New Jersey Lawyer Explains How To Keep A Motorcycle In A Chapter 13
If a New Jersey bankruptcy debtor is not discharging or eliminating any of his debt and has sufficient disposable income to pay all creditors that must be paid, under the bankruptcy code, the debtor may keep any motorcycle. However, if a debtor is attempting to eliminate debt, such, as credit card debt, a debtor may or may not be permitted to keep his motorcycle. The balance of this blog pertains to a New Jersey chapter 13 debtor who owns a motorcycle and intends to eliminate certain debt.
There are two issues related to whether a debtor may keep a motorcycle in a chapter 13 case.
First issue:
A chapter 13 debtor must pay to the trustee, all of their household disposable income on a monthly basis. The allowable expenses that are used to obtain the disposable income, must be necessary and reasonable to live. The allowable disposable income, typically, does not include a payment on motorcycle financing, unless the motorcycle is necessary for work. In other words, a trustee or judge will likely not permit a debtor to use a $500 motorcycle finance payment as an expense and not use the $500.00 to pay back creditors. The debtor will not likely be permitted to keep a motorcycle, under this scenario. However, depending on the circumstances, the trustee may possibly work out a settlement or the issue may possibly be resolved by the debtor’s attorney.
Second issue:
A debtor must pay to their unsecured creditors (ie. credit card debt), pro rata, no less than the amount of their unexempt assets. The exemption analysis has been explained, numerous times, in other blogs within this website. The exemption analysis is the same in a chapter 7 and chapter 13.
The bankruptcy code has a list of exemptions that may be applied against the equity in assets. If the amount of the exemption that is applied to any asset is less than the asset’s equity, than the difference is the unexempt equity. Depending on the specific asset, the equity and the unexempt amount may be reduced by the estimated cost of sale of the asset.
The bankruptcy code provides a list of exemptions that may be applied toward specific assets. The bankruptcy code allows an exemption of $3,675.00 in any motor vehicle. This exemption is typically applied to a car, but may possibly be applied towards a motorcycle, in certain circumstances. Additionally, another code section permits a person to apply the amount of $11,500.00 in a motorcycle, that is not used or needed for their residence. Additionally, the debtor may apply $1,225.00 in any property. The following is an exemption analysis:
Motorcycle Value $10,000.00
Financing Payoff $2,000.00
Balance $8,000.00
Exemption $5,000.00 (Assume that $5,000.00 is the maximum exemption that may be applied. In other words, assume that the auto exemption is needed and applied to another automobile and cannot be applied towards the motorcycle. Also, assume that this debtor can only use $4,775.00 of the unused portion of the residential exemption and the additional $1,225.00 amount.)
Balance $3,000.00
The above example results in a motorcycle with unexempt equity of $3,000.00. This means that the debtor must pay at least $3,000.00 towards their total unsecured debt. The amount of any other unexempt equity in any other property must be added to this $3,000.00. The debtor must pay at least the total amount of all unexempt equity toward their total unsecured debt, through their bankruptcy plan. If the debtor does not maintain sufficient disposable income to pay this amount through his bankruptcy plan, he will not be permitted to continue with his chapter 13 case. Therefore, if the debtor does not have sufficient income to pay the total amount of his unexempt motorcycle equity, to his unsucred creditors, he must sell the motorcycle, if he wishes to file a chapter 13 bankruptcy case.
Robert Manchel, the NJ. bankruptcy lawyer, may be contacted at 866 503 5644.