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Does Chapter 13 law allow a debtor to purchase a new vehicle while in Chapter 13 and to finance this car or truck purchase?This was the issue I faced recently while representing a client whose car was totaled in an accident. My client was in the middle of his Chapter 13 case, having paid into his plan for three years, with two years left to go.Now, with no car to drive to work, my client was spending $20 per day on a rental car and needed to purchase a replacement. Here’s how we dealt with this problem.First, my client had to find a replacement vehicle and a lender who would agree to finance a loan despite my client’s status as debtor in an active Chapter 13. Believe it or not, this task was not a problem – my client found a two year old vehicle in the $25,000 range and his dealership was able to arrange financing.My client did have funds for a down payment – insurance had issued a property damage payment of around $7,000 which he wanted to use as a down payment.Not surprising the terms of the finance contract were not great – it provided for a 72 month payoff and a monthly payment of $325 per month.Motion to Incur New DebtBefore my client could sign anything, however, we needed to get permission from the judge since the bankruptcy law requires Chapter 13 debtors to file a Motion to Incur Debt prior to entering any loan contract. The finance company also required a signed order from the judge authorizing the deal.I prepared and filed this Motion to Incur Debt, setting out all the details of the proposed deal. Motions like this in Bankruptcy Court need to be served (mailed to) all creditors and the trustee. In this case, the hearing on our motion was scheduled for almost a month later.This month delay in gaining approval for the “outside loan” was a problem because used car dealers are not going to remove a vehicle from inventory on the hope and expectation that a judge will bless the deal and that the buyer will remain interested.Motion for Expedited HearingSo, my next step was to file a Motion for Expedited hearing. This would allow us to get before the judge in less than a week. I spoke with the judge’s calendar clerk and she advised me to “serve” all parties using email and/or fax, which I did.Three days later my client and I appeared before the judge to present our motion. The trustee had no objections to the deal but the judge had questions about the type of car my client wanted to purchase. My client had negotiated a deal for a used Mercedes SUV in the $25,000 range. The judge noted that she considered vehicles made by Mercedes or BMW to be “luxury” vehicle and thus not appropriate for a Chapter 13 debtor. The judge agreed to authorize a finance deal but only for a non-luxury vehicle.The judge’s order, which I drafted, provided that the debtor is “directed to enter into a purchase contract for a non-luxury vehicle.” The signed order appeared on the clerk of court’s website a day later and my client had what he needed to shop for a vehicle.AnalysisSo, what are the take-aways from this case?First, there are car finance deals out there for debtors currently in bankruptcy or newly discharged. You will pay a higher interest rate but lenders will loan the money.Second, if you are in the middle of a Chapter 13 case, you need to arrange a deal before filing anything with the court. Bankruptcy judges do not like to deal in hypothetical situations – you need to have a proposed deal on the table for the judge to analyze.Third, you and your lawyer cannot control what the judge will do. In my experience, judges are not going to leave you high and dry when it comes to something as essential as daily transportation, but you should not expect the judge to rubber stamp your motion to incur new debt. The judge’s concern about the type of vehicle is not surprising. Bankruptcy judges expect Chapter 13 (and Chapter 7) debtors to reduce their standard of living and eliminate all non-essentials.Finally, our experience in this case show that we can get creative when we need to make things happen quickly in a bankruptcy case. Until now, I have never served anyone by email or fax but given the low likelihood that anyone would object to this motion, we were able to use these non-traditional means of service. I doubt that I would be able to use fax or email service if I was modifying the debtor’s plan to reduce payments to all creditors.I hope this case study of the “new loan while in Chapter 13 bankruptcy” was helpful to you. If you have any questions about Chapter 13 or Chapter 7 or about any debt issues, please contact my office.The post How to Qualify for a Car Loan While in Chapter 13 appeared first on theBKBlog.

More often than they should, debt collectors contact people after the bankruptcy is over. I’m Northern Virginia Bankruptcy Lawyer Robert Weed, and I hate it when people do illegal stuff to my customers. When debt collectors pester my clients after bankruptcy, I sue them.  That’s why I was glad to see what the Second Circuit […]
The post After Bankruptcy Violations by Debt Collectors by Robert Weed appeared first on Robert Weed.

"Lien stripping" of underwater mortgages or other junior liens is still available under chapter 13 bankruptcy.  The much publicized U.S. Supreme Court ruling in the Bank of America cases only held that lien stripping cannot be done in chapter 7 bankrupty cases.

In order to "strip" (ie. avoid) a second priority mortgage or other junior lien, they must generally be wholly underwater unless the obligation's had already ballooned.

The lien stripping is accomplished with the appropriate provision in the chapter 13 debtor's proposed chapter 13 plan. The applicable valuation and avoidance motion are also filed. Pursuant to a lien strip, a lien is avoided and the debt is provided for as a general unsecured claim.

Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com

The 8th Circuit Bankruptcy Appellate Panel issued a new opinion approving the discharge of 11 of the 15 private student loans owed by Chelsea Conway. (See In re Conway, 8th BAP 2015).
The court discharged $76,535 of the $95,499 owed, leaving the debtor to repay 4 loans totaling $18,964.
What is most interesting about this case is the method the court instructed the bankruptcy court to utilize in determining what private student loans to discharge.

The B.A.P. instructed this Court to conduct “a loan-by-loan undue hardship analysis” based on Debtor’s “present disposable income” which this Court must determine through analyzing Debtor’s ability to “service a loan or loans of NCT over the course of an entire year.”

Read a copy of the trial court’s ruling here.
All student loan discharge matters go through a standard analysis to determine if the loans constitute an “undue hardship.”  The courts look at the debtor’s past income, their age, future income potential, special family needs, health issues, mental health factors, etc.  That is the standard analysis.
What makes the Conway case different is the focus on determining a debtor’s “present disposable income” and then performing a “loan-by-loan undue hardship analysis.”
Distilling the court’s opinion, we derive a three-step process:

1. Is the debtor’s income likely to increase?  In short, is the debtor’s income stuck in the mud? Is the debtor working to their best ability with an income that is not likely to increase, or is the debtor just making a half-hearted effort to earn income?  If it appears that the debtor has reached his or her maximum earning potential the court will consider the hardship discharge.
2.  Present Disposable Income.  The court must determine the debtor’s current average income.  There is no specific time frame utilized, but the courts should generally look heavily at the last few years of income and the past 12 months in particular to determine a debtor’s average monthly income.  From that figure the court will deduct all necessary and reasonable monthly expenses to arrive at an average monthly disposable income.  Every case is unique, and what is reasonable for one debtor may vary from what is necessary for another.
3. Loan-by-Loan Hardship Analysis.  Once the court has determined the monthly disposable income available the court should determine how many of the private student loan payments can be made with that payment.  In the Conway decision the court determined that $170.30 was available to pay private student loans.  Four of the 15 loans required a payment totaling $167.11.  Those 4 loans were preserved and the remaining 11 loans were discharged.

The key element in this analysis is to effectively argue that a debtor’s income has basically flatlined.  The career has not worked out as planned.  The degree earned is worthless or limited and despite loads of college learning the debtor is basically stuck in an hourly job with little room for advancement other than cost-of-living increases.
There appears to be a new trend on keeping the income analysis realistic.  In the past bankruptcy courts have dwelled on the possibility that a debtor’s income may increase in the future and that it was too soon to determine if efforts to repay a student loan were futile.  However, recent opinions across the nation seem to suggest that courts are becoming more sympathetic to stagnant wages and have opened their eyes to the reality of limited career advancement.
What remains consistent is the court’s preference for debtors who make a good faith effort to resolve the student loan problem before filing for bankruptcy.  Debtors who truly work at obtaining careers in their field of study while maintaining steady employment tend to receive better treatment than debtors who work part-time or debtors who make no real effort to pay the debt or to seek out income-based payment options.
For more information on discharging private student loans in Nebraska, contact Sam Turco Law Offices.
Image courtesy of Flickr and Susan Ruggles.