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Supreme Court's bankruptcy ruling a 'positive for CUs'

The ruling in Ransom v. FIA Card Services centered on a standard car-ownership deduction in a Chapter 13 bankruptcy repayment plan. Since the bankruptcy reform act of 2005, bankruptcy courts in Chapter 13 bankruptcies have used a statutory formula known as the "means test" to help ensure that the debtors who can pay creditors do pay them. The test instructs the debtor to determine his disposable income--the amount that would be available for reimbursing creditors--by deducting from his monthly income "amounts reasonably necessary to be expended."

The debtor took deductions for both "car ownership," although he owned the car free and clear and made no lease or loan payments on it, and for "car operation," which cover the costs of operating the vehicle. FIA Card Services contested the "car ownership" deduction amount of $471 but not the car operating deduction of $388.

The court held that a debtor who does not make loan or lease payments may not take the car-ownership deduction.

The ruling means that the debtor has $471 more in the pool for repaying creditors. "This is a positive for credit unions," said Edwards. "With unsecured debt such as credit card debt, the creditor [including credit unions as creditors] will get a greater recovery than if the court had ruled in favor of the debtor, albeit it is often pennies on the dollar."

The decision was the first majority opinion delivered by Justice Elena Kagan.

The lone dissenter, Justice Antonin Scalia, said that the "occasional overallowance (or, for that matter, underallowance) "is the inevitable result of a standardized formula like the means test... Congress chose to tolerate the occasional peculiarity that a brighter-line test produces. Our not to eliminate or reduce those oddit[ies] but to give the formula Congress adopted its fairest meaning..."