How to Value a Car for Chapter 13 Plan “Secured Claim” Purposes

19 Jun How to Value a Car for Chapter 13 Plan “Secured Claim” Purposes

Ever wonder how a bankruptcy court would rule, if you actually had a hearing on the question of how much a car is worth in chapter 13? Did you doubt you could really get a court to reduce the amount of the secured claim to take into account the car’s need for expensive repairs? Maybe you thought the court would make you use the car’s NADA value, without deductions for the car’s condition. If so, this could mean paying the entire loan off in full in chapter 13, rather than just paying off the car’s actual discounted value. This would be expensive for the debtor, and it could raise the chapter 13 payment.

This need not happen in your chapter 13 case, however. In re Hauser, 2009 WL 1424421 (Bky.S.D.Fla. May 20, 2009), shows how a bankruptcy court will apply the bankruptcy code’s section 506 to find a car’s true market value, and even greatly discount the NADA value for needed repairs. This results in a lower chapter 13 payment, because only the actual value of the car must be paid to the lender, not the full NADA value.

In the Hauser case, the debtor had a 2005 Chrysler Touring. The debor’s expert witness used a base value of $13,600.00 minus $1,975.00 for mileage, resulting in a value of $11,625.00. The creditor’s expert witness used the NADA value minus mileage deductions, then he averaged that figure with two dealer quotes. This yielded a fair market value of $12,150.00. Next, the court averaged the debtor’s and the creditor’s figures to reach a figure of $11,887.50.

The debtor’s expert also stated that the car needed $7,367.05 in repairs to bring it up to NADA standards, and the creditor offered no repair figures of its own. The court found that repair costs should be calculated at retail cost, rather than wholsale industry cost. After subtracting these repair costs, the court ruled that the replacement cost (or fair market value) of the car was $4,520.45. This was the amount to be paid toward the car loan through the chapter 13 plan.

If you find yourself wondering whether a bankruptcy court will really hold that a car is worth less money due to its condition, remember that the answer is right there in section 506 of the bankruptcy code. The court is obligated to uphold the law’s promise that in chapter 13, you only pay what the car is worth.

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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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