Cars & Vehicles

Published on: October 4, 2012

What Happens If Your Co-Signer Files for Bankruptcy?

Many times, when someone wants to make a large purchase, like a house or a car, they may need to have someone co-sign the loan with them. Simply put, a co-signer is someone who is making a promise to the creditor to repay a loan if the primary borrower cannot pay and defaults on the loan. We all know that if the primary borrower defaults (or files bankruptcy), the co-signer will be required to pay the loan back in its entirety. But what happens when it’s the co-signer who has filed for bankruptcy? How will that affect the primary borrower?

The best way to describe the situation is with an example. Picture this: Charlie is in the market for a new car, but can only qualify for a loan if he has a co-signer. His friend David agrees to be a co-signer on the land, but he will not be listed on the title as the owner of the car. Sometime later, David files for bankruptcy and is no longer required to pay the car loan. What happens to Charlie?

Charle, as the primary borrower, still has to pay the balance of the loan. Now, when Charlie pays off the loan, there will be no liens on his car, and the car will be titled in his name as the owner. The only difference between being a primary borrower and a co-borrower in an auto finance contract is who the car eventually belongs to after the loan has been paid. Thus, when David, the co-borrower, filed for bankruptcy, that amounts to a breach of the loan agreement and it could be considered default. The creditor, however, now has only one person to look to for the repayment of the loan.

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Published on: July 16, 2012

How should you handle your car in bankruptcy?

By David M. Goldman

Filing a Chapter 7 bankruptcy can be used to save your car under limited circumstances, but it is possible. In Chapter 7, a debtor only has three options when it comes to deciding what do to with their personal property covered by a lien. Once you and your bankruptcy attorney decide which option is best, your attorney will file a “Statement of Intention” with the bankruptcy court to let everyone know what your intend to do with regard to your secured collateral. Here are your options:

1. Surrender

The first option is to surrender the property to the car lender in full satisfaction of the debt. The car lender can never come after you for the difference between what the car sold at auction and what you owe on the note. In normal situations, if you owe $10,000 on a car that gets repossessed, and the lender can only get $6,000 for it at auction, the car lender can sue you for the remaining $4,000 on the note. Because a Chapter 7 bankruptcy wipes out your personal liability on your debts, your lender will never be able to come after you for the deficiency.

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Published on: July 3, 2012

Your Bank May Help Pay For Your Bankruptcy

By David M. Goldman

Hard times have fallen upon most of the United States and Jacksonville, Florida is no exception. Bankruptcy filings are down and many of the other attorneys I speak with agree that it’s not because people no longer need bankruptcy -it’s because people can no longer afford the cost to file.

Filing bankruptcy generally costs around $1,500 for a Chapter 7 and those fees must be paid prior to filing. With so many people stretched to their financial limits, attorneys are getting more creative about how clients can pay for fees.

It’s rare these days to find a debtor who has equity in their home, but it’s not uncommon to find a debtor who has equity in their vehicle. Due to the high interest rates on car loans and the lower pay-off amount, it’s not infrequent for a debtor to have paid off their car note early, often having in excess of $2,000 of equity in the car.

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Published on: April 24, 2012

Florida Legal Interest Rates For Financed Vehicles

By David M. Goldman

Florida residents often roll off car lots without knowing if the high interest rate financing they received is even legal. There are protections from high interest rates for people in the Florida Statutes, but you need to know the protections are there and have a lawyer whose prepared to bring an action on your behalf.

Florida Statutes Title 34 §520.08 states that:

“(1) Notwithstanding the provisions of any other law, the finance charge, exclusive of insurance, shall not exceed the following rates:

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Published on: April 12, 2012

Florida Citizens Can Keep Several Cars In Chapter 7 Bankruptcy

By David M. Goldman

Many Floridians contemplating bankruptcy believe that they can only keep one car when they file. This is because the Florida statutes only have one, “motor vehicle” exemption up to $1,000. Florida also has a $1,000 wildcard exemption as well as either a house or an additional $4,000 wildcard exemption. These wildcard exemptions can be used to keep a vehicle as well if the debtor decides. If a debtor had several vehicles worth less than $4,000, they could keep those vehicles. Note that the exemption amounts are only to be used on vehicle equity. If a car is worth $4,000 but has a $5,000 balance on the note, the vehicle has no equity and can be kept in the bankruptcy without using any exemptions.

There are two ways to keep a vehicle that has too much equity in a Chapter 7 bankruptcy. The first way is to go to a bank and to take a loan out with the vehicle as security. The funds from that loan can be used to pay for reasonable and necessary living expenses, which can include attorney fees. So, if a vehicle was worth $6,000, a debtor could take out a note for $5,000 on the car and then spend that money on groceries, gasoline, electricity and the attorney who files their case. They could then reaffirm the debt on the car and keep it in the bankruptcy.

The second way to keep a vehicle that has too much equity is to enter into a “buy back” agreement with the Trustee. Since the Trustee would be auctioning off your vehicle if you couldn’t exempt it, they are often willing to sell you the car for a price slightly less than the vehicle’s value. This makes sense for the Trustee because by selling the car to you they no longer have to pay any auction or repossession fees. The Trustees will also accept these payments over a reasonably long period of time, occasionally as much as a year.

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Published on: April 3, 2012

Baldwin Bankruptcy Attorney: Keeping Cars in Bankruptcy

By David M. Goldman

Ever since Henry Ford popularized the car a little more than a century ago, people have loved their cars. So it’s no surprise when people looking to file bankruptcy ask me how filing will effect their car. And since Henry Ford filed bankruptcy himself, the two subjects are even more related.

People need cars to get to work, to buy groceries and to live. The legislature knew this when they created the bankruptcy exemptions (the things you get to keep). So, everyone is allowed to keep a car in their bankruptcy, but how much car? Certainly not a Mercedes Benz. Well, maybe a Mercedes Benz, but only if it’s very old. People who file bankruptcy in Florida may have to use the Florida exemptions. These exemptions require a person to live in Florida for more than two years, but they allow a Florida citizen to keep $1,000 in vehicle equity $1,000 in personal property and then either a home or $4,000 additional personal property. Now, personal property can apply to a vehicle, for example: If Jeff owns a car worth $1,500 he can use the $1,000 vehicle exemption on the car and then use half of his $1,000 personal property exemption to cover the rest. If his car was worth $4,000 then he would use his $1,000 vehicle exemption and the $1,000 personal property exemption but if he owned a home he’d be out of exemptions. This doesn’t have to mean that Jeff loses his car (although that’s an option he can choose), instead he can offer to pay the car’s value in exchange for getting to keep it. Typically these payments are spread out over a year to make them reasonable. Since most people pay off their car before anything else, this comes up a lot.

Another option Jeff may have is to get a loan on his vehicle. If Jeff’s car is worth $4,000 and he can’t pay within twelve months of his bankruptcy case, he could take a loan for $3,000 out with his car as collateral and spend that $3,000 on reasonable and necessary living expenses such as food, gasoline, rent, or legal fees. He would still have to pay for the car, but as long as it was a loan term longer than a year, his payments would be lower than they would be paying the court.

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Published on: March 23, 2012

Bankruptcy Can Make Cars More Affordable

By David M. Goldman

Car payments seem to be unavoidable. Unless you’re one of the rare people who have the luxury of being able to ride a bicycle to work, you must have a car. Everyone knows that the value of a car drops as soon as you drive it off the lot and as a result, many people who drive financed vehicles owe more to the lender than the asset is worth. Wouldn’t you love to be able to pay what you vehicle is worth right now, rather than what you owe on it? You can, and here’s how:

11 USC 722 allows a bankruptcy debtor to pay the secured portion of the debt owed on the car to satisfy the lien. “Security” for a loan the physical asset which can be exchanged to satisfy a lien. A typical security is a house or car. If you stop paying on the lien, the lender can take the house or car to satisfy the lien amount. Any value in the house or car above and beyond what is required to satisfy the lien (and associated fees) is returned to the borrower. A “Deficiency” occurs when the house or car sell for less than the lien amount. Deficiencies are unsecured debts for which a lender may sue. Deficiencies are very typical in the housing market these days.

When a debtor elects to use 11 USC 722, the court bifurcates the lender’s single claim into two claims, one secured which is equal to the fair market value of the car and one unsecured which represents the remainder. This way the borrower can discharge the unsecured portion, pay the secured portion and keep the vehicle. This is relatively easy in a Chapter 13 because the debtor can re-amortize the secured debt to be paid over the length of the Chapter 13 repayment plan, typically over five years. However, in Chapter 7 the payoff must occur immediately which is often impossible for people who’re already bankrupt.

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Published on: March 7, 2012

Jacksonville, Florida Debt Collectors Must Follow Procedures

By David M. Goldman

These days, debts are bought and sold like stocks. By the time a debt collector files suit against you, they may be the third or fourth agency to hold your debt. Generally, this is a good thing because Debt collectors assume that they will be able to win by default in nearly all of their cases. As a result, these collectors rarely keep proper documentation (or don’t even get it in the first place).

Adopted by nearly every state, the Uniform Commercial Code sets forth requirements that must be met by a secured creditor before they can assess a deficiency against a debtor. There are varieties of other provisions that can be used to protect consumers: the Fair Debt Collection Practices Act, the Federal Truth in Lending Act, etc. One of the most powerful protections a consumer has is the Florida Rules of Civil Procedure. When one knows how to get evidence and how to present pleadings properly, the strength of a case is greatly amplified.

When a collector files a complaint with the court, they must have the debtor served at their last known address. There are a variety of defenses that can be used: Perhaps the collector hasn’t properly shown that they are owed the debt, perhaps the debt amount has been improperly calculated, perhaps the debtor isn’t even the right person -the list goes on and on. What is important to keep in mind is that a lack of action on the part of the defense means that they consent to the facts alleged. This is called a default judgment. Default judgments are difficult, though not always impossible to “re-open” and work out properly. It’s far easier to defend such a case if counsel is sought prior to a judgment being obtained, preferably before the initial twenty days after service of process has occurred. By getting into a case early, a lawyer will almost invariably have a better chance at defeating the complaint and may be able to get attorneys fees or file a counter-claim for damages (suing the person who is suing you).

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Published on: February 29, 2012

Personal Property in a Jacksonville Bankruptcy

By David M. Goldman

When you file for bankruptcy in Jacksonville, Florida, a certain amount of your personal property is exempt from collection by creditors. Generally, you are allowed to keep $1,000 in personal property, $1,000 in vehicle equity and then either a qualified homestead or $4,000 dollars in additional personal property.

To be a qualified homestead the property must be under 1/2 acre if within a municipality or up to 160 acres if in an unincorporated area. Abutting lots can qualify as long as the land maximums aren’t exceeded.

The value you assign to your property should be the approximate auction value of the property. That is to say, how much do you think you could get for that property at a bankruptcy auction? My bedroom set may have cost $1,200 ten years ago, but it is certainly not worth that today, especially at an auction. Evaluating your property is difficult and can sometimes require professional assistance. What is more important is that you are thorough in creating a complete list of what you own. Omitting valuable property interests by accident can look like an attempt to commit fraud. There are cases in which an appraiser will be sent to your house to evaluate your property. It is rare, but it does happen. You can, of course, pick and choose which property you keep based on it’s value. If you don’t care for an old, but valuable, wedding present you never use, you can list that property but not elect to exempt it, exempting something else instead.

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Published on: February 4, 2012

Debtors Can Often Keep Their Cars in Bankruptcy, Motorcycles Maybe

By David M. Goldman

Although bankruptcy filers using Florida exemptions are only allowed to keep around $1,000 in vehicle equity, financed vehicles can almost always be kept through a bankruptcy case. Generally, items that are reasonably necessary for the care and support of the debtor and their dependents are exempt from seizure for the benefit of creditors. For more about exemptions, read my article on Keeping Personal Property in Bankruptcy.

Different rules apply when the vehicle is unreasonable or has an inappropriately large amount of equity. For instance, a Maserati may be unreasonable to attempt to reaffirm in a Chapter 7. In Chapter 13 there are two mechanisms that can cause problems with keeping high value or unnecessary vehicles. The first of these is the “Feasibility Test” of the Chapter 13 plan. When you submit a payment plan in Chapter 13 the plan itself must be reasonable. If you’re making a $700 payment per month on a turbocharged super-mobile and only make $1,200 a month, your plan may be unfeasible.

The second and more likely test is the “best interest of the creditors” test. This test, more formally known as 11 U.S.C. § 1129(a)(7)(A)(ii) requires that the creditors in a Chapter 13 obtain at least as much money for their claims as they would in a Chapter 7 liquidation case. If a debtor retains a motorcycle that would have to be liquidated in a Chapter 7, the debtor must either turn the vehicle over to the Chapter 13 trustee or offer to pay the value of the motorcycle to the unsecured creditors over the life of the plan.

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