08 Aug I Can’t Afford To Pay My Creditors But I Don’t Want My Bass Boat Sold!
Yes, it is quite a lot of fun to be skimming across the water heading to that secret spot where you know the big lunker is lurking. You have had a lot of fun fishing over the years and if you could just get your financial issues behind you, you would spend more time fishing. But things have been tight lately with reduced hours at work and the way gas prices have gone through the roof.
So, you mention your difficulties to a friend or two. Your friends mention that they had to file a chapter 7 case and they got rid of all of their debt. Your friends didn’t even have to give up their house or car or anything! You think that sounds like an excellent plan. Get rid of your debt in a chapter 7 case and keep everything.
So, you make an appointment with a bankruptcy lawyer and your lawyer tells you that, because your bass boat is paid for and is worth about $13,000.00, if you file a chapter 7 case, the chapter 7 trustee is going to sell your bass boat. But wait! My friends filed chapter 7 and they didn’t lose anything! Your lawyer then politely tells you that he is sure that your friends would be more than willing to prepare your bankrutpcy case for you but nevertheless, if a chapter 7 is filed, the boat will be sold. See here for explanation.
So, what can we do to avoid that situation? Well, a chapter 13 case may just fit the bill.
As stated above, if you have assets over and above what you may exempt, a chapter 7 trustee may sell those assets to generate money to pay your creditors. In North Carolina, bass boats are not exempt and the only exemption that you can claim is under the wildcard exemption of $5,000.00. So, if your bass boat is paid for (you have the title) and it is worth more than $5,000.00 ($10,000 if married and jointly titled), the trustee may be interested in selling the boat to pay your creditors.
Of course, you can offer to pay the trustee the excess equity for your boat and still file a chapter 7. For example, if you offer the trustee $7,000.00 which is the value of the boat ($13,000) less your exemption ($5,000) less the costs of the sale ($1,000), the trustee would probably take the cash and leave your boat alone. The problem is, if you had $7,000 in cash lying around, you would not have been talking to a bankruptcy lawyer in the first place. Of course, the chapter 7 trustee is not interested in “payments.”
Again, a chapter 13 bankruptcy case may just fit the bill.
In a chapter 13 case, if you have assets over and above what you can exempt that you wish to keep, you must pay the value of those assets through your chapter 13 plan over the course of several months (depending on the length of your plan) which would be paid out to your general unsecured creditors, then you can keep your bass boat! This is referred to as the “best interests of the creditors” test and is set out at 11 U.S.C. Â§ 1325(a)(4). Basically, if a chapter 7 were filed and the unsecured creditors could expect $7,000.00 to be distributed to them because your boat was sold, then as long as the unsecured creditors are paid $7,000 through your chapter 13 plan, you do not have to sell your boat. Sort of a “no harm, no foul” type thing. (There are other requirements to a chapter 13 plan that must also be met.)
What can create a problem though is your monthly cash flow. Other posters have talked about the importance of cash flow on this blog here. You have to have sufficient income less your reasonable expenses and to make the payments required under your chapter 13 plan to make this work. For example, if you had to pay $7,000.00 to your unsecured creditors, you could expect approximately $135.00 a month to be allocated to your unsecured creditors over a 60 month period. If you do not have that $135.00 a month, then your chapter 13 plan will not work and your case is subject to a dismissal.
If the extra money that you must pay through your chapter 13 plan that is allocated to your unsecured creditors because of the excess assets is more than you can afford, what are your options?
First option: prioritize the assets that are most important to you. If the boat is very, very important to you, then perhaps you should consider surrendering a secured debt such as a car in order to free up cash to make the required payments. Or, go through your monthly expenses and cut expenses so as to free up cash to make the required payments. If having a roof over your head is more important, well, it may be time for the boat to go.
Second option: don’t file bankruptcy but lose the boat anyway. If you don’t file bankruptcy, you do not face this problem. Or do you? If you try to hide out from your creditors, they will sue you and eventually will find your bass boat that you have parked behind your brother-in-law’s shed. They will have a deputy seize the boat to be sold at a sheriff’s execution sale. After the boat is sold, you still have your debt problems but now, you no longer have your boat.
Contrary to what a lot of “friends” will tell you, there really is no such thing as a free lunch in bankruptcy. If you have assets over and above what you can exempt, then in order to keep those assets, you must pay for them. A chapter 13 plan allows you to keep those assets as long as you can afford to pay for them under the “best interests of the creditors’ test.
Adrian Lapas, Esq.
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