23 Sep When is a Car Purchased for Business Use?
In Chapter 13, a consumer can reduce how much is repaid on an automobile under certain circumstances. But the law limits that reduction, called a “cramdown” where the car was purchased with the loan money within the last 2 1/2 years if the car was bought “for the personal use of the Debtor.”
Note, you have to have originally bought the motor vehicle for non-personal use, it doesn’t matter whether you start using it later for your business, only the intention at the time of purchase. So how do you show your business car was actually purchased for use in your business?
Several courts have been coming to grips with this issue. Most recently it has come up in the Eastern District of Missouri.
One hurdle for the consumer is that the standard form loan contract used by many dealer finance departments includes a box in the upper-right corner to check what type of loan is being made. The options usually are “Personal, Commercial or Agricultural.” As with all such financing documents, they’re prepared by the dealer and presented to the consumer in a flurry of “here’s your rate, your price, your monthly payments, sign here, here, and here…” commentary.
Rarely if ever is a consumer ever asked whether a car purchase will be for “personal, commercial or agricultural use.” The finance guy just defaults all contracts to “personal” and moves on. It’s easier for him and the consumer has no idea what the difference would be. (One suspects that it is easier to place a personal use loan than a commercial use one, so the dealer has some incentive to check the “right” box to make the deal happen.)
But many courts have now concluded that this is only one piece of evidence about your intentions in buying the vehicle. It is not decisive. Rather, these courts will strive to determine your actual intentions from circumstantial evidence.
Your actual use immediately after purchase can matter. For example, if you keep regular logs of business use, that use is substantial and you either get reimbursed by your employer for that use or you deduct it on your taxes as a business expense, then this could be compelling evidence.
It is helpful also if this is not the only vehicle you have and use. After all, if this is your only car and you mostly drive for personal use, or simply commuting to your regular Monday-Friday job, there’s no reason to seriously believe this car was acquired for anything other than “personal use.”
And it is important to note that commuting to a regular place of employment is typically considered a personal, not business, use. (And is usually not a tax deduction.) Rather, your job or business should entail the use of the vehicle to get the job done. A realtor who drives customers from location to location, or a traveling salesman who goes to customers will be typical examples.
The bottom-line is that the court will pay closer attention and seriously consider the consumer’s position that a car was bought for non-personal use if it was in fact used that way after purchase, and the debtor really treated the vehicle as a business tool, not simply a way to get from Point A to Point B.
The EDMO case is In re Morga, 09-43129 (Bankr.EDMo.2009)(Schermer, J.) and relied upon In re Solis,356 B.R. 398 (Bank.S.D.Tex.2006)
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