Can you Cramdown a Car Loan within 910 days, but purchased for Business?

[TurnThePage]

I bought a 2021 brand new car last September, purchased primarily so I could do Uber and Lyft, and my freelance Taxi business. (My 2004 Honda Pilot is too old to be used as a rideshare vehicle.) Is this loan eligible for a cramdown, even though it was purchased within the 910 day rule? If I study the Bankruptcy Code correctly, that restriction seems to apply only to a vehicle purchased for personal use.

[despritfreya]

Yes, you can use that argument but be prepared to litigate the issue as the burden of proof is on the debtor.

See:

https://casetext.com/case/in-re-strange-2

See also:

In re Westerfield, C/A No. 09-01637-JW (Bankr. S.C. 6/8/2009)

“Use has been considered personal by this Court and others when such use '"satisfies personal wants (such as recreation), transportation that satisfies personal needs (such as shopping or seeking medical attention or other errands), and transportation that satisfies family and other personal obligations, whether legal or moral obligations.'" (quoting In re Solis, 356 B.R. 398, 410 (Bankr. S.D. Tex. 2006)). Utilization of the vehicle by Debtor in these ways may be considered personal if such uses are "significant and material." In re Matthews, 378 B.R. at 491 (citations omitted). In determining whether use of a vehicle subject to § 1325(a)(*) is personal, the Court evaluates the following list of non-exclusive factors in light of the totality of the circumstances: "(1) testimony from the debtor about intended use; (2) the debtor's actual personal use of the vehicle; and (3) any designation of personal use provided by the parties' contract."

For an analysis of several schools of thought see:

https://casetext.com/case/in-re-royal-13

Des.

[TurnThePage]

Thank you, despritfreya! Very informative and great case law. So I'm curious as to how one would go ahead and include the car as a business cramdown in the Chapter 13 petition. I've filed two Chapter 7's, won an Adversary Proceeding against the Department of Education, but Chapter 13 is new to me; I feel like a stranger in a strange land.

[despritfreya]

Describe the vehicle on Schedule B and D as "used for business purposes" and similarly describe it in the Plan. Remember, valuation is not trade-in or even, private party value. It is. . .

If the debtor is an individual in a case under chapter 7 or 13, such value with respect to personal property securing an allowed claim shall be determined based on the replacement value of such property as of the date of the filing of the petition without deduction for costs of sale or marketing. . .

(Emphasis added.)

See 11 USC 506(a)(2)

You will have to research what "replacement value" means in your district when the asset is used for business purposes.

Des.

[justbroke]

This would definitely be an interesting case, so please keep us up to date.

[TurnThePage]

I received a registered letter today from the creditor, demanding that I either surrender the car or pay the monthly arreages in full, plus "closing and administrative costs, mileage fees," etc., for ~$5000. If I had that amount, I would be retaining an attorney, but I'm going to file Chapter 13 pro se.

For a business cramdown, do the missed car payments become unsecured debt in the Chapter 13 plan?? Or am I required to pay that up front to the creditor or the trustee "to get current," or do the missed payments become part of the secured debt in the monthly plan? 🤔

[despritfreya]

The total payoff is the amount of the claim. It is listed on Schedule D. Look at the form. It tells you to list the amount owed, value of vehicle, and amount to be classified as unsecured.

As to the Plan, here is a sample:

https://www.uscourts.gov/sites/default/files/b_113_and_cn_0.pdf

Scroll to 3.2

Be advised, your District may have a model form for the Chapter 13 Plan that you must use. It will probably have a similar provision as the one above. Check your Court’s website for official forms.

Des.

[TurnThePage]

Thanks Des! I appreciate your insight and knowledge. So I have a feeling the creditor is going to proceed with a Replevin lawsuit very soon, so I need to act quickly and file my case. In Washington, it sounds like they only need to give 5 days notice for a hearing. The only defense is the automatic stay of Chapter 13. So I'm almost ready to "go for the gusto," but I'm not sure how one calculates the "interest rate" on the petition for the cramdown. It's something like Prime + 1-3% but there are so many procedures for a pro se litigant to take in all at once.

Also, if I remember correctly, "replacement value" was the equivalent of items that one would purchase at a garage sale, or the Kelley Blue Book "trade in value" of the vehicle (for instance, in a "cramdown"). I remember this was the case of my listed exemptions in Chapter 7, so I'm assuming 13 runs a parallel to this. It's my understanding that the Trustee won't be interested in property with little to no equity; it would be the creditor who could possibly file an Adversary Proceeding or Evidentiary Hearing opposing the value of the vehicle.

Any additional thoughts / comments are welcome. I need to file ASAP, but I'm only a Level 1 Padawan / Neophyte to Chapter 13 Bankruptcy Code lol

[despritfreya]

You asked about replacement value. The definition varies but is not garage sale value when dealing with a secured claim. In the context of Chapter 7 we generally value things at garage sale as we are trying not to entice a Trustee. The less something is worth - the less likely a Trustee will want to take it if it is not exempt.

For one doing a cram down in a Chapter 11 or 13, the definition could be:

The amount an individual would have to pay, at the present time, to replace a particular item, taking into consideration the item's age and condition.

The price a retail merchant would charge for property of that kind considering the age and condition of the property

Or, because this is not a “consumer” loan and Washington is in the 9th Circuit, it could use the reasoning of the 9th Cir. Court of Appeals - See this well written blog:

https://www.jonesday.com/en/insights/2017/10/ninth-circuit-reverses-course-on-measure-of-collateral-value-in-cramdown-confirmation-of-chapter-11-plan

As to the interest rate, now that rates are on the upswing, I have been setting them at 6% and so far, have not gotten much push-back. Again, this may be district specific as to what the “Till Rate” is deemed to be and whether or not a creditor really wants to spend money over what is typically a minor difference over the five years.

Des.

[justbroke]

a creditor really wants to spend money over what is typically a minor difference over the five years.

Now there's something that's hard to teach! Yes, spend $1,000 on hearings to "collect" $200 in interest over 5 years. I had a creditor arguing over the value and rate and reminded them they were wasting thousands arguing about a couple of hundred dollars!

[TurnThePage]

Quick Question for Des: On Schedule D in a cramdown, is the debt Contingent, Unliquidated, or Disputed? On the Court's Official Form, We have A: Amount of Claim (which I'm assuming is the total amount owed), B: Amount Secured by Collateral (Replacement Value of vehicle in present condition), and C: Unsecured Portion: A - B? Technically I'm not "disputing" the debt in my proposed cramdown, but the Creditor probably will.

[despritfreya]

On Schedule D in a cramdown, is the debt Contingent, Unliquidated, or Disputed?

None apply because. . .

In general terms:

Contingent means: No liability until the happening of some future event.

Example: You agree to pay a debt if, and only if, your cousin passes away. Your liability is contingent upon the cousin’s passing.

Unliquidated means: Amount owed is not readily determinable.

Example: You are being sued for wrongful death or some other personal injury claim. The damage award is up to a jury if you are found liable (also contingent upon being found liable). Until liability is established and damages are proven, the debt is unliquidated as a dollar amount cannot be calculated until that happens.

Disputed means: You dispute actually owing the money or some part thereof.

Example: You dispute owing the debt because you did not authorize the charge on your credit card account.

Des.

[TurnThePage]

Thanks Des! Your knowledge is extremely valuable, as always. Speaking of contingency, where would one place a potential / contingent source of income, i.e. let's say I'm suing Uber Technologies for Breach of Contract, and the amount is contingent on the outcome of the lawsuit, or if I'm successful for that matter. And if I did succeed and win this separate lawsuit, for instance, in the amount of $5000, do these funds automatically get disbursed to the unsecured creditors, or the secured creditors, via the Trustee, or is there a way to exempt that amount with a wild card, etc. As you can see, my case is quite complicated. And even though I've been working overtime, I'm just barely making ends meet and I cannot afford legal counsel. Any and all help would be greatly appreciated. Thank you so much!

[despritfreya]

1. Your claim against Uber is an asset and must be described on Schedule A/B.

2. If there is a pending lawsuit, it must be listed on question 9 of the SOFA.

3. You have the right to prosecute the claim in State Court however, the Defendant will most likely put the State Court on notice of the bk filing and the State Court will most likely place the matter on its inactive calendar or whatever it uses when a Notice of bk is filed.

4. Once on the inactive calendar you will have to seek a comfort order from the bk court so that you can proceed.

5. Unless an exemption covers any damages you are awarded, any award you get belongs to the unsecured creditors and will most likely have to be turned over to the Chapter 13 Trustee.

You really need to be discussing this with a local attorney who understands the procedure in your district.

Des.

[TurnThePage]

I definitely need to find an exemption for this. I could sue Uber for up to $10k for lost income due to Breach of Contract. Then maybe I could afford a Ch. 13 Attorney and pay the $4k retainer, ironically enough.