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When your Chapter 13 plan is confirmed, it means that the bankruptcy judge assigned to your case has formally approved your plan of reorganization and all creditors are bound to the terms of your plan.In the Northern District of Georgia, a hearing on the confirmation of your plan will be scheduled automatically a the time you file your case. Usually, these hearings are scheduled for about 2 to 3 months from the date you file your case. Therefore, you can think of the first 2 or 3 months of your plan as a kind of probation period.While in this probationary period, you have all the benefits of bankruptcy – namely the automatic stay that protects you from creditor action – while the Chapter 13 trustee watches to see if you have the capacity to meet your plan obligations. This is also the time when creditor claims are filed and either creditors or the trustee can object to your proposed plan.Usually the most significant objections we see are the following:
- Funding – are you paying the trustee the amount you set out in your proposed plan?
- Terms – if creditor claims came in higher than expected, do we need to amend your plan to squeeze these claims into the maximum 60 month term of your plan?
- Good faith – does your plan allocate enough money each month to creditors?
In the majority of Chapter 13 cases, we will have to amend your plan prior to confirmation to satisfy the objections filed by the Chapter 13 trustee or by creditors. Usually this means that we will have to bump up your Chapter 13 plan payment.From our perspective as your attorney, the issue with increasing the plan payment has to do with the long term viability of your case. We know, for example, that during the 5 year term of your plan, you are likely going to need new tires for your car, repairs to your home, a medical emergency or an unexpected funeral to attend. Creditors and the trustee will push back on allocating any funds for an unknown future expense. This is where an experienced attorney will negotiate on your behalf.After your case is confirmed, your job primarily involves making payment to the trustee and direct payments, if applicable, to your mortgage company, vehicle leasing company or to any other creditor who is eligible to receive direct payments under the terms of your plan.If you fall behind on your trustee payments, the trustee will file a motion to dismiss your case. If you fall behind on a mortgage, lease or other direct creditor payment, that creditor will likely file a motion for relief from stay.Hearings will be scheduled for any motion to dismiss or motion for relief from stay, and we will have an opportunity to work out a payment plan to get you caught up. Obviously, however, if you didn’t have the money to make your regular trustee or creditor payments, you may struggle even more to catch up any arrears.If your financial situation takes a turn for the worse, or if you need to allocate your funds to cover an emergency, we also have the option of asking the judge for a 2 or 3 month suspension in your requirement to make trustee payments, and we can also file a proposed amendment to your plan to either surrender secured property that you cannot afford or to reduce the plan payment based on reduced income.In general, however, Chapter 13 assumes steady and consistent income and steady and consistent expenses. The more instability you have with income or expenses the likelihood of a plan failure and dismissal of your case.Chapter 13 cases do not always result in a completed plan and order of discharge of debts. The percentage of Chapter 13 cases that successfully complete is only about 33%. This means that two out of every three Chapter 13 plans end up being dismissed or converted to Chapter 7. Some people use Chapter 13 as a tool to buy time and preserve assets in the hope that a new job comes through, to to remain in a home as long as possible.I advise my clients to use the power of bankruptcy to walk away from secured property (i.e., a house, car, furniture, jewelry) that you have to stretch to afford.Whatever your goal, if you need to file either Chapter 7 or Chapter 13, Ginsberg Law can help. We have been representing Atlanta area debtors for almost 30 years and we are standing by to serve you.The post What Happens After Your Chapter 13 Plan is Confirmed? appeared first on theBKBlog.
When your Chapter 13 plan is confirmed, it means that the bankruptcy judge assigned to your case has formally approved your plan of reorganization and all creditors are bound to the terms of your plan.In the Northern District of Georgia, a hearing on the confirmation of your plan will be scheduled automatically a the time you file your case. Usually, these hearings are scheduled for about 2 to 3 months from the date you file your case. Therefore, you can think of the first 2 or 3 months of your plan as a kind of probation period.While in this probationary period, you have all the benefits of bankruptcy – namely the automatic stay that protects you from creditor action – while the Chapter 13 trustee watches to see if you have the capacity to meet your plan obligations. This is also the time when creditor claims are filed and either creditors or the trustee can object to your proposed plan.Usually the most significant objections we see are the following:
- Funding – are you paying the trustee the amount you set out in your proposed plan?
- Terms – if creditor claims came in higher than expected, do we need to amend your plan to squeeze these claims into the maximum 60 month term of your plan?
- Good faith – does your plan allocate enough money each month to creditors?
In the majority of Chapter 13 cases, we will have to amend your plan prior to confirmation to satisfy the objections filed by the Chapter 13 trustee or by creditors. Usually this means that we will have to bump up your Chapter 13 plan payment.From our perspective as your attorney, the issue with increasing the plan payment has to do with the long term viability of your case. We know, for example, that during the 5 year term of your plan, you are likely going to need new tires for your car, repairs to your home, a medical emergency or an unexpected funeral to attend. Creditors and the trustee will push back on allocating any funds for an unknown future expense. This is where an experienced attorney will negotiate on your behalf.After your case is confirmed, your job primarily involves making payment to the trustee and direct payments, if applicable, to your mortgage company, vehicle leasing company or to any other creditor who is eligible to receive direct payments under the terms of your plan.If you fall behind on your trustee payments, the trustee will file a motion to dismiss your case. If you fall behind on a mortgage, lease or other direct creditor payment, that creditor will likely file a motion for relief from stay.Hearings will be scheduled for any motion to dismiss or motion for relief from stay, and we will have an opportunity to work out a payment plan to get you caught up. Obviously, however, if you didn’t have the money to make your regular trustee or creditor payments, you may struggle even more to catch up any arrears.If your financial situation takes a turn for the worse, or if you need to allocate your funds to cover an emergency, we also have the option of asking the judge for a 2 or 3 month suspension in your requirement to make trustee payments, and we can also file a proposed amendment to your plan to either surrender secured property that you cannot afford or to reduce the plan payment based on reduced income.In general, however, Chapter 13 assumes steady and consistent income and steady and consistent expenses. The more instability you have with income or expenses the likelihood of a plan failure and dismissal of your case.Chapter 13 cases do not always result in a completed plan and order of discharge of debts. The percentage of Chapter 13 cases that successfully complete is only about 33%. This means that two out of every three Chapter 13 plans end up being dismissed or converted to Chapter 7. Some people use Chapter 13 as a tool to buy time and preserve assets in the hope that a new job comes through, to to remain in a home as long as possible.I advise my clients to use the power of bankruptcy to walk away from secured property (i.e., a house, car, furniture, jewelry) that you have to stretch to afford.Whatever your goal, if you need to file either Chapter 7 or Chapter 13, Ginsberg Law can help. We have been representing Atlanta area debtors for almost 30 years and we are standing by to serve you.The post What Happens After Your Chapter 13 Plan is Confirmed? appeared first on theBKBlog.
A typical story of a homeowner and the con artist scum who prey on desperate homeowners:
“I tried to keep my home despite the fact they started foreclosure proceedings. I self represented myself and filed initial bankruptcy chapter 13 forms which stopped the first trustee sale/ auction date. I got stuck on the second set of forms and missed deadline. I accepted the fact I would lose our home. A month later I got a note on front door from someone saying they wanted to buy house & could stop trustee sale/auction scheduled the next day. I thought Trustee sale was actually planned next month so I was caught by surprise.
I called the # on the note they told me I could get money and sell house to them and they could stop sale all I needed to do was sign some papers. So I met them early the next morning to review & sign which ended up being bankruptcy forms. I told them what had happened with dismissed case but they said not to worry.
Apparently they went down to bankruptcy court filed forms on my behalf to get the case # to stop trustee sale.
This is where it gets confusing they said (& mortgage lender confirmed) someone purchased it at sale. But they told me they were able to get it sell rescinded. (Mortgage lender couldn’t confirm this with me) now they want me to meet them with mobile notary to sign papers for them to buy house and offering $5000 cash to me. I owe a lot less than what similar homes have sold for in my neighborhood (about 50k-60k less).
Based on what I’ve told you does this sound normal? How could they rescind trustee sale? And what should I be cautious about signing moving forward? Any insight is much appreciated.
I’m a single widowed mother and really have no friends or family to be able to ask their opinion.“
NOTES FROM DIANE: I looked at the bankruptcy documents filed with the court. The con artist who talked this young woman into filing bankruptcy failed to follow any of the bankruptcy requirements:
- they did not provide proof of identity,
- they did not file the required form which discloses their name, contact information and the document preparer id number issued by the Arizona Supreme Court.
- They did not file the required list of creditors
- they did not to file the other 50+ pages of bankruptcy information.
These cons are now asking the young woman to come to their office and sign paperwork which would sell them her home. Supposedly they will give her some money to move out – can you say “bounced check”.
I explained that she was in bankruptcy and, no matter what the con artists said, she could not sell her house without first obtaining a bankruptcy court order.
If this young woman does nothing at all this second bankruptcy will be dismissed, like her first chapter 13, and she will be left with two bankruptcies, plus a foreclosure on her credit. Plus, she will still have all the obligations that would have been discharged if she followed through with either of the bankruptcies (credit card, HOA judgment, etc.)
I suggested she contact the Self-Help Center at the Bankruptcy Court and make them aware of this scam. Perhaps she will, but most likely she will fade into the night and the con artists will go on to prey on other innocent and desperate homeowners.
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About the Author:
Diane L. Drain is a well known and respected Arizona bankruptcy attorney. She is an expert in both consumer bankruptcy and Arizona foreclosure. Since 1985 she has been a dedicated advocate for her clients and spokesperson for Arizona citizens. Diane is a retired professor of law teaching bankruptcy for more than 20 years. As a teacher she believes in offering everyone, not just her clients, advice about the Arizona bankruptcy laws. She is also a mentor to hundreds of Arizona attorneys. 
I would be flattered if you connected with me on GOOGLE+
*Important Note from Diane: Nothing on this website should be construed as establishing a lawyer-client relationship between you, me, the author of any page or the website owner (me) who happens to be a lawyer. Everything on this web site is available for educational purposes only, is not intended to provide legal advice nor create an attorney client relationship between you, me, or the author of any article. You may pick up some information about bankruptcy, foreclosure or the practice of law written by myself or others. Any information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state.*
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The post Typical Foreclosure and bankruptcy con artist scam appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
By Allie Howell
In 2015, IRS agents strode into a Dallas wedding boutique, shut it down, and sold the entire inventory in just four hours to recoup alleged unpaid taxes. Now, the former owners are seeking financial compensation. They have filed a $2 million lawsuit, alleging multiple IRS rule violations and acts of impropriety.
Tony and Somnuek Thangsongcharoen opened their store, Mii's Bridal Salon, in Dallas, Texas, in 1983. The elderly Thai immigrants sunk their life savings into designer wedding dresses and were left penniless when the IRS sold them all, according to the couple's attorney.
"They've really been destitute," Jason Freeman, their attorney, tells Reason. "This really completely wiped them out financially."
In the lawsuit, the couple claims that the IRS conducted the entire seizure illegally, broke multiple statutes, and ultimately conspired to shut Mii's down.
According to the legal filing, the IRS believed Mii's owed $31,422.46 (which the couple disputes) and internally documented their 1,600 dress inventory as being worth $615,000.
The legal filing claims that the agent on the case originally recognized that the entire inventory would not need to be sold to satisfy the debt. However, Freeman obtained internal IRS communications through a Freedom of Information Act Request and found that IRS higher-ups decided that the agency should "shut down this failing business."
The lawsuit contends that the IRS violated its own rules in the process.
On the day of reckoning, March 4, 2015, 20 armed agents and members of the Dallas Police arrived at Mii's and told the Thangsongcharoens that they had two hours to write a $10,000 check or forfeit the entire inventory.
It was "totally improper to come in and demand a check like that within a matter of hours," Freeman says.
The couple didn't fill out a check, so four hours later, the IRS had sold the entire inventory and additional items through auction for $17,000. In conducting the sale so quickly and from within the store, the plaintiffs believe the IRS failed to comply with notice of sale and public sale requirements.
The auction took place under the IRS perishable goods sale procedures. Invoking it allows the IRS to seize and sell goods immediately instead of waiting 10 days and posting public notice of a sale, as is typically required. According to Freeman, such a quick sale "really circumvents statutorily prescribed safe guards" and is only meant to be used for perishable goods, not wedding dresses.
But the procedures also allow the IRS to sell goods immediately if it claims it would cost more to store them than they would gain from waiting to sell them. And that's how the IRS justified the immediate auction.
Freeman's internal documents show that the IRS internally devalued Mii's inventory in order to justify the perishable goods sale. They arrived at a valuation of $6,000—about $4 for a designer wedding dress. The IRS then claimed that storing the dresses would cost the agency more than they could sell them for.
Freeman also argues that the IRS overstated the costs that would be necessary to store the dresses, making the entire scheme "a bad faith engineered valuation designed to get what they wanted".
The IRS had decided that a perishable goods sale would be the "resolution where the government will benefit the most," as stated in internal communications.
Mii's was never able to reopen after the seizure. Tony Thangsongcharoen claims the stress of the ordeal caused him to have a heart attack and undergo quadruple bypass surgery.
The $1.8 million lawsuit was filed in the United States District Court for the Northern District of Texas Dallas Division earlier this year. It is meant to cover "damages resulting from the reckless, intentional, and/or negligent disregard of the Internal Revenue Code (I.R.C.) and governing Regulations by officers, agents and/or employees of the Internal Revenue Service ('IRS')".
Freeman says he hopes this lawsuit will help prevent future IRS misconduct.
"I don't think this is how citizens and taxpayers should be treated, ever … ," Freeman says. "While most government acts are performed with unquestionable integrity and good faith there are unfortunately exceptions to the rule. … When it happens they need to be held accountable. That's the only way to prevent it from becoming the rule."
So far, the government has moved to keep this case from getting a jury, requested the amount requested in the lawsuit to be trimmed, and commented that the Thangsongcharoens lack legal standing. According to the government, only Mii's, the bridal shop itself, should remain as a plaintiff.
Copyright 2017 Reason Foundation. All rights reserved.
By Jeff Jacoby. It made headlines in 2011 when two New York City taxi medallions changed hands for $1 million apiece. At the time, it was the highest price ever recorded for one of the numbered metal tags that are required to lawfully operate a cab on the city’s streets. It was also a vivid demonstration of how a government-created monopoly can send prices rocketing to stratospheric heights — even the price of something with almost no intrinsic value, like a little aluminum medallion issued by the NYC Taxi & Limousine Commission.A million bucks for a taxicab medallion? That may have come as a shock in 2011, but the price kept climbing. By 2014, medallions were going for $1.3 million apiece.And all anyone got for forking over that astronomical sum was the government’s permission to operate a vehicle as a taxi for hire. They didn’t get a list of established customers. They didn’t get the right to ply a popular route. They didn’t even get a car.The only reason anyone would pay a fortune for something so insubstantial is that the supply was capped by the government. New York allowed just 13,587 taxis on its streets, far below the actual demand for cab ownership. With the quantity of medallions sharply limited, their value soared. Would-be cabbies were forced to go deeply into debt to buy a medallion, or pay staggering rates to lease a cab from somebody who owned one.
No longer. View StorySince 2014, the cost of a New York City taxi medallion has plunged. As CNBC reported the other day, some medallions sold in 2017 have gone for prices in the $200,000s. Three credit unions that specialize in financing the purchase of medallions are facing bankruptcy; a growing number of medallion owners now owe more on their loans than the medallions are worth.Thanks to Uber and Lyft, the government’s extortion racket — that’s what the medallion system amounts to — has been beaten. With the rise of ride-hailing apps, tens of thousands of additional vehicles in New York are now providing millions of rides annually. For every medallion-affixed yellow cab working the city’s neighborhoods, there are now four Uber and Lyft cars.In November 2010, traditional cabs made an average of 464,000 trips each day. By November 2016, that was down to 337,000. It is doubtless even lower today. The results of innovation and competition have been what they usually are: better service, lower prices, happier consumers.What happened in New York is happening in every other city that turned its taxi market into an oligopoly. In Boston, where the number of taxis was arbitrarily capped at 1,825, the pre-Uber price of a medallion climbed to more than $700,000. You can buy one today for one-tenth that amount. In Chicago, traditional taxis face so much competition that as of March, 40 percent of the taxi fleet was deemed “inactive” after not having picked up a fare in a month.The medallion system was always an outrage. There was never a legitimate reason for government to limit the number of taxis. Regulators have no business determining how many cabbies belong on the road; just as they have no business determining how many appetizers should be offered on menus or how many homes real-estate agencies should list. Or, to allude to current headlines, how many benefits a health-insurance policy must cover.When government tries to manage supply and demand, it inevitably generates shortages, poor service, and corruption. Even with good intentions, regulators cannot yield fairer and more flexible outcomes than a market made up of millions of autonomous buyers and sellers. The collapse of the medallion shakedown was a long time in coming. It should never have been allowed in the first place.Copyright 2017 Boston Globe Media Partners LLC. All rights reserved.
The record-setting flooding we saw in Walworth, Racine, and Kenosha counties brings to mind an important disclosure topic for real estate transactions… but first, our thoughts and hearts at Wynn at Law, LLC go out to everyone impacted by the flooding. We hope things return to normal for all of you as quickly as possible.
In some of our earlier articles we’ve talked about real estate disclosures. Flood damage is one of those things that must be disclosed by the seller before the transaction. Specifically, the form asks if the property owner was ‘aware’ of ‘any’ past flooding. It’s difficult for anyone to not be ‘aware’ of the current flooding, the worst in history. The issue is the word ‘any.’ If a seller knew of flooding back in 2008, it has to be disclosed. If the sellers know the property flooded in 1973 – another historic flood event in our area – even if the homeowner didn’t live there, it has to be disclosed.
Past transactions on the real estate can identify flooding disclosures that happened before the current one.
Sellers should fully explain the circumstances behind any flooding damage and give as much accurate detail as possible. If it only happened once, say so. If it only happened in the record-smashing deluge we just went through, say so. Most importantly, in the disclosure, you can be very specific about the cleanup and repairs you made, as well as any steps you took to (hopefully) prevent the next massive downpour from causing the same damage this downpour created.
If a property was on the market before the rivers overflowed, the previous disclosure from before the flood might be inaccurate. In that case, the disclosure should be amended.
Both the buyer’s and seller’s attorney (and their real estate agents, too) have legal responsibilities related to the disclosure form. As fiduciaries, they are bound to advise their clients with entire openness. This requirement applies even if the seller just doesn’t want to disclose the current flooding because, ‘It was once in a lifetime and will never happen again and this will sabotage my sale or selling price.’
Does a buyer have to abort plans to buy a house just because it is or was ever in a flood? Of course not. Flooding in an extraordinary event like the one we’ve just seen does not mean the property will flood in every storm. If this storm tells us anything, it’s that even extraordinary records can fall.
*The content and material in this original post is for informational purposes only and does not constitute legal advice.
Photo by Scott Stevens, used with permission.
The post Flood damage and selling a property appeared first on Wynn at Law, LLC.
The record-setting flooding we saw in Walworth, Racine, and Kenosha counties brings to mind an important disclosure topic for real estate transactions… but first, our thoughts and hearts at Wynn at Law, LLC go out to everyone impacted by the flooding. We hope things return to normal for all of you as quickly as possible.
In some of our earlier articles we’ve talked about real estate disclosures. Flood damage is one of those things that must be disclosed by the seller before the transaction. Specifically, the form asks if the property owner was ‘aware’ of ‘any’ past flooding. It’s difficult for anyone to not be ‘aware’ of the current flooding, the worst in history. The issue is the word ‘any.’ If a seller knew of flooding back in 2008, it has to be disclosed. If the sellers know the property flooded in 1973 – another historic flood event in our area – even if the homeowner didn’t live there, it has to be disclosed.
Past transactions on the real estate can identify flooding disclosures that happened before the current one.
Sellers should fully explain the circumstances behind any flooding damage and give as much accurate detail as possible. If it only happened once, say so. If it only happened in the record-smashing deluge we just went through, say so. Most importantly, in the disclosure, you can be very specific about the cleanup and repairs you made, as well as any steps you took to (hopefully) prevent the next massive downpour from causing the same damage this downpour created.
If a property was on the market before the rivers overflowed, the previous disclosure from before the flood might be inaccurate. In that case, the disclosure should be amended.
Both the buyer’s and seller’s attorney (and their real estate agents, too) have legal responsibilities related to the disclosure form. As fiduciaries, they are bound to advise their clients with entire openness. This requirement applies even if the seller just doesn’t want to disclose the current flooding because, ‘It was once in a lifetime and will never happen again and this will sabotage my sale or selling price.’
Does a buyer have to abort plans to buy a house just because it is or was ever in a flood? Of course not. Flooding in an extraordinary event like the one we’ve just seen does not mean the property will flood in every storm. If this storm tells us anything, it’s that even extraordinary records can fall.
*The content and material in this original post is for informational purposes only and does not constitute legal advice.
Photo by Scott Stevens, used with permission.
The post Flood damage and selling a property appeared first on Wynn at Law, LLC.
Here at Shenwick & Associates, we pay close attention to new developments that may affect our bankruptcy practice. At the beginning of this year, we sent out an e-mail regarding student loans and bankruptcy. Since then, we’ve been continuing to explore the topic, including reviewing this article on the “undue hardship” standard and the Brunner test. Judges are criticizing the existing standards, and Congress continues to consider changing the Bankruptcy Code to make student loans easier to discharge.
We’re excited to announce that we’ve partnered with an experienced litigator to analyze student loan debt and, based on our analysis, seek a partial or full discharge of the student loan debt (principally “non – qualified” private loans, but other loans may be partially or fully dischargeable depending on your circumstances). If you’ve previously filed for bankruptcy and have student loan debt that wasn’t discharged, your case can be reopened (with no filing fee), even if it was filed by another attorney. Please contact Jim Shenwick to discuss if you’re interested.
From the New York Times: “Tens of thousands of people who took out private student loans to pay for college but have not been able to keep up payments may get their debts wiped away because critical paperwork is missing, . The troubled loans, which total at least $5 billion, are at the center of a protracted legal dispute between the student borrowers and a group of creditors who have aggressively pursued them in court after they fell behind on payments. Judges have already dismissed dozens of lawsuits against former students, essentially wiping out their debt, because documents proving who owns the loans are missing.
A review of court records by the New York Times shows that many other collection cases are deeply flawed, with incomplete ownership records and mass-produced documentation.
At the center of the storm is one of the nation’s largest owners of private student loans, the National Collegiate Student Loan Trusts. National Collegiate is an umbrella name for 15 trusts that hold 800,000 private student loans, totaling $12 billion. More than $5 billion of that debt is in default, according to court filings. The trusts aggressively pursue borrowers who fall behind on their bills. Across the country, they have brought at least four new collection cases each day, on average — more than 800 so far this year — and tens of thousands of lawsuits in the past five years.
Judges have tossed out lawsuits by National Collegiate
Judges throughout the country, including recently in cases in New Hampshire, Ohio and Texas, have tossed out lawsuits by National Collegiate, ruling that it did not prove it owned the debt on which it was trying to collect.” 
Read more from The Week “When borrowers don’t go to court, National Collegiate almost always automatically wins the case, but when they do show up, most of the time judges throw the suits out because National Collegiate was not able to produce the paperwork proving it owned the debt in question.”
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About the Author:
Diane L. Drain is a well known and respected Arizona bankruptcy attorney. She is an expert in both consumer bankruptcy and Arizona foreclosure. Since 1985 she has been a dedicated advocate for her clients and spokesperson for Arizona citizens. Diane is a retired professor of law teaching bankruptcy for more than 20 years. As a teacher she believes in offering everyone, not just her clients, advice about the Arizona bankruptcy laws. She is also a mentor to hundreds of Arizona attorneys.
I would be flattered if you connected with me on GOOGLE+
*From Diane: This article/blog is available for educational purposes only and does not provide specific legal advice. By using this information, you agree there is no attorney client relationship between you and me, and that this information should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state.*
The post Collection of Private Student Loans Tossed Out of Court appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
According to recent statistics, over 3,500 people filed for bankruptcy in Sacramento bankruptcy court during May 2017. Most of them – over 2,600 people – filed for Chapter 7, which is the most common type of bankruptcy in California and nationwide. If you’ve thought about filing for Chapter 7 in Sacramento, Folsom, Roseville, or the surrounding area, continue reading to find out what will happen to your car if you declare bankruptcy in California.
How Does Chapter 7 Bankruptcy Work?
Many prospective clients contact us with the question, “If I declare bankruptcy, what happens to my car?” It’s an important issue to discuss; but before our Sacramento bankruptcy attorneys explain how motor vehicles are treated in Chapter 7, let’s reverse gears, so to speak, and begin with a quick overview of how Chapter 7 bankruptcy works.
As personal bankruptcies go, Chapter 7 is a fast process that generally takes about four to six months to complete. (By comparison, Chapter 13 bankruptcy requires a time commitment of three to five years.) There is normally a filing fee for Chapter 7, but the fee can be waived under certain circumstances.
A person who files bankruptcy is alternately referred to as a “filer,” “debtor,” or “petitioner.” For simplicity’s sake, our Sacramento Chapter 7 lawyers will use the term “debtor” throughout this article.
When a debtor files Chapter 7, the bankruptcy court assigns a person called a “trustee” to manage the “bankruptcy estate,” meaning the debtor’s property. The trustee is permitted to sell many of the debtor’s possessions, though in most cases, this does not occur. The proceeds from the sale help to repay the debtor’s creditors, and the debtor is relieved of most debt, including medical debt, credit card debt, and personal debt. The benefit of this arrangement – besides getting a clean financial slate – is that the debtor does not have to create a repayment plan or make monthly payments to creditors, as he or she would have to in Chapter 13.
Even though the trustee can sell (“liquidate”) various items that belong to the debtor, including the debtor’s car, it is rare for this to actually happen. On the contrary, Chapter 7 debtors are usually able to keep their vehicles. Continue reading to find out why.
If I Declare Bankruptcy, What Happens to My Car?
There’s a stubborn myth that you will lose all of your property if you file Chapter 7 bankruptcy. Fortunately, that is untrue for most debtors. In fact, the majority of Chapter 7 debtors are able to protect most if not all of their personal property – including motor vehicles. But how?
When you file Chapter 7, you are entitled to a set of “bankruptcy exemptions,” which allow you to protect certain assets from sale or liquidation by the trustee. That way, you will not be starting from scratch without any property once your case has been discharged by the bankruptcy court. After all, the purpose of bankruptcy is to help debtors get back on their feet – not punish them for past financial hardships.
Some states allow debtors to choose between federal exemptions and state exemptions, while others – including California – require debtors to use state exemptions. You may choose between “System 1” and “System 2” of exemptions. Depending on which set you select, and the value of your vehicle, exemptions could be sufficient to prevent your car from being repossessed and sold.
The System 1 motor vehicle exemption is $3,050 in California. In other words, you can exempt up to $3,050 of “equity” in your car, truck, SUV, or whatever type of vehicle you happen to drive. Equity is the value of the vehicle. For example, if your vehicle is worth $20,000, but you have auto loans that add up to $17,000, you have $3,000 in equity. Since that figure is lower than the System 1 motor vehicle exemption ($3,050), your car would be fully exempt, meaning it would not be sold by the trustee.
If you had more equity in the car – for example, $5,000 instead of $3,000 – System 2 could be more appropriate. The System 2 motor vehicle exemption is more generous at $5,350, which is $2,300 higher than the California motor vehicle exemption under System 1.
Of course, your vehicle isn’t the only factor you need to think about when choosing exemptions. For example, even though System 2 allows debtors to exempt greater amounts of equity in vehicles, System 2 also has a smaller homestead exemption than System 1. The property you own, the loans you have obtained, the worth of your assets, and your goals for the bankruptcy must all be weighed carefully by a Sacramento or Roseville Chapter 7 attorney when you are filing for bankruptcy in California.
If you cannot exempt all or most of your equity in your vehicle, the trustee will need to assess the vehicle’s value to determine whether a sale would be appropriate. Even if the trustee does decide to sell your vehicle, you are entitled to the full exemption amount from proceeds of the sale.
California Chapter 7 Lawyers in Sacramento, Roseville, and Folsom
At The Bankruptcy Group, we are experienced Sacramento bankruptcy lawyers for business owners, individual debtors, and married couples who are filing jointly. In addition to Chapter 7 bankruptcy, our attorneys are also qualified to assist with Chapter 13 and Chapter 11. To learn more about the benefits of filing bankruptcy, how bankruptcy affects your car, how much property you can protect in Chapter 7, or any other aspects of bankruptcy in California, call The Bankruptcy Group today at (800) 920-5351 for a free legal consultation.
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