Surrendered vehicle as loan collateral?

[sonniek]

Hello, everyone. This forum has been especially helpful since I found it a week ago.

Last Tuesday, my husband and I filed Ch13. I'm still pretty sick about it, and I don't think I'll relax until our budget isn't so tight. Our proposed payment is $834 per month, which is better than what we were paying out to our separate debts, but still leaves our budget so tight that there is barely room to breathe. I really don't feel that overwhelming sense of relief that many feel once they've filed.

On to my question...

One of our debts is a $7,600 loan on which our old van was used as collateral, so the loan is a secured debt. However, we chose to surrender the van because A) we have 2 other vehicles and didn't need it, B) the transmission was blown so it wasn't functional, anyway, and C) the original proposed monthtly payment was just over $1K, and surrendering it brought the payment down to the current amount of $834. Because the van isn't functional, we were credited with $1K towards our total debt.

My question is since we've decided to surrender the van, does that then make the remaining balance on the loan convert to unsecured debt? From what I'm learning about how the two types of debts are treated in a BK, the unsecured debts are what give more "wiggle room" in determining the monthly payments. If that loan debt becomes unsecure now that we've surrendered the van, perhaps then we could lower our payments if we only had to pay back a certain percentage of that loan.

It seems like people with tons more unsecure credit card debt than I have end up with lower monthly payments. We have about $4,500 in credit card debt, the aforementioned $7,600 loan, an unsecured $2,500 loan, car payment arrears totalling around $1,800, one $1,250 mortgage payment, and a $1,200 medical bill rolled into our BK (along with attorney's fees and court costs).

I really wish we would have had more time to shop around for attorneys to see who could crunch the numbers for us the best. The thought of filing for BK literally didn't even cross my mind until we were 2 weeks away from car repossession. We used the attorney my MIL used for her Ch13 a few years ago. I can't help but wonder if someone else would have come up with a lower number.

[LadyInTheRed]

Welcome to BK Forum!

I think that overwhelming sense of releif is more common for Chap 7 filers. You should feel some relief. But, a Chap 13 is not meant to leave you with a lot of breathing room.

Yes, the remaining balance on the loan because unsecured debt and the creditor should file an unsecured claim.

The way the caclculation of your payment was explained to you is not entirely acurate. It sounds like it was simplified to make it more understandable. Let's see if I can explain it without confusing you.

A Chap 13 payment is equal to the debtor's monthly disposable income. If you have minimum amounts that must be paid in your plan, you have to show that you have enough disposable income to make a high enough payment to cover those minimum amounts. Minimum amounts include attorney fees, arrears on secured debt, any secured debt payments being made by the trustee and the non-exempt value, if any, of any assets you are keeping. My guess is that keeping the van would have meant your budget needed to be cut to the bones to show you have enough disposible income to make a high enough plan payment to pay off the loan in the plan.

I'm guessing the continuing monthly payment for the car you are keeping is also being paid through the plan? How much is that payment? How much in attorney fees are being paid in the plan? Do you have any non-exempt assets? What is the length of your plan?

[sonniek]

Thank you for the welcome and the response, LITR.

Thank you for your clear explanation. Reading it assures me that I did understand how the amount is calculated. I think I learned more about BK from my own research than I did from the attorney. Which is fine - I'm sure they're more used to people who just want the job done than they are people whon also want to know how the gears spin behind getting the job done. If I had started with a response as clear and concise as yours, that would have saved at least 2 hours worth of headache!



You are right; keeping the van would have made things SUPER tight. We have no problems letting it go, though. We wanted to let it go anyway, and only kept it because it was used for collateral and we had to.

We have 2 cars included in the BK. Normally the payments are $500 for one and $300 for the other. I got access to the 13 account thingy (forgive me...can't think of what it is called right now) and I see that now, $240 is going to one and $220 is going to the other. In a couple of months after the court cost portion is paid, one will increase to $360ish. We are on a 5 year plan and have no other non-exempt assets.

We are in a 100% plan, I believe. Other than that, I don't know how much will go to which creditors. I should just watch 13data to see who mak s claims and for how much, right? Our 341 is June 14. I really hope our trustee doesn't want to up our payments.

I apologize in advance for typos. Typing on my phone is a pain!

[LadyInTheRed]

With those 2 car payments and the arrears and attorney fees, it sounds like the $845 payment is about right. It actually seems pretty low. If your plan pays 100% of unsecured debt, I'm guessing you had less than 5 years left to pay on the loans.

13datacenter should list the claims. But, it isn't always reliable. Mine showed only the amounts listed on my petition for a long time before it was updated with the amounts on the claims filed by the creditors. PACER is the most reliable place to look because it is the official court record.

[sonniek]

Well, if that seems low, I'll stop stressing over it (or try to, anyway). Who am I kidding? Next I'll worry about the trustee wanting to up it at the 341.

Thanks for the advice!