Recent Purchase of Vehicle May Defeat Chapter 13

13 Aug Recent Purchase of Vehicle May Defeat Chapter 13

I recently filed a Chapter 13 case in the Northern District of Georgia that includes a new vehicle my client purchased about two months prior to filing. He explained the purchase to me by noting that he had recently been transferred to Georgia by his employer and that he needed reliable transportation to drive home (an 800+ mile trip to the midwest) to visit his 10 year old son who lives with my client’s ex-wife. He claimed that his previous vehicle was prone to breakdown and, anticipating his bankruptcy filing my client knew that he would not have access to credit cards to pay for emergency repairs. The cost of the new vehicle was around $21,000, although the purchase price included about $8,000 rolled in from the prior vehicle.
I explained that this recent vehicle purchase could generate a trustee objection and it has. The Chapter 13 trustee here takes the position that the purchase of this new vehicle is a bad faith purchase, especially since we are proposing a 10% payback to unsecured creditors.

At this point, the trustee has agreed to reset the confirmation hearing until after the bar date for claims. Unsecured creditors who do not file claims in Chapter 13 do not participate in Chapter 13 distributions so if enough unsecureds do not file claims, I can increase the divided to the ones who do file.

Otherwise, I will have to argue this issue. Will the judge accept my argument that a 10% payout to unsecureds is “the best that the debtor can do?” If the purchase was not quite so recent I might have an argument that Section 1325(a) does not apply and that the trustee has the power to cram down the claim (see my colleague Cathy Moran’s discussion of the anti-cram down rules of Section 1325(a) by clicking here).

This episode has left me much more conservative with regard to filing a Chapter 13 when there has been a recent vehicle purchase. I may win this argument or I may not, but my client will be in limbo for several months and if the case is dismissed he will have spent a lot of money and will end up much further behind with his other creditors at dismissal.

As I have written elsewhere on this blog – don’t be a bankruptcy test case.

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Jonathan Ginsberg, Esq.

I represent individuals in Chapter 7 and Chapter 13 cases filed in the Northern District of Georgia, which includes Atlanta, Newnan, Gainesville and Rome. I publish several informative web sites, including https://www.atlanta-bankruptcy.com and an Atlanta bankruptcy blog, https://www.thebklawyer.com/thebkblog. Please mention Bankruptcy Law Network when you call.
1Comment
  • Stephen Otto, Attorney at Law
    Posted at 22:34h, 13 August

    As long as the Debtor isn’t trying to cram the recently vehicle down (something which is impossible under BAPCPA anyway due to the so-called 910 day rule), I don’t understand what this Trustee’s beef is. The Trustee should be thankful that this Debtor has made an investment in his employment and will have reliable transportation to and from work; if he didn’t have this, the Debtor would probably not be in Chapter 13 at all and the unsecured creditors would be getting far less than 10%.

    Again, I do not understand the Trustee’s argument. Hopefully Mr. Ginsberg will post again on this topic subsequent to the hearing, where hopefully the Judge will find that this Trustee’s argument has no merit.