In a chapter 13, a debtor may be able to cramdown the financing on personal property other than an automobile if the property was purchased by financing more than one year prior to the bankruptcy filing. This issue typically relates to financing on furniture. However, this code section generally deals with any personal property other than an auto.
If a person purchases furniture by way of financing, he may keep the furniture by paying through the bankruptcy plan. They will have to pay the retail fair market value of the used furniture as of the time of the of the bankruptcy filing, plus an interest rate that is based on the present prime rate.
Fair Market Value of Furniture $1,500
Total financing balance as of the filing date $2,800
A debtor will be permitted to keep the furniture, by paying $1,500, plus the fair rate of interest, through chapter 13 bankruptcy plan. The present permitted interest rate is about 5.25%.
However, if the debtor purchased the furniture, through financing, within one year of the bankruptcy filing, the debtor will be required to pay the following, if they wish and are able to keep the furniture:
- The arrears through the bankruptcy plan, in addition to making direct monthly payments to the finance company; or,
- pay the entire balance due, plus the contract rate of interest, through the bankruptcy plain.
Please note that a chapter 13 trustee may not permit a person to make a substantial payment towards a luxury item, such as expensive furniture and reduce the monthly disposable income that would otherwise be paid to their unsecured creditors.
Robert Manchel, a bankruptcy attorney serving NJ, can be reached at 1 (866) 503-5655 if you would like to discuss how a chapter 13 bankruptcy might be able to benefit you.