CAN ONE DEDUCT ADDITIONAL EXPENSE FOR OLDER CARS?

CAN ONE DEDUCT ADDITIONAL EXPENSE FOR OLDER CARS?

| May 6, 2014 | Blog |

The current monthly income analysis form (CMI) allows certain deduction for vehicle expenses depending on how many vehicles a debtor owns. If the debtor owns a vehicle that is more than six years old and has been driven at least 75,000 miles, the IRS in its Manual Chapter 8 Part 5 allows the debtor to add an additional $200 to the expense of operating the car.

In a recent case in the 9th Circuit, Drummond v. Luedtke, ___ B.R. ___, 2014 (1386618 9th Cir. BAP, April 9, 2014), however, the 9th Circuit ruled that the Debtor could not take the added deduction. The court held that because the IRS’s Financial Analysis Handbook IRM Part 5, Chapter 15, Section 1 (the section that outlines expenses) did not provide for this additional expense, it was improper for the bankruptcy court to allow it. The section relied on by the debtors only applies to when the IRS is considering an offer and compromise, it does not apply to bankruptcy situations.

However, the court did leave the issue open, as it indicated that the debtors in this case did not provide any evidence that they were spending $200 more than the allowable expense on the vehicle. Accordingly, I recommend that if a debtor wants to add this expense on the CMI form, he should first provide his attorney with receipts for all the expenses he incurred in maintaining the car for the last 6 months.

The attorneys at the law firm of Margulies & Associates, LLC have assisted thousands of clients through bankruptcy. Please call us for a consultation today. Laura Margulies is a principal of the law firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at www.law-margulies.com.