Can I Be Paying Someone Else’s Car Payment, And Still File Bankruptcy?

13 Jan Can I Be Paying Someone Else’s Car Payment, And Still File Bankruptcy?

If your credit rating has been less than perfect due to financial difficulties, it’s possible you are driving a motor vehicle that was obtained for your use by a friend or relative. If so, it’s likely the vehicle is in someone else’s name, and also the vehicle loan probably is in that person’s name as well. However, you are driving the vehicle every day and making the payments with your own money. You probably are reimbursing that person for the insurance as well, unless you have your own insurance. If you file chapter 7 or 13, will this be a problem?

Although normally a trustee can recover debt payments you have made to a close friend or relative in the one year before you file bankruptcy, the “new value exception” should help in this situation. The new value exception says that a trustee cannot pursue a party you have been repaying before you file bankruptcy, if that party has been providing you with something of equal value after receiving the payments from you. Here, you have been paying a debt payment for a vehicle owned by another, on a monthly basis, but that person has been allowing you to use the vehicle, with the accompanying wear and tear, and with you benefitting from the use of the vehicle, every month. That’s the new value, the use of the vehicle.

What’s more, the value to you of using the vehicle has probably been exactly the same, in terms of dollars, as the amount of the monthly payment you have making for that person’s vehicle. Under the new value exception, the trustee cannot recover the money you have been paying every month for the vehicle in such a situation, because every time you made a payment, you then received one month’s use of the vehicle. The use of the vehicle is the new value. Thus, the money you have been paying each month is equalled by the value of using the vehicle, and the trustee cannot pursue the other person for the payments received from you.

The new value defense works best in this situation when the money you have been paying is the same as the actual size of the vehicle payment owed each month by the other person. If you have been paying a monthly payment that is larger than the actual payment owed, it may be difficult to say that the value of using the vehicle was equal to the size of the monthly vehicle payment.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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