High Car Payment in Chapter 13

[clydeglyde]

Hi

1st post so please be gentle

My wife was just informed that she has to take a 30% pay cut in her job. With this news, it appears that we will need to file Chapter 13 in around 7 months (need to wait until her salary is reduced for 6-month period.)

We just bought a new Ford back in March and our payment is $790 per month (nothing down when we bought it.) It is our only vehicle which is why we decided to get a nice one (it is a Ford but loaded.)

As I broke down our expenses and income in the Nolo Means Test, we will most likely be in a Chapter 13.

My question is we still want to keep the car...don't know if we will be able to get a good loan after credit starts to go south (as we will stop paying cc to prepare for the filing.) Will we be able to? We should be able to make the payments and our payback will be around 30%.

What are some experiences out there? (we are in Washington State.)

In sum, ...can a Trustee demand that we give up the payment (as it is above the $400+ IRS allowance for a vehicle in the means test) and get a more reasonably priced one (again don't know how that will happen as our credit will be shot) so we can put more money towards the owed creditors?

Are there Trustees that will make you to give up the car and payment?

[lrprn]

Welcome to the forum, CG! Glad you found us!

...can a Trustee demand that we give up the payment (as it is above the $400+ IRS allowance for a vehicle in the means test) and get a more reasonably priced one (again don't know how that will happen as our credit will be shot) so we can put more money towards the owed creditors? Are there Trustees that will make you to give up the car and payment?

You may be asked to prove this is your car payment, but the trustee can't demand that you sell the car for a cheaper one.

The issue you will have is whether your disposable income is calculated from the Means Test or Schedule I vs J in Washington - this varies from state to state, even court to court depending on case law decisions and trustee custom. The Means Test will use the required smaller amount from the IRS creating a larger disposable income amount, and Schedule J will use your real car payment creating a smaller one.

Knowledgeable Ch 13 bk lawyers in your area will know which will be the case if you do file. If you haven't interviewed any yet, be sure to add this to your question list.

[justbroke]

I (personally) don't see any Trustee allowing a $790/month car payment on a single car while in a Chapter 13. The IRS National Standard is $489/month. Now, having said that, you could be able to keep it. One way would be to pay unsecured creditors 100% over the life of the Plan. The other way may be to contribute an additional $300/month (to make up for the difference) to the unsecured creditors... but that $300 would come out of your allowances and may be a non-starter. However, I say this only under the totality of your circumstances.

Of course, as lrprn writes, local rules and precedence are what really set the standard and that which I wrote above, may not matter.

Welcome to the Forum!

[beam14]

Is that your only car?

I have 2 Cars one payment 615 and the other 520 in a 0% unsecured Chapter 13 and the trustee never batted a eye at it. Also I am the only one with income as the wife is a stay at home mom.

What district are you in?

[clydeglyde]

Thanks for all of the input. I am in Western Washington (State) District. I have 1 car that is ours (the one witht he $790 payment) and I have a company car that I pay $100 a month for...

JustBroke, if what your saying applies to my district and situation, how would my company car apply to the means test and/or I/J schedules? The $100 a month is a mandatory payroll deduction and I pay for personal use for the vehicle. Can I claim a second vehicle on the means test?

Thanks

[justbroke]

Thanks for all of the input. I am in Western Washington (State) District. I have 1 car that is ours (the one witht he $790 payment) and I have a company car that I pay $100 a month for...

Interesting on the $100 company car...

JustBroke, if what your saying applies to my district and situation, how would my company car apply to the means test and/or I/J schedules? The $100 a month is a mandatory payroll deduction and I pay for personal use for the vehicle. Can I claim a second vehicle on the means test?

The $100/month company car is new to me. However, if you have Mandatory payroll deductions, those are captured on Schedule I (Line 4 - Other Deductions) and Form B22C (Line 31 - Involuntary deductions).

Yes, some people are able to not attract the Trustee's attention with the cars, but it's not just the Trustee. And, there are so many factors involved.

A creditor themselves, can also bring an objection to confirmation on the car. Say, for example, you have a creditor that will get 30% in your plan. Say that they see your $790/month car. Let's say that the creditor is unsecured for $30,000 and will lose $21,000 (70% of $30,000). They can file an objection (bad faith objection) because if you paid $300/month more into the plan, they could get $18,000 more over a 60 month plan period. They will more than likely win on this too.

[holding on]

A creditor themselves, can also bring an objection to confirmation on the car. Say, for example, you have a creditor that will get 30% in your plan. Say that they see your $790/month car. Let's say that the creditor is unsecured for $30,000 and will lose $21,000 (70% of $30,000). They can file an objection (bad faith objection) because if you paid $300/month more into the plan, they could get $18,000 more over a 60 month plan period. They will more than likely win on this too.

This is what's confusing to me...I thought Ch13 BK was all about disposable income. What if the person doesn't have an extra $300 more to pay into the plan? You can only take so much from other stuff. Does some negotiation start between the filer, creditor and trustee?

[justbroke]

This is what's confusing to me...I thought Ch13 BK was all about disposable income.

Exactly! That's the whole problem with Chapter 13... it's all about the calculation of Disposable Monthly Income. Even worse, it's based on projected disposable income. But let's deal with disposable monthly income (DMI) first.

What if the person doesn't have an extra $300 more to pay into the plan? You can only take so much from other stuff. Does some negotiation start between the filer, creditor and trustee?

It's not an Extra $300. And here's why...

(Note: that there are conflicting opinions on what Congress' intent was by allowing debtors to include payments on secured debt in it's entirety over the course of a Plan, no matter how much it is/was. But there's always the bad faith argument... which is where most Trustee/Creditors get around this fact.)

Your disposable monthly income (DMI) is calculated using a very strict mechanical calculation (known as the means test) when you are an above median income earner. This means that your expenses (more like allowances) are determined by the IRS predominantly. There are some other expenses that are allowed but they are highly controlled (receipts and documentation required). This is what gets you to that DMI number.

However, as noted in the paragraph above with "Note"... some argue that line 47/48 on Form B22C allow you to claim payments on any property that's secured by a lien in any amount. So, the argument becomes, is that in good faith? This is why many Trustees will balk at anyone with car payments over the IRS limit ($489/month). The Trustee files a bad faith objection stating, simply, that why should your unsecured creditors suffer, while you drive around in a Lexus. This argument seems to win often! You can often overcome this objection and get through confirmation by a.) giving up the vehicle for a different one (under the $489/month), b.) paying the difference into the Plan, or c.) otherwise being in a 100% plan.

Now this is just the consensus view. People do get through confirmation on 0% Plans and high car payments. How they did it, I can't tell you, but I can tell you what Trustees are looking for. This is one thing that they look for. The more money they get you to pay into your plan, the more money they make (kind of an incentive for them to find more "disposable" income.) Plus, and people forget this part, the Trustee is there to protect creditors.

[CH33 Paralegal]

It all depends on the type of case you're filing. If you're paying everybody back 100%, hey, your choice.....you want to get rid of the credit card debt and keep the car?....not so easy. What you're going to be asking the court is for it to relieve you of your credit card debt so you can afford to keep the luxury item.

However though, it is your only car in the household, so if you both split that car payment, it would be 395/mo each....it's in the rhealm of maybe a little too much, but its economies of scale and again, it all depends on the plan thats being proposed.

[holding on]

Ok, I see. The two issues of what's allowed from the means test, and overall good faith of bankrupty. I was believing that payment for a secured vehicle was trumping everything else regardless of how high. Thanks.

[justbroke]

Ok, I see. The two issues of what's allowed from the means test, and overall good faith of bankrupty. I was believing that payment for a secured vehicle was trumping everything else regardless of how high. Thanks.

Nope. They technically can't complain about the amount of the payment because Congress has chose to allow the entire amount for secured payments (Line 47 of Form B22C). However, there is always the "bad faith" argument looking at a totality of circumstances.

[Clouddancer]

However, as noted in the paragraph above with "Note"... some argue that line 47/48 on Form B22C allow you to claim payments on any property that's secured by a lien in any amount. So, the argument becomes, is that in good faith? This is why many Trustees will balk at anyone with car payments over the IRS limit ($489/month). The Trustee files a bad faith objection stating, simply, that why should your unsecured creditors suffer, while you drive around in a Lexus.

Maybe because they are unsecured creditors??

[justbroke]

Maybe because they are unsecured creditors??

Unsecured creditors do have power. Why would an unsecured creditor, or the Trustee for that matter (who is usually brings forth these objections), sit by why you get to keep a Lexus, while they get nothing?

[clydeglyde]

I appreciate everyones feedback...I don't want to derail the topic or discussion...I am not driving a Lexus. It is Ford...

Anyways, I would not have bought the car if I knew my wife was going to lose that much salary. Our car that we traded in was 4 years old and my payments on that were $650...anyways, I guess it all depends on how the trustee looks at it...I will probably have to find an additional $300 in disposable income or risk it being dismissed.

...or my wife could quit her job, wait 6 months and we file Chapt 7 and no one gets anything

Again, thanks for your advice and information. I definitely appreciate it.

[ShouldWeFile]

I have been told that my attorney had a case where the client wanted to keep a Hummer or something like that and the judge said "no need to waste your time counsel, there is no way you can justify your client driving a better vehicle than I can afford..."

Based on my limited experience, I think it would depend on the trustee, the attorney, the level of debtors income, the need for the vehicle (ie, a high earning professional may "need" a luxury vehicle, but a homemaker certainly does not). All of this is really just speculation, but I am sure it can help to try and justify one way or another...