Supreme Court to hear two bankruptcy cases

It’s October, the time of year when the United States Supreme Court re-opens for business. The Court’s 2011 term will run through the end of June, and it is already known that two bankruptcy cases will be decided. More could be added to the docket as the term progresses.

Because bankruptcy is a federal law, the Supreme Court has the final sayon interpretations of the bankrutpcy code.

The first bankruptcy case, In re Ransom, has already been argued on October 5th, and it was actually the very first case ever heard by new Justice Elena Kagan.

The Ransom case concerns whether a Chapter 13 debtor can take a deduction on the Chapter 13 “means test” for a car, even when the auto loan has been paid off prior to bankruptcy.

The poor drafting of the bankruptcy amendments added in 2005 leads most lawyers and judges to think the answer is “yes,” although at oral argument Chief Justice John Roberts seemed to think that either answer inevitably leads to “absurd” results.

Justice Antonin Scalia, known for his precise reading of enacted laws, honed in on the exact language of the statute and asked where the law says that deductions can be taken in the “amount specified if applicable.”

If the Supreme Court agrees that debtors can take an auto loan expense deduction even if they own a vehicle free and clear, it will help Chapter 13 debtors by allowing potentially lower monthly payments to their Chapter 13 plans.

The second bankruptcy case accepted by the Supreme Court concerns jurisdiction of the bankruptcy courts, and has not been scheduled for arguments yet.


By Doug Beaton

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