Your Bank May Help Pay For Your Bankruptcy

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.

I have met with bank loan officers and found that there are several lenders who are willing to loan debtors money on these equity holding cars as long as they are given a security interest in the vehicle. This way, even if the debtor has poor credit, the lender can rest assure that they can recover their investment out of the collateral if the debtor fails to pay. This also enables the debtor to pay their attorney’s fees and get their bankruptcy filed when they otherwise could not afford to do so.

This method is not without scrutiny. The bankruptcy court looks suspiciously at transactions that appear to make property that could have been collectable by the creditors, uncollectable. For example, if this transaction were to occur, $2,000 of equity would have been removed from the bankrupt person’s estate. This is still appropriate to do, but only if the bankrupt person has sufficient property exemptions to allow them to keep the entire value of the car prior to the loan. As long as this is the case, there should be no problem with the transfer.

If you have questions about how this works or how you can afford your bankruptcy, contact us at (904) 685-1200 for more information.