Chapter 13 & Autos
Aurora Illinois Bankruptcy Lawyers & Attorneys
Jesse Barrientes: What other kind of things, for example, in a Chapter 13 Aurora bankruptcy case. Let's look at my car. You had mentioned a little bit earlier that generally there's no interest, that there's no late fees or over the limit fees or anything like that. So how does that relate to my car?
David Siegel: Well, if it's a financed vehicle you're gonna pay that back through a Chapter 13 trustee.
Jesse Barrientes: But am I gonna have to pay back the interest that I originally agreed? 'Cause the car's gonna be paid back if it's financed throughout – by the time the plan is over, regardless of the duration up to 60 months, it's gonna be paid off. So I mean –
David Siegel: No. Typically, no. You're gonna pay about six to nine percent in interest through a Chapter 13 on your car. Doesn't matter what your contract said in terms of interest. Here's the distinction. If you purchased the car more than two and a half years ago you're able to pay back the fair market value of the car in full.
Jesse Barrientes: So even – so I just want to make sure that I understand and that the folks at home understand too that if it's purchased more than two and a half years – and let's say I owe $15,000 on the car but it's only worth $7,000. Are you telling me and the folks at home that I only have to pay back the $7,000?
David Siegel: You'd have to pay back the $7,000 in full at 100 percent at a bout six to nine percent interest and then the remaining $8,000 the unsecured portion could be paid back less than 100 percent typically 10 percent.
Jesse Barrientes: So that's what they refer to as a cram down.
David Siegel: They call it a cram down. Exactly. Because you're not paying the full amount that you owe on the vehicle. You're cramming down the creditors claim from $15,000 down to $7,000 at 100 percent and then the remaining $8,000 at about 10 percent, which could be $800. So $7,800 total instead of $15,000. It's a big difference to the creditor's bottom line.
Jesse Barrientes: I thought you were gonna say you're cramming it down the throat of the creditor, which is what you're doing too.
David Siegel: Well, they say that too but I'm giving you the politically correct answer.
Jesse Barrientes: Very, very nice. So, again, what determines the fair market value 'cause I know they're gonna argue about it? The creditor or the debtor's gonna argue about it and the creditor are gonna argue about the fair market value. They're gonna say the fair market value is $7,000 and – or you're gonna say that and they're gonna say, "Oh, no. It's $15,000."
David Siegel: Right. Well, there's a couple big sources where they look to. The NADA, National Auto Dealer's Association value as well as the Kelly Blue Book value. Those will give some good reference points. Some cars have to be evaluated by an outside person if it's a special car.
Jesse Barrientes: So they have an appraiser, essentially, for the car?
David Siegel: On occasion if it's some type of race car or antique or an old enough vehicle where Kelly Blue Book doesn't even have a value on it. But for the most part it's gonna get negotiated. The law firms don't want to waste time and money going to a valuation hearing in front of the bankruptcy court. Typically cooler heads are gonna prevail. They're gonna agree on a figure that both parties can live with and it's gonna be a compromise.
Jesse Barrientes: And in that valuation hearing is it that one person puts on their expert or their appraiser and the other one puts on theirs? Is that how that works?
David Siegel: Yes. Each party's gonna have to bring in their expert.
Jesse Barrientes: So and I'm gonna have to pay my expert?
David Siegel: You're gonna have to pay your expert. Yes. And typically, like I said, the – it won't go to a full hearing because the creditor will cave because the creditor doesn't want to bring in somebody who can testify as to the value of your vehicle sight unseen. They haven't even seen your vehicle yet so how do they really know that that vehicle is a typical vehicle depicted in Kelly Blue Book. Maybe it's damaged. Maybe it's excessive damage. I mean it just can't go. So it doesn't happen. A valuation hearing rarely happens.
Jesse Barrientes: Because it's not financially feasible for then and that's why they're willing to negotiate because it's really gonna save them money or actually mitigate the amount of money that they're not gonna get.
David Siegel: Right. And bankruptcy's all about who gets how much and when.
Jesse Barrientes: Sure.
David Siegel: And they want to negotiate that down because typically these Chapter 13 cases won't go to completion anyway. So you don't want to waste too much money fighting over valuation when in reality only about 15 to 25 percent of bankruptcy cases under Chapter 13 complete.
Jesse Barrientes: When you say that and what I don't want to – I want to get back to Kelly Blue Book. And so remind me. But when you say they don't go to completion what does that mean? Does that mean that they're dismissed? Does that mean that the debts are discharged? What happens?
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See Also:
Chapter 7
Misconceptions about Chapter 7
Life after Chapter 7 bankruptcy
Privacy is protected in bankruptcy
Household income qualifications
Converting Chapter 13 to Chapter 7
Converting Chapter 7 to Chapter 13
Chapter 13
Using Chapter 13 to save a home
Choosing Chapter 13 versus Chapter 7
Debt consolidation & late fees
Administrative fees & the bankruptcy trustee
Chapter 13 payment plan dismissal
