A Third Car Is Not A Luxury

21 Nov A Third Car Is Not A Luxury

Chapter 13 families sometimes need three cars. Having a newer car with debt can be a necessity, not a luxury. And trustees have to be reminded the world is not as simple as we would like, at times.

These are the lessons I draw in a recent case won by our friend Andy Miofsky in Southern Illinois before Judge William Altenberger.

In the particular case, the family had two paid-for older (1998 and 2000 model year) cars. These cars are used by the wife and a son, who is also a student but not working. They were also paying approximately $23,000 for a new Torrent. This car was driven by the husband, the primary breadwinner.

The trustee argued they should give up the Torrent and the extra $23,000 plus interest would be available to repay unsecured creditors. He relied on a 10-year old case which held a travel trailer (camper) was a luxury and could not be retained while not repaying unsecured creditors in full.

Although somewhat less than clearly, the trustee was essentially arguing that only family members who earn an income need cars and even then they should give up newer cars with debt and drive older paid-for cars, if available. Anything else would be a “luxury.”

On its face, that sounds reasonable. We always tell folks to cut back to save expenses and be able to pay your bills. But this is where good bankruptcy lawyers, like Andy, have to step up and make it clear the world is not so simple. Some cutbacks are false savings depending on your circumstances.

Southern Illinois is not renowned for its public transportation system. In this case, that’s important. When the inevitable break-downs and expensive repair bills start coming in, someone who works and contributes to the household would not get to work or be late. Ultimately, they could well lose their job. The loss of a good job will far outweigh any temporary savings from giving up the car.

In Chapter 13, such a disaster means their ability to repay creditors would disappear. Everyone depending on the future income of the family would be taking on more risk. And this is ultimately what the judge concluded: A reliable newer car is not a luxury but a necessity in most communities.

As an aside this case also illustrates how credit card lenders made a bad deal when they supported the 2005 bankruptcy amendments. Under prior law, the Torrent would have been repaid at fair market value (slightly more than $16,000) plus interest. But under current law, as it was purchased within 910-days of the filing, the full $23,000 with interest is repaid. Under old law the $7,000 (plus interest) difference in repayment on the car could have been repaid to unsecured — credit card — debts. Instead it is all going to the car lender.

And they paid how much for this new law?

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2018 I am also serving on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website: STLBankruptcy.com
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