Periodically, I meet with debtors who own either second vehicles or motorcycles, and would like to keep them, after either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy filing. Filing for either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy doesn’t always mean that you have to give up your second vehicle or motorcycle, as long as the payments are considered a reasonable vehicle expense. The second vehicle, referred to above, is the vehicle that is an extra one for the single debtor, or the third one for joint filers.
How does the debtor know if the second car or motorcycle will be considered a reasonable expense? The answer to this question initially depends on the type of bankruptcy being considered: Chapter 7 or Chapter 13.
Since with Chapter 7 Bankruptcy there is no repayment plan for creditors, the secured debts, like vehicle loans, are either continue to be paid by the debtor or the vehicles are surrendered. The debtor is obligated to list his/her income and expenses in the bankruptcy petition. The purpose of listing income and expenses is to show that after deducting reasonable expenses, the debtor has no money with which to repay his creditors. If there is any significant money left over in the budget (more than about $100), the debtor will not qualify for Chapter 7. Instead, he will be required to file a Chapter 13 Bankruptcy where creditors are repaid some or all of what they are owed.
If the Chapter 7 debtor’s monthly income equals to his/her monthly expenses, the debtor has no money with which to repay his creditors in a Chapter 13. However, those expenses must be reasonable or the trustee will object to the bankruptcy. This is the critical issue in whether the debtor will be able to keep the second vehicle or motorcycle. Usually if teh budget shows that even befor the payment on the second vehicle or motorcycle, the debtor is either at break-even, or is in the negative territory, the bankruptcy court will not require him to give it up. If the debtor wants to spend less on other expenses, the debtor can do that. If the debtor wants to make the payments, he can keep the second vehicle or motorcycle. An additional caveat has to do with any equity in such second vehicle. If there is any equity, the trustee is likely to demand that such equity be paid to the bankruptcy estate since it would not be protected by teh bankruptcy exemptions.
The above also applies for Chapter 13 Bankruptcy. In Chapter 13, any vehicle payments allowed in the repayment plan take money away from what the unsecured creditors receive. So a payment for the second vehicle or motorcycle will reduce the money the trustee has available to repay other claims and is likely to be objected to. Here in Rochester, the bankruptcy trustee will permit the debtor to keep the second vehicle or motorcycle if the plan repays all unsecured debtors at 100%. So, if the joint debtors, for example, are a couple with three vehicle payments, three vehicle payments are not necessary for “the effective reorganization of the debtor” required by the bankruptcy statute. The second vehicle or motorcycle is likely to be toy, and allowing the toy to be paid off in the plan reduces the amount the unsecured creditors receive.
The easiest way to determine whether the second vehicle or a motorcycle will be viewed as an allowable expense in Chapter 7 bankruptcy or Chapter 13 Bankruptcy is to discuss these issues with a bankruptcy lawyer prior to making a decision to file.
If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.