Cramdown Questions for Auto - IRS Issues Too

[FishersMike]

Hello,

I have been reading many, many forum posts and I seem to be a little confused. I have read enough to know that "justbroke" seems to quite understand the cramdown option and benefits in a Chapter 13 -- but I would like to get more details if possible.

Here is some details about me:

I live in Indiana. I am single. I would have DMI that I could play with to make almost 0, but can actually afford a Trustee payment of about $800.00 a month, maybe a bit more.

I own two vehicles. One is a Jeep financed through Chrysler Financial. The loan balance is around $25,000.00. I believe it is valued around $18,000.00.

I own a crappy vehicle (that I got for my brother) that he gave back. This was from a buy-here pay here place. The loan balance is almost $10,000.00 and I would be surprised if the value is over $3,000.00 due to condition and mileage.

I would like to cramdown these vehicles. I NEED to keep the 2007 Jeep as I have a Lifetime Warranty (and I paid extra to make it cover everything not just the PowerTrain - and this warranty was paid in cash and not financed).

The crappy vehicle I would like to keep more so to just let my nephew who is about driving age have the vehicle. My mother or his mother would be willing to make the monthly payment for this (as I am not going to pay for his car) or they would pay the $3,000.00 cash, if allowed.

I also owe about $18,000.00 in IRS and State Taxes combined. This is with interest and penalties. This is from taxes owed in tax years 2007, 2008, and 2009. The only tax year I filed on-time was 2007 and the others recently were filed.

So my questions...... I thought that okay, I would need to pay about $300.00 a month to cover the taxes, and then calculated another $300.00 a month for the Jeep payment with Chrysler for 60 months. So I am getting $600.00 a month. Then thinking I would add $50.00 a month for the crappy car, making it $650.00 a month. Then adding another $50.00 a month for attorney fees, making $700.00 a month. Then figured the other $100.00 or so could cover Trustee fees and some un-secured debts.

But things I read on the cramdown was saying I would have to pay the un-secured debts equal to the amount of the $18,000.00 loan I am paying to Chrysler? I could not afford that.

Please be detailed and tell me my options. I am so nervous. I sent all my paperwork to Attorney yesterday. Thanks advance for your time.

[justbroke]

So my questions...... I thought that okay, I would need to pay about $300.00 a month to cover the taxes, and then calculated another $300.00 a month for the Jeep payment with Chrysler for 60 months. So I am getting $600.00 a month. Then thinking I would add $50.00 a month for the crappy car, making it $650.00 a month. Then adding another $50.00 a month for attorney fees, making $700.00 a month. Then figured the other $100.00 or so could cover Trustee fees and some un-secured debts.

When you cramdown the vehicles, you will get up to two allowances. First, there's the Ownership allowance. The national ownership allowance is $489 per vehicle. If your crammed down (or actual) payment is less than $489, then you get the difference as an additional allowance (on the Means Test). If it's more than $489, you'll probably get some trouble from the Trustee anyhow, but would be allowed to include the total payment on the Means Test.

But things I read on the cramdown was saying I would have to pay the un-secured debts equal to the amount of the $18,000.00 loan I am paying to Chrysler? I could not afford that.

You are partially correct, but don't be scare. Let's say you owe $18K on a loan to GMAC. Let's say that the cram down value of that car is $10K. The difference is $8K. That difference, $8K, goes into the general unsecured pool. GMAC would receive a pro rata share of the amounts distributed to unsecured creditors. If you're in a 0% plan, then you'd pay 0% of the $8K unsecured portion. Understand? Likewise, if you're in a 100% plan, you'd end up pay 100% of the $8K over the life of the plan.

Please be detailed and tell me my options. I am so nervous. I sent all my paperwork to Attorney yesterday. Thanks advance for your time.

I didn't comment on your taxes, because there's not much you can do there. You'll need to file those taxes. The nice thing with the taxes, is that the IRS will automatically split them into a "priority" and "general" unsecured amount. The "priority" amount can only the the actual tax and the interest on that tax. The "general" amount will be the penalties and the interest on the penalties. The same rules apply to the tax as it would a cramdown of the car. You'd need to pay 100% of the "priority" amount due over the life of the plan. THe rest of the tax, the general amount, will go into the general unsecured pool. The IRS would receive a pro rata share of the payments to unsecured creditors just like everyone else. If you are in a 0% plan, you would discharge the IRS "penalties and interest on those penalties" without paying $0.01. If you are in a 100% plan, you'd pay all of it.

Understand?

Hopefully you can feel brave enough to ask your attorney questions and he can help you understand what I just posted. Calculating your Chapter 13 payment is best left to a Means Test calculator, a software program, or actually filling out a Form B22C. In any event, I don't suggest you attempt that, but have your attorney walk you through the numbers.

Best of luck to you.

[FishersMike]

Thanks for replying justbroke!

It did give me some relief. So my Chrysler payment is $599 a month. Balance is about $25,000, but think I could cram-down for about $18,000.00 -- so what will happen since this $599.00 before payment exceeds the $489.00? Also can I choose to just pay the entire balance of the loan to Chrysler but reduce payment by making in 60 months? Reason I ask this is because my sister who is the co-buyer I don't want them to seek the difference from her.

Also how does Indiana Exemptions play a part in this car situation? I looked at link above and for Indiana it just shows you can have $8,000 in tangible personal property but nowhere does it give amount specific for cars.

Thank you for the bit about the IRS I knew that interest would stop incurring immediately, I thought that was my only benefit. I did not know that penalty and interest on penalty was un-secured. I know this will save me some good money!!

Also is keeping the second car, the crappy one, really gonna hurt me or help me if I cram-down on it? I would not lose to much sleep if I gave it back to them.


Thanks again!

[justbroke]

First, in a Chapter 13, you'd probably be in a 60-month plan. You just take the balance of the car loan and divide by 60 (in a 5 year plan). So, $18K / 60 = $300. So your monthly payment plan would be $300 to the creditor. You'll get two credits towards your expenses. On the "Ownership" allowance, on Form B22C, you'll get $489-$300 = $189/month as an allowable expense. On Line 47, secured debt payments, you'll include the $300/month to the secured creditor! See how it works! Pretty cool stuff if you ask me. Additionally the $7K difference would be pooled with the other unsecured debt like your credit cards.

The exemptions do NOTHING for you since you have no equity.

Keeping the second car is a strategy that worked for me! Remember that math I did above (the $489 - $300 leaving $189), I did this with TWO cars so I not only paid for two cars in the plan, they were both about $300 after the cramdown. So, I received another $189 for EACH car as an allowable expense! This helped me SAVE money each month since one car was brand new (a 2007), and the other in excellent condition.

Strategy is important.

[FishersMike]

Thanks again for your response. Now if I don't want Chrysler going after my sister for the $7,000.00 that gets moved to un-secured (which I heard they will, just don't know if they wait until bankruptcy complete or go after her right away), instead of me financing the $300 cram-down * 60 months could I choose to take the entire balance they want, lets say for argument sakes it is $24,000 / 60 months and make a payment of $400 instead of $300? I really would like to protect my sister if possible. What would pros and cons be of this idea?

Also since I am going to file single, can I take two expenses for vehicles or am I only allowed one? Because if I can take two, it sounds like it would help me based off your figures.

[justbroke]

Thanks again for your response. Now if I don't want Chrysler going after my sister for the $7,000.00 that gets moved to un-secured (which I heard they will, just don't know if they wait until bankruptcy complete or go after her right away), instead of me financing the $300 cram-down * 60 months could I choose to take the entire balance they want, lets say for argument sakes it is $24,000 / 60 months and make a payment of $400 instead of $300? I really would like to protect my sister if possible. What would pros and cons be of this idea?

You can choose NOT to cramdown the amount and take their secured claim as is and pay $24K over 60 months... absolutely. That would protect your sister. Please know that your sister is protected by the co-debtor stay, and the creditor usually waits until your Chapter 13 is completed before going after the co-debtor. This is because you may actually pay down part of the unsecured portion of the debt through your Plan.

The only sure-fire way to protect your sister, is to not "value" the claim, and to allow it to stay as is. That would mean $24K over 60 months or about $400/month for the car. The problem is, that you'll need to pay interest too, but you'll be able to use the Till rate. The Till rate is about 5% right now, so you'd pay 5% interest on that $24K. That brings the payment to $452.91 a month.

Also since I am going to file single, can I take two expenses for vehicles or am I only allowed one? Because if I can take two, it sounds like it would help me based off your figures.

This is a District specific question. If you're married, but filing singly, you can usually get away with this. However, if you are single (unmarried), it could be difficult to be allowed two cars in the Plan.

[4ever]

So does this mean you get to keep the $189 as extra money for yourself every month or does it go into the plan to the creditors and you don't really see it? We are thinking about a cramdown but still trying to understand it.

[justbroke]

So does this mean you get to keep the $189 as extra money for yourself every month or does it go into the plan to the creditors and you don't really see it? We are thinking about a cramdown but still trying to understand it.

In Districts that use the "disposable monthly income" calculation from the Means Test (the majority view), the $189 would be "extra" expense money. (Some Districts balance Schedule J and the Means Test (From B22C), so it may differ in the Districts that are in the minority view on this.)

It's no different than getting a $1,370 allowance for food and clothing (for 4 people) and spending only $600/month on those items. A Chapter 13 is all about budgeting. If you can budget, you usually can save money!