Car debt key to means test deduction

22 Sep Car debt key to means test deduction

Pledge your car for a small loan and save big when you file bankruptcy. Such idiocy follows from the 9th Circuit Court of Appeals decision in Ransom.

At issue was whether a debtor got a deduction on the means test for the costs of acquiring a car if the car was fully paid for. If there is a lien on the car, be it ever so small, the debtor gets the ownership allowance of $489 a month.

If the car is fully paid for , the debtor gets no ownership allowance. That $489 is presumably available to pay the unsecured creditors each month of a 5 year Chapter 13 plan.

So my call to everyone (sensibly) driving a paid for car and considering bankruptcy: take a small loan and pledge your car as collateral. Get the ownership allowance of $489 per car.

Be sure to perfect the lien pursuant to state law. In California, that simply amounts to filing the lien with the Department of Motor Vehicles. (Giving possession of the pink slip to the lender does not perfect the lien).

In some aspects, life in the world of bankruptcy post “reform” is a slide down the rabbit hole. Get a road map, and even Wonderland is comprehensible.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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