Auto In Bankruptcy

Saving your car from a finance and lease company in a chapter 13 case.
A New Jersey chapter 13 bankruptcy case may save an auto from repossession and/or obtain possession, of a repossessed auto, if the auto has not been sold at auction. Initially, the debtor must provide proof of adequate auto insurance that covers the finance company in the event of auto damage. Also, the debtor must create a feasible chapter 13 plan, that properly pays the finance / lease company, pursuant to the bankruptcy code. The information below applies if all people on the loan are debtors in the bankruptcy case. The information below may not apply if all people on the loan are not included in the bankruptcy filing.
OPTION ONE FOR FINANCING
A person can file a New Jersey chapter 13 bankruptcy case and pay the total amount of the finance arrears, at the time of the filing, through a chapter 13 bankruptcy plan. The bankruptcy plan requires monthly payments for a period of 36 to 60 months. In addition to making the monthly trustee payments, the debtor must also pay the regular monthly finance payments, directly to the finance company, on a monthly basis. The debtor must keep current with the bankruptcy plan and their direct monthly finance payments.
OPTION TWO FOR FINANCING
A debtor may save their auto by paying the entire amount that is due on the loan through the bankruptcy plan. This requires the debtor to pay the entire balance of the loan, plus interest, through a monthly bankruptcy payment. This option does not require that the debtor to make monthly finance payments directly to the finance company, in addition to making the payments through the New Jersey bankruptcy plan.
OPTION THREE FOR FINANCING
If a debtor bought the auto with the financing, at the time of the purchase, uses the auto for personal use, and bought the auto 910 days or more, prior to the bankruptcy filing, the debtor may “cram down” the financing debt. A “cram down” permits the debtor to pay, through the bankruptcy plan, only the value of the auto, plus a fair interest rate. For example, if the auto has a value of $15,000.00 and a finance payoff of $20,000.00, the debtor only needs to pay the $15,000.00, plus a fair interest rate. The $15,000.00, plus the fair interest rate, is paid completely through the bankruptcy plan payments. The $5,000.00 balance may be eliminated, in most circumstances.  The debtor need not make any payments directly to the finance company. The finance company and the debtor may dispute the actual value of the vehicle.
DEALING WITH A LEASE
A debtor may cure the lease arrears through a bankruptcy plan, in addition to making the regular monthly lease payments to the leasing company. However, the bankruptcy code requires that the lease payments, that are paid through the plan, be paid “promptly”. This means that the lease arrears must be paid, through the plan, within a certain time period, that is deemed “promptly” by each particular judge. The amount of months that is considered “prompt” under the bankruptcy code, has not been established in the New Jersey District Bankruptcy Court. Therefore, each judge may deem a different time period as “prompt”.
In a New Jersey bankruptcy case, the debtor may be required to pay other creditors, through the plan, even though the reason for the filing based on saving an automobile. Certain type of debt, such as taxes and other secured debt may be required to be paid through the plan. Also, a portion of unsecured debt, such as credit card debt may be required to be paid, through the plan, based on various factors.
Robert Manchel may be contacted at 866 503 5644 to discuss your New Jersey bankruptcy questions.

Attorney explains the difference between auto finance and auto lease payments in a New Jersey chapter 13 case.

There are three different approaches to paying auto financing in a New Jersey chapter 13 case. The fist approach is to continue to make the regular finance payments directly to the auto finance company during the plan. One may pay the arrears at the time of the filing through the bankruptcy plan, while making the regular payments directly to the company.
The second option is to pay the entire balance due on the financing through the chapter 13. The balance would include any amount that a person is behind with their payments at the time of the filing. The interest rate that must be paid, on the balance depends on various factors, such as when the auto was financed and whether all auto financing debtors are filing for bankruptcy. This option requires the payment of adequate protection, which is explained below.
The other option is to pay to the finance company, the retail value of the auto, plus a fair rate of interest, through the bankruptcy plan. The total amount that must be paid is not the balance that is due, but the amount of the auto’s sale’s value, if the dealer sold the car. The amount of the arrears is not relevant. This option is only permitted if the auto was purchased 910 days prior to the bankruptcy filing. The total amount must be paid through the bankruptcy plan and not directly. This option also requires adequate protection payments.
A trustee may not commence distributing payments to the finance company, through the plan for many months or years. During the period prior to receiving disbursements, the finance company is vulnerable to a loss if the debtor stops making payments, while the debtor is using the auto. In order to prevent such a loss, the finance company is entitled to a monthly distribution, from the trustee, that will at least cover the monthly depreciation of the auto’s value. The monthly payment is called adequate protection payments.
Typically, a New Jersey debtor continues to make regular monthly lease payments, directly to the auto lease company after the bankruptcy filing. If there are lease payment arrears, at the time of the filing, the arrears amount must be paid and cured, through the chapter 13 plan “promptly”. This means that in addition to making monthly lease payments, the trustee payments must be sufficient to cure the arrears within a certain time period that is deemed promptly, by the judge. Each judge may have a different understanding of the number of months or years that is deemed a “prompt cure” under the bankruptcy code. Therefore, the monthly trustee payments must be sufficient to pay the total amount of the pre-filing arrears within the time period that is required by that particular judge.
Contact the NJ.bankruptcy lawyer, Robert Manchel at 866 503 5644 to discuss your questions.

New Jersey Lawyer Explains When A Person May Keep An Additional Car In A Chapter 7.

Typically, a chapter 7 trustee will only sell an asset, such as a car, that is unexempt. Another part of this website explains the bankruptcy code exemptions in detail. The bankruptcy code allows a debtor a fresh start, by permitting an individual to keep certain property. The property that a person can keep is based on the bankruptcy exemptions. If the equity in property is unsubstantial, the New Jersey debtor can keep the property, such as a car. Equity is the property value minus a specific type of lien, such as auto financing. The bankruptcy auto exemption is $3,675.00, for one automobile.  A person may be permitted to apply an additional exemption to their auto equity in the amount of $1,225.00, plus up to $11,500.00 that is not used for their residence.
How does this work?   If the $11,500.00 exemption is not needed for one’s residence, the debtor can apply this exemption to any property, in any manner, including a car. For example, $2,000.00, $4,000.00 and $5,500.00 of the unused residential exemption may be applied separately to bank account funds, a motorcycle and a car, respectively. By way of another example, a person who owns a car with $10,000.00 of equity, may keep the auto, if they can use their $3,675.00 auto exemption, plus $6,325.00 of their unused residential exemption. If the exemption in property, such as a car, is more than the equity, the person may keep the car because it basically has no sale value. Also, if the financing balance is more than the vehicle’s value, the debtor may keep the car.
Keeping a car does not mean that the debtor meets the chapter 7 discharge criteria. The debtor must meet all of the chapter 7 bankruptcy criteria to obtain a discharge and eliminate debt. The chapter 7 criteria is explained throughout this website. One criterion for a chapter 7 discharge is that the debtors’ household income is less than their necessary and reasonable household expenses. If a person owns an additional car that is not needed and is considered a luxury item, the finance payment for such a vehicle may not be used as a necessary expense. Also, based on this scenario, even though the debtor is unable to pay the finance payment, the trustee and/or the bankruptcy court will not take the car, if the auto is fully exempt, or has no equity. Furthermore, based on the chapter 7 criteria, the debtor should not be able to pay for the luxury auto financing.
In the event that a debtor is not current with his car payments, the New Jersey finance/lease company will be permitted to take the vehicle, even though the trustee and/or the court may not take the vehicle. Under this scenario, the finance company may ask for court permission to repossess the auto, or repossess the auto  after the case is complete.
Robert Manchel may be contacted at 866 503 5644.

New Jersey Lawyer Explains When a Debtor May Keep An Additional Financed Vehicle In A Chapter 13

The debtor is required to pay all of their household disposable income to the trustee, each month. The funds that are required to be paid to the trustee is the net household income after payment of all necessary and reasonable expenses that are needed to live. Some of the expenses that are needed to live are: food, clothing, mortgage, auto payments, auto insurance, etc. Also, the expenses must be reasonable as determined by the judge and trustee. For example, a monthly payment expense of $1,500 for clothing of a household of 2 is unreasonable and excessive. Any disposable income must be paid to the unsecured (ie: credit card; personal loan) creditors.
Additionally, keeping and paying for certain property must be necessary for a New Jersey chapter 13 reorganization. Paying money to keep a residence is necessary for a reorganization. However, using income to pay for the financing of a fifth motorcycle is not necessary for a reorganization. Any disposable income, after such payments and expenses, must be paid to the unsecured (ie: credit card; personal loan) creditors, pro rata.
The determination as to whether a debtor may keep and pay the financing for a second vehicle, in New Jersey, incorporates the above explained two laws. The first question is whether the second vehicle is necessary for a reorganization. In other words, is the additional vehicle needed for the household? A husband and wife that work, both need their vehicles for transportation to work. Typically, the trustee will allow a reasonable auto payment for both the husband and wife, even if one spouse does not work.
There are many circumstances where there may not be a clear answer, such as the following, scenarios. Is a third vehicle that the debtors’ child uses for college, necessary and reasonable for the parents’ reorganization? What if the husband’s monthly auto payment is $700.00?  Suppose the husband has a third auto payment on a Harley Davidson, that he loves and must keep. Also, it is generally understood that after a bankruptcy filing, the debtor may not be able to trade in his car for an auto with a lower monthly payment.
The trustee’s dilemma is whether he should allow a debtor to pay unnecessary funds for a vehicle, which results in a reduction in the disposable income that would have been available to the creditors. However, if all of the creditors will be paid in full, the debtor can pay for and keep, as many vehicles as he wishes. If the creditors will be negatively effected by the payment of a third vehicle, the answer depends on the trustee and/or judge’s judgment and decision. Please note that a New Jersey trustee may settle these issues and allow the debtor to keep and pay for the additional vehicle, if he agrees to reduce some other expense and pay more funds to the unsecured creditors.
Robert Manchel may be contacted at 866 503 5644 to discuss your bankruptcy  concerns.

Lawyer In New Jersey Explains The Limitations Of Reducing Auto Finance Payments In New Jersey Bankruptcy Case.

A debtor is permitted to reduce the amount that is required to be paid on auto financing in New Jersey, under specific circumstances. The bankruptcy states that a person is permitted to “cramdown” the auto financing, if the vehicle was purchased, with the financing, more than 910 days prior to the bankruptcy filing, for personal use”.  This is called a “cramdown” and is explained, in detail, in my other blogs.
If the auto was purchased, with the financing, for personal use, within 910 days prior to the filing, than a”cramdown” is not permitted. However, if the auto was purchased, with the financing, for personal use more than or later than 910 days prior to the filing, than a “cramdown” is permitted. For example, under this scenario, a “cramdown” is permitted if the vehicle was purchased, with the auto financing, 911 days prior to the filing. Therefore, if a debtor wishes to “cramdown” the auto financing, he must review the auto financing documents to confirm the date of the purchase.
If the vehicle was purchased for business use and not personal use, than the 910 day limitation and the requirement that the auto was purchased with the financing funds, does not apply. For example, if a person purchased a vehicle with the financing, thirteen months prior to the bankruptcy filing, the debtor is permitted to “cramdown” the financing. Of course, the debtor cannot purchase a vehicle with the intention of cramming down the debt in bankruptcy. Consequently, the debtor would not b permitted to “cramdown” the auto financing, if the purchase was made immediately prior to the bankruptcy filing, due to fraud.
A debtor is permitted to cramdown the auto financing if the financing was not used to purchase the vehicle. For example, a person owns a financed free vehicle that is used for collateral of a loan. Under this scenario, the auto financing may be “crammed down”  if the auto was purchased prior to the 910 day limit for personal use.
The Law Offices of Robert Manchel, may be contacted at (866) 503-5655 to discuss your bankruptcy options.

New Jersey Lawyer Explains How Someone Can Reduce Auto Payments In New Jersey Bankruptcy Case.

In a New Jersey chapter 13, a debtor may be able to keep their auto by paying less than the total amount that is due on the auto financing. This process is called a cramdown. Under certain circumstances, a debtor is permitted to reduce the loan amount to the retail value of the vehicle, plus a reasonable interest rate. The value, plus the interest rate, must be paid through the bankruptcy plan. The loan balance that is due in excess of the auto value amount, may be eliminated, under most situations.
The bankruptcy code does not permit such a reduction, if the loan financed the purchase of the vehicle, for personal use, within 910 days prior to the bankruptcy filing. Also, this reduction is not permitted with a leased vehicle. The following is an example of the above explanation. A $10,000.00 auto value has a $15,000.00 finance balance. The debtor may keep the auto by paying $10,000.00, plus a fair interest rate, through the bankruptcy trustee payments.
The court uses the retail value of the auto, as if the exact same auto is sold on a dealership’s lot. In other words, the value is based on the year, make, model, mileage and condition of the debtor’s car. The court will accept as proof of the valuation of the auto, an NADA or Kelley Blue Book internet printout, based on the auto’s detailed specs. However, if the finance company objects to the value, than an expert appraiser would be necessary.
Finding an expert to appraise an auto in New Jersey is difficult. However, in order to prove the value of the auto, it is necessary for an expert to appraise the vehicle, who will testify in court. If both parties cannot agree to a value, the finance company will also obtain an appraisal of the auto. Most likely, the appraisal will facilitate a settlement of the value for a reasonable figure. However, if a settlement cannot be reached, than both appraisers must testify, with the judge making a determination. as to the value.