Keeping Your Vehicle Through Bankruptcy

One of the questions most people ask when discussing bankruptcy is whether they can keep their car or truck if they file for bankruptcy. The answer, in most cases, is "yes."

The theory behind bankruptcy administration is that the Trustee takes possession of all your assets and distributes it among your various creditors. In application, the Bankruptcy Code allows a debtor to exempt certain items of property, up to a certain value, from the bankruptcy estate. The values change from time to time, but in most cases, I find that a debtor can exempt all of their assets from seizure. But motor vehicles are also open for special treatment.

If you own your vehicle outright and its value falls at or below the exemption limit, then the solution to keeping the vehicle is simply a matter of exempting it from the bankruptcy estate. The complications arise when the debtor still has an outstanding loan on the car.

The Bankruptcy Code allows a debtor to “reaffirm” an auto loan. This means that, even though the loan could be discharged through bankruptcy, the debtor has chosen to assume liability for the debt once the bankruptcy is completed. It’s as if the auto loan was untouched by the bankruptcy process. It also means that if the debtor defaults on the loan following discharge of the other debt, the loan company can still repossess the vehicle and seek judgment for a deficiency after the vehicle is sold at auction.

Sometimes the vehicle is worth more than the remaining loan balance. This is a fairly rare occurrence, but when it happens, the solution is to find where the equity can be exempted under the Code. Usually, if the equity is just a few thousand dollars, the exemption can be found.

More often, the loan is significantly more than the value of the car. When this happens, another possibility opens up – reducing the actual balance of the loan and paying that amount to the creditor in exchange for free title to the vehicle. In this way, the debtor can realize significant savings in the total cost of the vehicle. How the reduction is made differs between a chapter 7 or chapter 13 bankruptcy.

In chapter 13, the debtor petitions the court to determine the retail value of the vehicle, and the secured amount of the auto loan is “crammed down” to the determined value. This value is entered into the repayment plan as a secured debt and would normally be paid off entirely, while the remaining amount of the loan is treated as unsecured debt, which may or may not be paid off through the Plan. One caveat to this option: cramdown can only be used if you have already owned the vehicle for a minimum of 910 days, or 2 ½ years.

In chapter 7, the process is different, and is referred to as “redemption” of the collateral (the vehicle). The theory is that the lender can repossess the vehicle upon default and sell it at retail value. But it cannot seek a deficiency from the debtor for the remainder of the loan amount, because that obligation was discharged by the bankruptcy. The resale amount is all the lender can expect to recoup from repossessing the vehicle. The process of redeeming the vehicle loan gives the debtor the opportunity to purchase the vehicle from the lender at an amount the lender could expect to receive at resale. Like the chapter 13 cramdown, redemption can allow the debtor to realize a significant reduction in the total purchase price of the vehicle.

Unfortunately, most chapter 7 debtors do not have an extra several thousand dollars available to pay to the lender. As a result, redemption is rarely used, and the debtors most often rely on the reaffirmation process to keep their cars. In some instances, though, the debtor may turn to a redemption loan company to borrow the money necessary to purchase the car. If qualified for such a loan, the debtor would petition the court for an order determining the retail value of the vehicle and allowing them to take out a loan to redeem it. The whole scheme must be in the debtor’s best financial interests for the court to approve it.
So, there you have it. In most instances, a debtor can keep their vehicle when they file for bankruptcy, and in some case, actually realize a significant savings over the total purchase price of their car. When discussing your potential bankruptcy, an experience attorney should be able to discuss these options with you and be willing to work the necessary calculations and tactics to your advantage. If not, look for another attorney.

Commentary -- Bankruptcy as a Pro-active Financial Tool

BANKRUPTCY.  The word tends to conjure up images of moral turpitude, lack of character, and failure.  This attitude, though, has no basis in fact.  Bankruptcy as a legal process was well-known at the founding of our nation, and is provided for in our Constitution.  Even long before that (if one seeks counsel in the Bible), Deuteronomy 15:1 admonishes creditors that "[a]t the end of every seventh year you must cancel the debts of everyone who owes you money."  "Moral turpitude," indeed! 

The economic climate since 2008 has wreaked havoc on the financial stability of most of our citizens.   The failure of our economy to sustain growth has resulted in the elimination of many good jobs capable of supporting a family, the devaluing of real estate that many borrowers were told could form the basis of an investment, and the shrinkage of many, many other financial investments made by ordinary people, under the guise that the firms handling those investments would hold the investors’ interests above all else.  As a result, way too many family homes have been lost through foreclosure, in some instances enough to blight entire neighborhoods; retirement and other savings have been wiped out; unemployment and the inevitable credit defaults have risen to an all-time high.  The fault is not all due borrowers' unrealistic desire for "more, bigger and better."  To a large extent, much of the blame must fall squarely on the shoulders of government fiscal policy, deregulation, creditors' greed, and – well, the greed of the financial sector in general.

The promise to repay a debt is not a moral obligation, it is a contractual one, based on realistic financial considerations. It is an agreement between two parties, both of which are theoretically capable of dealing with each other as equals.  It is based on certain financial assumptions, i.e., that the parties will deal fairly and squarely with each other, that the lender has the ability to provide that which the borrower desires, and that the borrower has (and will continue to have) the ability to repay the debt according to the agreed-upon terms.  Most of the time, the agreement works out more-or-less to the benefit of both parties.  But what happens when one or more of those assumptions change?

In contract law, "impossibility of performance" may sometimes be a valid defense.  But not when applied to credit and debt collection.  What is the fate of the person who loses his job and can no longer repay the debt under the terms set by his creditor?  What defense has the small business owner whose lender, sensing a weakening economy, withdraws the line of credit, thus cutting off the business’s oxygen and leaving nothing but debts?  Under our current laws, inability to pay is NOT a defense.  The creditor retains the legal option of forcing payment, by levy and seizure of assets and wages, and in some US jurisdictions, by imprisonment.  SEE:  Debtor's Prison   

Bankruptcy provides a debtor with legal protection against the rapacious creditor who demands performance of the credit agreement despite the debtor's inability to perform.      

Make no mistake, the bankruptcy laws do not operate solely for the benefit of Joe Average citizen and his family.  Many others have filed for bankruptcy, including presidents Grant and McKinley, Mark Twain, Henry Ford, Walt Disney, and numerous other well-known and respected people.  Bankruptcy relief has also been sought and granted to some of the nation's largest corporations.  Can any one name a major airline carrier that hasn't been in and out of bankruptcy at least once?  Chrysler, CITgroup, Trump Resorts, the Philadelphia Inquirer – all have petitioned for bankruptcy relief recently.  It was once said that "what's good for GM is good for America" – and bankruptcy restored GM to financial health.  THAT is the purpose of bankruptcy.    

The recent economic crisis has been like a tornado tearing at our financial expectations, and it has taken its toll on everyone, big and small.  Many feel that the worst is over, and recovery is on its way.  One of the first tasks of recovery, though, is to clean up the debris left in the wake of the disaster.  Part of preparing for a new financial future is jettisoning the oppressive and useless burden of old debt.  Once unencumbered by the global excesses of the past, one can move forward into a brighter future.  Bankruptcy is the legal tool specifically designed for that task.

Bankruptcy --  moral turpitude and failure?  Not at all!  In the right circumstances, it can be sound financial strategy.

Sometimes it's nice to be able to see the future

This little bit of information hit the news last week:

EEOC says transgender people protected

It's a pretty important decision for a small segment of our population that has consistently found itself on the outside of anti-discrimination laws. When you think about, the decision makes perfect sense; however, our legal system can be all about splitting hairs, and as the case history of transgender anti-discrimination bias shows, a hair can be split very cleanly when it serves a particular end. The writing has been on the wall (or in the journals) for at least a decade and a half, though. In fact, those of you who have delved deep into my website may have discovered this article I published in 1997 outlining the same argument the EEOC just adopted:

REEVALUATING HOLLOWAY: TITLE VII, EQUAL PROTECTION, AND THE EVOLUTION OF A TRANSGENDER JURISPRUDENCE

Now, if only my stock picks had been as prescient . . .

Movin' Uptown

I'm moving forward and moving uptown a bit; the deal for the new office in Philly has been finalized. As of April 1st, the office will be still be located in Center City, but more accessible at the following address:

Law Office of Kristine W. Holt
1211 Vine St., Ste. 107
Philadelphia, PA 19107

I got in on the ground floor of this renovated office building on the north side of Vine, and the suite itself is more spacious than what I've been working from for the past several years. Unlike in the middle of Center City, there is a generous amount of on-street parking available in front of the building, and a reasonably priced parking lot just yards away at the corner of 12th and Vine. From New Jersey, it's just a hop across the Ben Franklin Bridge and onto Vine Street. The travel from other outlying areas is just as convenient, without the congestion of deep Center City traffic and the hassle of finding a place to park. And for those who live in town, the office is located just a block north of the convention center, and is served by Septa.

Like the new place in New Jersey, I'm looking forward to seamlessly setting up shop on Vine St., and providing the same services I have since 1999.

And with this, I think the major immediate changes to the practice are done!

On the move!

Well, one never knows how quickly things can work out, right? At the end of January, I consolidated my two offices to Philadelphia, for an uncertain duration. As it turns out, I'm now reopening the New Jersey office at a new location, one that is conveniently located and easier to find for New Jersey residents living in the Philadelphia metro area. On April 1, 2012, I'll be open for consultations in New Jersey again at the following locations:

Winslow Professional Center
339 Rte. 73 North, Ste. 11A
Berlin, NJ 08009

Just a couple miles south of Berlin on rt. 73, the new office is a mere 10 minutes from Voorhees, Williamstown and Sicklerville, 20 minutes from Turnersville and Hammonton, and just slightly longer from Collinswood, Cherry Hill, Mt. Laurel and Medford.

I'm really excited about meeting everyone at the new office!!

One Office to Serve Them All . . .

As many of my clients know, for the past ten years I have maintained a meeting place in Voorhees, which has been convenient for some of my clients in New Jersey. With the impending relocation of my office in Center City, consolidating the two locations would offer a greater benefit to all my current and prospective clients. Moving forward, then, I will now be meeting and consulting with all new clients in my Philadelphia office.

The office in Philadelphia is located very near to the Patco station, for the convenience of clients who wish to avoid driving into Philadelphia. I will, of course, maintain my local phone number for my New Jersey clients. With these changes, I hope to serve everyone with greater efficiency and the same degree of accessibility as has always been my practice.

FINALLY!

So many changes to discuss!

The big change I've been anticipating for almost a year is finally coming about -- the office is moving! Yes, at the end of February 2012, after 15 years (2-1/2 as a legal clerk, 12-1/2 as a solo practitioner), I will no longer be showing up each morning at Suite 800. The tenant I have been sub-letting from for all these years has decided to go into semi-retirement, and I'll be on the move.

There is a career's worth of memories here in this little office; over a thousand people have walked through the door with their problems, seeking help. Sometimes the solution was simple, such as drafting a Will. Sometimes the matter was more involved and spanned years of effort before resolution. And sometimes all that was needed was a short and concise analysis and explanation of a situation, and nothing more. If these walls could talk! (But we know that attorney/client privilege extends to the fixtures . . .) Everyone who has walked through my door has left an impression on me.

Where I'm headed from here is a little uncertain. I'm planning on maintaining a Center City presence, but I haven't yet found the office setting that speaks to me. I'll post the new address here and on my website as the March 1st move date gets near. My place on the web will not change, and my phone number will remain the same.

Speaking of my place on the web, you'll notice some substantial changes in my website. Gone are the old photographs taken more than ten years ago. I'm older and wiser, and look it. I've changed the format too, to be a little more more reader friendly. But the information and navigation remains essentially the same.

Finally(!), I realize that these past few years have been difficult for nearly everyone. Too many people (myself included) have been struggling since mid-2008 to not affect our public and private discussions regarding politics, finances, and general outlook. Our optimism has worn thin; yet, hope remains. The yearning human spirit ran its course this past year from an Arab Spring into an American Autumn (OWS). There is change in the air, a developing zeitgeist of anticipation; everyone feels it. The question is, how do we shape it?

When I first began this blog, I noted that "personal commentary" would be rare. In fact, it has been non-existent so far. I believe it is time to change that also, to enter into the first person and express my views on the people and events that have molded us into who we are -- and may have defleted us from who we might be. "Everyone who has walked through my door has left an impression on me," and I hope I have learned something valuable from every one of them to add to our collective discussion.

Stay tuned.