New Bankruptcy Lawyer: Meet Old Car Allowance

Bankruptcy courts have embraced an unwritten deduction for older cars for purposes of the means test.  You won’t find this deduction in the official forms and I’ve had a hard time finding the text in the  on- line Internal Revenue Manual, but the cases repeatedly cite Internal Revenue Manual 5.8.5.5.2 as authority for allowing debtors an extra deduction for an older car.

Where there is no debt secured by the car, courts that disallow an ownership allowance for the vehicle will allow an additional $200 in operating allowance for cars over 6 years old or with mileage of 75,000 miles or more.

I question the  soundness  of pretending that a debtor with an old car can pay unsecured creditors over a 5 year Chapter 13 plan rather than replace a worn out vehicle, but until that becomes accepted wisdom,  add the old car allowance to the standard  allowance in preparing the b-22.

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  • Eric Southward

    Cathy,
    Thanks for the cite, was able to find under:
    Part 5. Collecting Process.Chapter 8. Offer in Compromise.Section 5. Financial Analysis

    5.8.5 
    Financial Analysis

    5.8.5.20.3 
    (10-22-2010)
    Transportation Expenses

    paragraph 5:
    In situations where the taxpayer has a vehicle that is currently over
    six years old or has reported mileage of 75,000 miles
    or more, an additional monthly
    operating expense of $200 will generally be allowed per vehicle.