December 15, 2017

Do I Have to Give Back the Car I am Financing if I File a Chapter 7?

I have a question about the blog in Nov,2006.  You said that filing bankruptcy can stop car repossion .  But after you file chapter 7 do you get to keep the car and the debt is discharged or you can keep the car only if you promise to make payments on tht vehicle.  Because I have been told the only way you can keep the car when filing chapter 7 is if you promise to make payments and you do not include it in your chapter 7 bankruptcy.  I was told if you owe on the vehicle and place it in your chapter 7 bankruptcy you have to give the car back. Could you give me some insight.
–Fana

Jonathan Ginsberg responds:  Fana, the minute you file a bankruptcy, all creditor action stops because of something called the "automatic stay."   There are a few exceptions to the automatic stay (i.e. multiple filings, child support debt, and a few other limited categories), but as a rule, all creditor action stops the minute you file.

Chapter 7 is primarily designed to get rid of unsecured debts like credit cards and medical bills.  In a Chapter 7, secured debts must be either reaffirmed or the collateral must be surrendered to the secured creditor.

Automobile loans are considered secured debts because the vehicle you purchased serves as security for the loan.  If you want to keep your vehicle in a Chapter 7, you must reaffirm it.  Reaffirmation of a vehicle loan is voluntary on the part of the secured creditor.  Generally, most car lenders will reaffirm if:

you are current with your payments

you have enough income to pay for the reaffirmed debt in your budget

your are able to shelter (exempt) your equity, if any, as part of your Chapter 7 petition

If the creditor refuses to reaffirm your choices are to surrender the vehicle or to convert to Chapter 13 where you can try to force a repayment down the lender’s throat.

If you do nothing – do not reaffirm and do not state any intention, the Bankruptcy Code will presume that your intention was to surrender and after the bankruptcy is over, the secured lender can repossess the vehicle.  Note that in this situation you would have no personal liability for a repossession deficiency – the Chapter 7 discharge serves to wipe out your personal liability.  However, the lien (in rem jurisdiction) that encumbers the vehicle remains and survives the bankruptcy.

So, if you are financing a vehicle and you file Chapter 7, there is a good chance that you can keep your vehicle if you qualify for a reaffirmation.

Do Pre-Confirmation Adequate Protection Provisions in Chapter 13 Put a Debtor’s Interests in Conflict With Those of His Lawyer?

Does a change in the Chapter 13 law that provides for "adequate protection" payments to vehicle lenders put the debtor’s interests in conflict with the debtor’s lawyer?   As the final language to the BAPCPA changes to the Bankruptcy Code were being negotiated by lawmakers and lobbyists, a very interesting provision was included, most likely at the insistence of lobbyists for vehicle finance companies.

Chapter 13 now provides that debtors may include "adequate protection" payments to vehicle lenders such that the lenders receive payments prior to the confirmation of a Chapter 13 case.  These adequate protection payments can be made directly by the debtor to the lender or, as is the case most often, through the trustee’s office from the trustee payment receipts.

For example, a debtor may owe $25,000 on a vehicle purchase in which the contract payment is $450 per month.   His Chapter 13 trustee payment may be $550 per month with $400 of that payment payable to the lender prior to confirmation as an adquate protection payment.  Such an arrangement seems reasonable, but is it really?

Here is the ethical issue that debtors’ lawyers face.   Individuals facing bankruptcy – whether Chapter 7 or Chapter 13 – usually have very little cash on hand.   The filng fee for Chapter 13 in particular is now $274 and further increases are predicted.   Debtors’ lawyers therefore usually collect the filing fee and some small payment towards the attorney’s fees prior to filing a case.  In my office, for example, I usually ask for at least $600 in up front attorney’s fees + the filing fee for a total of $874.  My experience has been that most debtors have to struggle to come up with $874.  Then there is the $50 that the debtor has to pay for pre-bankruptcy counseling.  Many lawyers charge the filing fee only or perhaps the filing fee and $200 or $300.

The Chapter 13 plan used in the Northern District of Georgia allows attorneys to set a "reasonable fee" both for cases that are confirmed and for cases that are dismissed prior to confirmation.  A plan may provide for $4,500 or $5,000 in fees if the case is confirmed and, say, $3,500 if the case is dismissed.   The fees charged in your case may be higher or lower depending on the complexity of your case and the lawyer you choose.

As Chapter 13 debtors’ lawyers well know, much of the work done in a Chapter 13 case occurs prior to confirmation.  In the current climate, cases may be reset two or three times and plans and petitions may be amended repeatedly.

If most of the money being paid in to a plan ends up in the hands of vehicle lenders, very little remains to pay a lawyer who may have expended fifteen or twenty hours, only to see his client’s case fail because of a job loss, an illness or circumstances beyond the lawyer’s control.  On the other hand, if the lawyer sets the adequate protection payment very low, the lender may object and the debtor may not have the option of converting his case to Chapter 7.   Secured lenders in Chapter 7 will usually refuse to reaffirm secured debt claims if the debtor is delinquent.  Six months of a low adequate protection payment will result in several hundred to several thousands of dollars in payment delinquencies, leaving the debtor at risk for repossession.

To put this another way, this adequate protection provision forces debtors’ lawyers to choose between getting paid a fair fee for their work or maximizing the adequate protection payment to preserve their client’s ability to convert to Chapter 7 or to dismiss the Chapter 13 case without drastic consequences.

Now, a cynic would argue that lawyers are free to charge a higher up front payment – it is there decision to charge little or nothing up front.   Unfortunately, the marketplace says otherwise.   What is happening and will continue to happen is that solo practitioners and small firms are being driven from the market.   High volume filers will be the only ones left who can take the risk of filing Chapter 13’s.   With no disrespect directed to high volume filers who certainly have their place in the market, there are many complex Chapter 13 cases that need personalized attention.

In my view this adequate protection procedure has the (un)intended consequence of further closing the door to debt relief under Chapter 13.

[tags] adequate protection payments, conversion to Chapter 7, bankruptcy northern district of georgia, car lenders in bankruptcy [/tags]

 

 

Chapter 7 Debtor Did Not Reaffirm Mortgage – Is Her Home Now at Risk?

I have a few questions and I’m not sure how to get them answered so I decided to write to you after seeing your website. I really need some advice or guidelines and would appreciate your help. Please let me know your rates and I’ll be more than happy to pay as I need these answers for peace of mind.

My Chapter 7 bankruptcy was discharged in September, 2006 in Atlanta. At that time, my attorneys told me to stop checking the internet for information because it would just worry me and to leave it to them. The bottom line here is that I wanted to reaffirm my mortgage and stated this at the 341 hearing. I didn’t realize you had to actually sign an agreement for this to happen. I called my attorneys after I realized what should have happened and they told me they never think it is in the best interest to sign a reaffirmation on a home because the mortgage company will never come after it anyway if the loan is kept current. I’ve never been late with a payment. They acted like I was crazy to even worry about these things and reminded me that they told me to stop reading about it on the internet.

Since then I have always received a bill from my mortgage company (my house is an FHA loan-I don’t know if that has any bearing on any of this) that has a disclaimer stating the bill is being sent for informational purposes only and is not an attempt to collect, etc. It is also on my credit report as discharged.

My questions are as follows:

1) Will they ever come after it even if I remain current? Could they wait years until there’s equity in the home and then foreclose?

2) I’ve read that there are some ares of the country where keeping the house without a reaffirmation agreement has been protected by the Federal Court. Is this true, and if it is, is Northern Georgia one of those courts?

3) I just got married and will be changing my name. I’m afraid to even change it with them because I don’t even like to flag my situation, am I crazy?
Also, I wanted to Quit Claim half of it to my husband but this would really be flagging it- am I right to worry about that?
Should I even consider doing that?

Thank you for your time,

Julia

Jonathan Ginsberg responds:  Julia, here is how I would analyze your situation. Bankruptcy Code Section 521 is entitled “Debtor’s Duties” and includes a requirement that you as the debtor must file a statement of intention with regard to property you wish to retain or surrender. Section 521(a)(6) provides that a Chapter 7 debtor must actually enter a reaffirmation agreement for a personal property secured creditor.

The Code is silent regarding a real property secured creditor.

By not reaffirming your home mortgage, I believe you could make an argument that you no longer have personal liability under that loan. Given that the mortgage company is sending you bills “for informational purposes only” it would appear that they recognize the discharge of personal liability as well.

I believe that they would still have a lien against the property – just not against you personally. This means, in theory, that if the house burned down and there was no insurance, they could not come after you personally.

Because you no longer have personal responsibility for paying this debt, your credit report will not reflect the benefit of regular payment.

I know several lawyers who regularly counsel their clients not to enter into residential reaffirmation agreements for the express purpose of eliminating personal liability. Personally, I think that the credit restoration benefits outweigh the risk of personal liability on a mortgage.

I think that the mortgage company would have a hard time trying to foreclose against you, say, 10 years from now based on a failure to reaffirm. There is a doctrine in law called “laches” which says that a party cannot sit on its rights for an extended period of time, then choose to exercise those rights later on. Here, it would hardly seem equitable for a mortgage company to do so. I think it is very unlikely that this would happen.

However, laches is a doctrine of equity and the last place you want to be is in court, paying a lawyer to argue on the basis of equity. At best you would be out several thousand dollars in legal fees and at worst, you lose.

I can’t really tell you what would happen if you tried to refinance or quitclaim. This uncertainty factor is why I prefer to reaffirm. You might want to look at trying to refinance for the purpose of getting your mortgage situation back to “normal.” Or, you could take your chances with a name change or quitclaim to your husband – as long as you are current with the payments, I think it is very unlikely that you would have any problem. I would at least talk to a mortgage broker first, just in case you had to move quickly to refinance.

New Official Bankruptcy Forms Required as of October 1, 2006

You may wonder who it is who creates the bankruptcy forms that we fill out.  In 1922, the United States Congress established the "Conference of Senior Court Judges" – now called the "Judicial Conference of the United States" – to make policy and establish procedures for the operation of federal courts in the United States.  The Chief Justice of the Supreme Court is the presiding officer of the Judicial Conference.

Periodically the Judicial Conference modifies the official bankruptcy forms.  The forms underwent a fairly substantial revision in October, 2005, on the effective date of the new bankruptcy law.

With the new law almost a year old, the Judicial Conference is about to modify the forms again.  Most of these changes are fairly minor, but these revisions will require the software vendors who provide case managment software to bankruptcy lawyers to release new versions of their programs.

You can look at the new forms on the Judicial Conference web site.  One of the biggest changes I see has to do with reaffirmation agreements – what used to be a one or two page document now is now a 10 page document that requires both the debtor and the lawyer (with associated liability) to verify that the reaffirmation is in the best interest of the debtor. 

In any case, these new forms will go into effect on October 1, 2006.

[tags]bankruptcy forms, new official bankruptcy forms, judicial conference [/tags] 

Using bankruptcy to re-negotiate secured debt balances

Bankruptcy debtors often unaware that they frequently have an excellent opportunity to reduce balances and change payment terms on secured loan accounts.

This is especially true for furniture accounts, electronics, jewelry and sometimes automobiles.

If you think about it, it makes sense.  What is a furniture retailer going to do with a room full of used furniture?  Delivery, storage and re-sale costs would likely exceed any re-sale proceeds.

Here is an example of a deal I recently negotiated for one of my bankruptcy clients.  About two years ago, he had purchased a computer system from CompUSA, financed by HRS, USA.  The account was eventually purchased by a debt buyer, eCast Settlement.  At the time we filed his Chapter 7 case the outstanding balance was $3,518.28.

At the first meeting of creditors, a paralegal from the law firm that was handling this account showed up and tried to encourage my client to reaffirm the account at the full balance.  I told her that we could not make a decision now and that I wanted to speak to the supervising lawyer in her office.

I subsequently tried to call the lawyer, but ended up with a senior paralegal.  After a bit of back and forth, we agreed to settle the account for $950.  Thus, my client saved over $2,500 and kept his computer equipment.

I engage in this type of negotiation all the time – and in many cases, the savings exceed my attorney’s fees.  What you should take from this – although you may not realize it, you have leverage, sometimes significant leverage, when you file bankruptcy.

Here is a video that discusses a more recent debt negotiation:

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