Car Payments in Chapter 13 Payment Plan

[redyhws]

Say your monthly car payments for the 60 month payment plan is $200. The "means-test" DMI formula basically gives you a Car Allowances of $489 max, but it deducts the $200 payment from that. So, in my case the car allowance would be $289. Then, later on in the means test, it still allows for the $200 deduction. Therefore, my DMI basically is based on a deduction of $489 total.

My question is that if my trustee requires my car payments to be paid as part of the plan, do I propose a monthly payment amount equal to my DMI plus the $200? Or is it just the DMI? Or is it the DMI plus $489?

[HHM]

Means test doesn't really have anything to do with your chapter 13 plan payment.

Generally, unless you are doing a cram down on your vehicle, you simply pay your lender directly as you normally would. On schedule I & J you would simply show a $200 per month car payment.

[redyhws]

In Arizona, they require all car payments (crammed down or not) to generally be part of the plan.

I guess I am confused then on how to compute your monthly payment to the trustee? If the DMI is meaningless, then do you just do Schedule I minus Schedule J?

[HHM]

Correct, the means test is simply there to determine if you qualify for chapter 7. If you show positive DMI on part II of the means, then you do not qualify for chapter 7. However, you plan payment is typically based on Schedule I & J. (note, this issue is going to the U.S. Supreme Court, but the majority view is that you use Schedule I & J to calculate your chapter 13 plan payment).

Let's make sure we are on the same page. Your car payment is "part of the plan", what I am saying is that in most districts, you do not make the car payment to the chapter 13 trustee (unless doing a cram down). But, I have heard of some (I guess AZ may be one) where the trustee requires the car payment be made through the trustee's office (although, I question the legal justification for such a requirement).

[bkstuff]

What is a "cramdown"?

[HHM]

What is a "cramdown"?

In a chapter 13, if the current loan is older than 910 days, you can reduce the principal balance owed on your car loan to the current market value of the vehicle and pay that amount over the term of your chapter 13 plan.

For example, if you owe $20,000 on your car and your current payment is $400 per month. However, your car is only worth $12,000. So, as part of your chapter 13 plan, you can force the lender to accept $200 per month paid through your chapter 13 (12,000 divided by 60), and pay off the car by only paying $12,000, not the $20,000 you presently owe. The $8,000 difference becomes and unsecured debt in your chapter 13.

[redyhws]

Correct, the means test is simply there to determine if you qualify for chapter 7. If you show positive DMI on part II of the means, then you do not qualify for chapter 7. However, you plan payment is typically based on Schedule I & J. (note, this issue is going to the U.S. Supreme Court, but the majority view is that you use Schedule I & J to calculate your chapter 13 plan payment).

Let's make sure we are on the same page. Your car payment is "part of the plan", what I am saying is that in most districts, you do not make the car payment to the chapter 13 trustee (unless doing a cram down). But, I have heard of some (I guess AZ may be one) where the trustee requires the car payment be made through the trustee's office (although, I question the legal justification for such a requirement).

(1) AZ is weird. I think it has become "custom" in AZ (i.e., trustees in AZ have this "unspoken rule") to put car payments in plan. I will have to check that. I guess it really doesn't matter, other than a trustee gets paid more if they are in the plan (but then again, no trustee fee is specifically added to your monthly payment to the trustee anyway because his fee just comes out of what is paid to unsecured creditors, so the trustee is just earmarking more money from the plan than what would otherwise go to unsecured creditors)

(2) If your monthly payment is Schedule I minus J, then presumably your expenses on Schedule J better be reasonable and "somewhat in the ballpark" of the DMI computed in 22C (since 22C creates a "presumption" on what your projected disposal income is). So, if your rent is higher on Schedule J than what the IRS standard is on 22C (and because housing is reasonably necessary), then that is probably ok. But, if you are including expense items that do not fall in one of the categories listed on 22C (like satellite radio or payments for you kid's college tuition), then Schedule J probably needs to be adjusted to exclude or substantially reduce such amounts (or risk the trustee objecting to them).

Bottom line: it seems that DMI on 22C gives you a "pulse" on what you need to analyze to propose a payment plan with little objection from the trustee.

Of course, I would imagine that even the best lawyers expect some objections in any Chapter 13 plan, which is why their fee is so much higher. There is no "exact science" to a Chapter 13 plan.

[HHM]

Pretty much. If you don't receive any objection from the trustee then you have done something wrong

You can have other expenses on schedule J that are not contemplated by B-22, so long as the expense is reasonable and necessary. And "reasonable and necessary" has a broad definition. Your starting point in chapter 13 is B-22, that somewhat defines your ball park, but it is ultimately schedule I & J is where the dual is carried out.