Can I Surrender an Expensive Car in My Chapter 13 - What Will Happen?
By Jonathan Ginsberg, Atlanta Bankruptcy Attorney on Jan 28, 2008 in Chapter 13 Bankruptcy
My husband and I are thinking about filing for chapter 13 in Arkansas. We bought two new cars in the last 6 months. One of the cars we bought was only worth $30,000 but we financed over 45 thousand for it.
My husband spoke to an attorney and he advised us to go out and if possible buy another car that we would not be so upside down on before we file. We did this and now have three car notes. The attorney advised us that we would get to choose which cars to keep and which to turn back in at no cost to us. We planned on turning in the one we owed 45 thousand on.
I can’t find anywhere that talks about getting to turn a car in. I only find articles that say we have to pay all car notes in full that were purchased within two or three years of filing. Is this true?
Cassendra
Here are my thoughts: Chapter 13 does give you the right to cancel contracts (such as an installment automobile purchase) and surrender collateral back to the secured lender. When you do so, the lender will sell the vehicle at auto auction - and, as you might imagine, the sale price will likely be far less than what is owed.
The difference between the balance due and the auction sales price is called a deficiency claim. It is an unsecured debt.
If your Chapter 13 proposes to pay unsecured debts at 1 or 2 cents on the dollar, the repossession deficiency will not be an issue. If, however, your Chapter 13 plan provides for a 70% payment or a 100% payment to unsecureds, you will end up paying many thousands of dollars for that expensive car that you turned in.
I think that the question you need to ask your attorney - what percentage will I be paying to unsecured creditors and how much is this car deficiency claim going to cost me in my plan.
Let me also note that some Chapter 13 trustees will have a problem with your recent vehicle purchase, despite the logic of doing so. Take a look at my post on that subject.
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