Internal Revenue Service Financial Analysis Handbook as Necessary
Expenses under the National and Local Standards categories. H.R. Rep.
No. 109-31 at 13-14 (2005) (footnotes omitted). In turn, the Financial
Analysis Handbook is part of the IRS's Internal revenue Manual (*IRM”).
H.R. Rep. No. 109-31 at 13, n. 62. The IRS publishes neither the
National Standards nor the Local Standards as part of the IRM but rather
releases them only on the internet. The Local Standards are set out in
a series of tables.

The Local Standards establish allowances both for transportation

expenses and for housing/utilities expenses. The IRM asserts that

° The Court recognizes, however, that the U.S. Trustee has

appealed this issue to the U.S. District Court for the Central
District of California in the case of In re Mann, No. SV 1:07-1118-
KT (unpublished). The U.S. Trustee filed its appeal on September 4,
2007, after the bankruptcy court entered an order on August 22,
2007, holding that a debtor who owns his vehicle outright may claim
the transportation ownership deduction under the Local Standards.
In atl likelihood, the district court will soon establish a
precedent that will shed further insight on this issue for courts
in the Central District of California.

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expense amounts listed in the Local Standards function solely as caps
on the debtor’s actual expenses for transportation or housing: “[T]he
local standards for housing, utilities, and transportation serve as a
cap. The taxpayer is allowed the local standard or the amount actually
paid, whichever is less.” IRM § 5.19.1.4.3.2(2) (emphasis omitted).

The Local Standards for transportation expenses permit allowances
for ownership costs, including loan and lease payments, and for
operating costs. The Local Standards applicable to the Central District
of California for bankruptcy cases filed between February 1, 2007, and
October 14, 2007, authorize maximum ownership allowances of $471 for one
car and an additional $332 for a second car. If, however, the taxpayer
or debtor owns the car free and clear of any loan or lease payments,
then the IRM guidelines purport to bar any allowance for transportation
ownership expenses: “If a taxpayer has no car payment, or no car, only
the operating costs portion of the transportation standard is used to
figure the allowable transportation expense.” IRM § 5,.19.1.4.3.4(6).
Thus, the IRM speaks with clarity on the issue of transportation
ownership allowances and, under the IRS system, an individual with no
car payments is not eligible for the transportation ownership allowance.
See id.

Yet the difficulty of this case arises not from an interpretation
of the IRM standards but rather from the statutory language of §
707 (b) (2) (A) (11) (I). As always, the Court must look to the plain
language of the statute and, if clear, the Court must enforce the laws

as written by Congress. See Lamie v. U.S. Trustee, 540 U.S. 526, 534

(2004). Although the IRS guidelines may be helpful in some contexts,

they do not give meaning to the statute itself. Thus, the Court must

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analyze the language of § 707(b) (2) (A) (ii) (I) in order to understand its
meaning instead of relying on the IRS guidelines.

The statutory distinction drawn between “applicable” and “actual”
expenses in § 707(b) (2) (A) (ii) (I) has caused no little disagreement
among the courts. To repeat, Section 707(b) (2) (A) (ii) (I) provides:

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

[...].

11 U.S.C. § 707 (b) (2) (A) (11) (I) (emphasis added). Whether these

adjectives were intended to convey wholly different meanings, synonymous
meanings, or similar but nuanced meanings rests at the heart of this
issue.

Some courts have held that Congress's use of “actual” with respect
to Other Necessary Expenses and “applicable” with respect to the
National and Local Standards reveals that Congress intended two
different applications. See In re Swan, 368 B.R. 12, 18 (Bankr. N.D.
Cal. 2007); In re Demonica, 345 B.R. 895, 901-02 (Bankr. N.D. Ill.

2006); In re Fowler, 349 B.R. 414, 418 (Bankr. D. Del. 2006). These

courts reason that Congress, by using different adjectives, intended to

distinguish sharply between the two classes of expenses. See In re Swan,

368 B.R. at 18. Because Congress deliberately chose not to refer to a
debtor's actual expenses when calculating deductions under the Local and
National Standards, but in the same sentence referred to a debtor’s
actual expenses in regard to “Other Necessary Expenses,” the debtor must
be entitled to the fixed or “applicable” deduction under the Local
Standards for transportation ownership expenses so long as she owns a

vehicle. See In re Fowler, 349 B.R. at 418. As the Swan court explained:

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A debtor’s actual expenses are only relevant with respect to
expenses that fall into the ‘Other Necessary Expenses’
category. Applied specifically to the transportation
ownership expense, which clearly falls within the first
clause of § 707(b) (2) (a) (ii) (I) and is set forth in the Local
Standards, this interpretation leads to the conclusion that
any debtor who owns a vehicle is entitled to the deduction
for transportation ownership, regardless of whether or not
the debtor, at the moment of plan confirmation, has an actual
car payment expense.

In re Swan, 368 B.R. at 18 (citations omitted). Under this

interpretation, any debtor who owns a vehicle is allowed a
transportation ownership expense regardless of whether she does or does
not make lease or loan payments.

By contrast, other courts interpret Congress’ use of the word
“applicable” in § 707(b) (2) (A) (ii) (I) to limit eligibility for the
various expense amounts specified under the National and Local Standards
to those debtors for whom the particular expense actually applies. See

In re Ross-Tousey, 368 B.R. 762, 765 (E.D. Wisconsin 2007); In re

Bennett, 371 B.R. 440, 445 (Bankr. C.D. Cal. 2007); In re Devilliers,
358 B.R. 849, 864 (Bankr. E.D. La. 2007); In re Wiggs, 2006 WL 2246432,
at *2-3 (Bankr. N.D. Ill. 2006). In other words, a court must first
determine which expenses are applicable to the specific debtor and only
then permit the debtor to claim the amount set forth in the National or
Local Standards. See In re Devilliers, 358 B.R. at 864. The Ross-Tousey
court explained its reasoning as follows:

Instead of viewing ‘applicable’ and ‘actual’ as having

virtually opposite meanings, another reading of the statute

would allow the debtor to deduct the auto expense listed in
the Standards if the debtor actually had an auto expense in

the first place. This reading gives Meaning to the
distinction between ‘applicable’ and ‘actual’ without taking
a further step to conclude that ‘applicable’ means

‘nonexistent’ or ‘fictional.’ Under this reading, it is true
that the debtor’s ‘actual’ expense does not control the
amount of the deduction, but the debtor must still have some
expense in the first place before the Standard amount becomes
‘applicable.’ The term ‘applicable’ merely means, in this
context, that when a debtor has an automobile ownership

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expense, his deduction is not based on that actual expense

but on the applicable expenses listed in the Standards. As

another court has recently concluded, ‘[i]f a debtor does not

own or lease a vehicle, the ownership expense is not

‘applicable’ to that debtor.
In re Ross-Tousey, 368 B.R. at 765 (citations omitted). Under this
reasoning, a debtor who makes transportation ownership payments is
entitled to deduct the amount fixed under the Local Standards.

Most courts interpreting § 707(b) (2) (A) (ii) (I) hold that if a
debtor is eligible for a transportation ownership deduction, then the

debtor may claim the amount fixed under the Local Standards regardless

of the debtor’s actual payment amount. See In re Ross-Tousey, 368 B.R.

at 765; In re Fowler, 349 B.R. at 418-19; see also Eugene R. Wedoff,

Means Testing in the New § 707(b), 79 Am. Bankr. L.J. 231, 256-58

(2005). This conclusion cuts against the approach of the IRS Collection
Standards, which provide that, if eligible, “[t]he taxpayer is allowed
the amount actually spent, or the standard, whichever is less.” IRM §
5.19.1.4.3.2(2) (12-15-2002) (emphasis omitted). However, courts reject
the IRS approach based on the plain language of the statute. Section
707 (b) (2} (A) (11) (I) states that the debtor’s allowed expense deductions
“shall be” the “amounts specified under the National Standards and the
Local Standards.” 11 U.S.C. § 707(b) (2) (A) (ii) (I). Unlike the IRM
approach, the Bankruptcy Code makes no reference either to reducing or
capping a debtor’s claimed deduction under the Local Standards. Thus,
most courts agree that the plain language of the statute entitles
eligible debtors to deduct the fixed amounts for transportation
ownership expenses specified in the Local Standards instead of reducing
or capping their deductions based on actual expenses. Some courts,

however, appear to have adopted the IRS approach in whole. See In re

Bennett, 371 B.R. 440, 445 (Bankr. C.D. Cal. 2007).

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After reviewing the statute, the case law, and the arguments of the
parties, the Court concludes that under § 707(b) (2) (A) (ii) (I) a Chapter
7 debtor who owns her vehicle free and clear of any loan or lease
payments is not entitled to the transportation ownership deduction. In
reaching this decision, the Court sides in large measure with the

rationales adopted by the courts in In re Bennett and In re Ross-Tousey,

among others. The Court agrees that the terms "applicable" and "actual"
are not interchangeable, but rejects the conclusion that the two terms
must be wholly exclusive of each other. Rather, the Court reads the term
“applicable” in § 707{b) (2) (A) (ii) (I) to require that the debtor make
some lease or loan payment on a vehicle in order to be entitled to claim
a deduction for transportation ownership expenses. As the Ross-Tousey
court noted, this reading offers meaning to the distinction between
“applicable” and “actual” without so contorting “applicable” as to mean

“nonexistent.” See In re Ross-Tousey, 368 B.R. at 765.

The instant case is distinguishable from In re Bennett, the other
published decision on this issue in the Central District of California,
because the motion to dismiss arises in a Chapter 7 case instead of a
Chapter 13 case. See In re Bennett, 371 B.R. 440, 441 (Bankr. C.D. Cal.
2007). The Bennett case involved a Chapter 13 debtor who owned two
vehicles, one subject to loan payments and the other owned outright, and
sought to claim two transportation ownership deductions for $471 and

$332, respectively. See id. Although In re Bennett, like this case,

interpreted § 707(b) (2) (A) (ii) (I), it did so in the context of Chapter
13 by way of § 1325(b) (3). See id. Thus, the Court addresses this issue
in a similar but distinct factual situation. Nonetheless, the Court’s
decision brings it into line with the analysis adopted by the Bennett

court.

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In this case, the Debtor is not eligible to claim a $471 deduction
for transportation ownership expenses because she owns her car free and
clear of any loan or lease payments. Although the Debtor is listed on
title to three vehicles, she makes payments on none of them. Thus, under
the Court’s interpretation of § 707(b) (2) (A) (ii) (I), because the Debtor
has no “applicable” transportation ownership payments she may not claim
the transportation ownership deduction under the Local Standards for
purposes of her means test calculations.

As a result, the Debtor fails the means test under § 707 (b) (2)
because her monthly disposable income, when multiplied by 60, is not
less than the lesser of either 25 percent of the debtor’s nonpriority
unsecured claims or $10,000. See 11 U.S.C. § 707(b} (2) (A} (i). This
means that the presumption of abuse arises under § 707 (b) (2). Therefore,
the Court will dismiss the Debtor’s case pursuant to § 707({b) {1) because
the granting of relief would be an abuse of the provisions of Chapter
7.

The Court, however, will stay dismissal of the Debtor’s case for
30 days after entry of this Memorandum Opinion in order to allow the
Debtor an appropriate period to attempt to rebut the presumption of

abuse if she so chooses. See 11 U.S.C. 8 707 (b) (2) (B).

§ Assuming arguendo that the Debtor’s union dues should be
included as part of the Debtor’s mandatory payroll deductions on
Line 26, then, based on the figures in Form B22A and after
eliminating the transportation ownership expense deduction, the
Debtor’s total allowed deductions would be $4,185.03 in relation to
her current monthly income of $4,790.37. This would leave the
Debtor with a monthly disposable income of $605.34 and a 60-month
disposable income of $36,320.40. The Debtor’s 60-month disposable
income is thus not less than a quarter of her non-priority
unsecured debt of $105,110.34 or, namely, $26,277.58. Similarly,
the Debtor’s 60-month disposable income is also not less than
$10,000. Therefore, the presumption of abuse arises under §
707 (b} (2) (A). Moreover, a similar outcome would result if the
Debtor were not eligible to deduct her union dues.

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In reaching its holding, the Court has no occasion to decide
whether a debtor eligible to claim the transportation ownership
deduction is entitled to the fixed amount or “the amount actually spent,
or the standard, whichever is less.” IRM § 5.19.1.4.3.2(2) (emphasis
omitted). Some courts have concluded that Congress adopted the IRS cap

approach in whole, see In re Bennett, 371 B.R. 440, 445 (Bankr. C.D.

Cal. 2007), while other courts have allowed eligible debtors to claim
a fixed amount, regardless of actual payments, see In re Ross~-Tousey,
368 B.R. at 765. In this case, however, the Court need not decide the
issue because the Debtor makes no ownership payments whatsoever and thus
is not eligible for any deduction under either approach.

B. Dismissal Pursuant to 11 U.S.C. § 707(b) 3) (B) for Abuse

Based on the Totality fo the Circumstances

The U.S. Trustee next requests that the Debtor’s petition be
dismissed pursuant to 11 U.S.C. § 707(b) (3) (B) under a totality of the
circumstances analysis. In light of the Court’s holding under §
707 (b) (2) (A) (11) (I) the Court has no occasion to resolve this issue.
However, the Court notes that were a debtor who owns her car free and
clear eligible for a transportation ownership deduction of $471, that
excess, unspent income would be a significant factor in analyzing a

request for dismissal under § 707(b) (3). See In re Fowler, 349 B.R. 414,

421 (Bankr. D. Del. 2006).

on Extension of Bar Date for Filing Complaint under 11 U.S.C. §

727 Objecting to Discharae

Finally, the U.S. Trustee requests an extension of the bar date for
filing a complaint under 11 U.S.C. § 727. Again, in light of the Court’s
holding under 707 (b) (2) (A) (ii) (I), the Court has no occasion to consider

this issue.

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IV. Conclusion

In sum, the Court concludes that under 11 U.S.C. §
707 (b) (2) (A) (ii) (I) a debtor who owns her vehicle free and clear of any
loan or lease payment is not eligible for a transportation ownership
deduction. The Court will grant the U.S. Trustee’s Motion and dismiss
the Debtor’s case pursuant to the terms of the Order accompanying this

Memorandum Decision.

DATED: October 31, 2007

ERNEST M. ROBLES
United States Bankruptcy Judge

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CERTIFICATE OF SERVICE

I, ‘ f 3 3 , hereby certify that on

AINV 019007 , I sent by U.S. mail a true copy of the

MEMORANDUM OF DECISION to the parties at the addresses listed below:

Debtor

Vanessa Patricia Canales
616 N. Lagoon Ave. Apt.# 5
Wilmington, CA 90744

Debtor’s Attorney

Thomas B Ure

800 Wilshire Blvd Ste 1050
Los Angeles, CA 90017

U.S. Trustee

United States Trustee (LA)

725 S Figueroa St., 26th Floor
Los Angeles, CA 90017

Chapter 7 Trustee

Richard K Diamond

Danning, Gill, Diamond & Kollitz
2029 Century Park East, 3rd Floor
Los Angeles, CA 90067-2904

Aydnie Pnzotes

Clerk

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