Courts are split about evenly as to whether an over-the-median bankruptcy debtor can take an ownership expense deduction on the means test if they own a car but do not have a car loan or lease on it.
Could a debtor borrow money to purchase a car shortly before filing bankruptcy, give the lender a lien on the car, and agree to make monthly payments on the car? Sure, it happens all the time. In that situation, the debtor will be able to take the full ownership expense allowance on their means test. This might make the difference in determining whether they can file a chapter 7 petition, or can greatly reduce their required monthly payments if they are filing a chapter 13
So there should also be no problem if prior to filing bankruptcy, a person who owns a car without a loan against it, borrows some money (say for filing and legal fees for their bankruptcy) using the car as security. Even if the lender is a relative, and even if the monthly payment is very low, as long as the lender gets a proper lien on the vehicle, and the transaction was not done in bad faith, the debtor should be able to take the full allowance for ownership expenses.
This is but one more example of the poor legal drafting that went into BAPCPA, the now two year old Bankruptcy law.
Latest posts by Peter Orville, Binghamton Bankruptcy Lawyer (see all)
- Chapter 13 Bankruptcy Court – What Goes On? - January 26, 2014
- Should I File a Chapter 12 Farm Bankruptcy? - September 26, 2013
- Trouble Getting a Mortgage Modification? Get Your Bankruptcy Court to Help! - April 26, 2013
- Filing Bankruptcy? Beware of the Unexpected. - March 27, 2013
- In Bankruptcy it Matters if Your House is Not Your Residence When You File - January 30, 2013
Last modified: October 28, 2011