New Jersey Lawyer Explains When a Debtor May Keep An Additional Financed Vehicle In A Chapter 13
The debtor is required to pay all of their household disposable income to the trustee, each month. The funds that are required to be paid to the trustee is the net household income after payment of all necessary and reasonable expenses that are needed to live. Some of the expenses that are needed to live are: food, clothing, mortgage, auto payments, auto insurance, etc. Also, the expenses must be reasonable as determined by the judge and trustee. For example, a monthly payment expense of $1,500 for clothing of a household of 2 is unreasonable and excessive. Any disposable income must be paid to the unsecured (ie: credit card; personal loan) creditors.
Additionally, keeping and paying for certain property must be necessary for a New Jersey chapter 13 reorganization. Paying money to keep a residence is necessary for a reorganization. However, using income to pay for the financing of a fifth motorcycle is not necessary for a reorganization. Any disposable income, after such payments and expenses, must be paid to the unsecured (ie: credit card; personal loan) creditors, pro rata.
The determination as to whether a debtor may keep and pay the financing for a second vehicle, in New Jersey, incorporates the above explained two laws. The first question is whether the second vehicle is necessary for a reorganization. In other words, is the additional vehicle needed for the household? A husband and wife that work, both need their vehicles for transportation to work. Typically, the trustee will allow a reasonable auto payment for both the husband and wife, even if one spouse does not work.
There are many circumstances where there may not be a clear answer, such as the following, scenarios. Is a third vehicle that the debtors’ child uses for college, necessary and reasonable for the parents’ reorganization? What if the husband’s monthly auto payment is $700.00? Suppose the husband has a third auto payment on a Harley Davidson, that he loves and must keep. Also, it is generally understood that after a bankruptcy filing, the debtor may not be able to trade in his car for an auto with a lower monthly payment.
The trustee’s dilemma is whether he should allow a debtor to pay unnecessary funds for a vehicle, which results in a reduction in the disposable income that would have been available to the creditors. However, if all of the creditors will be paid in full, the debtor can pay for and keep, as many vehicles as he wishes. If the creditors will be negatively effected by the payment of a third vehicle, the answer depends on the trustee and/or judge’s judgment and decision. Please note that a New Jersey trustee may settle these issues and allow the debtor to keep and pay for the additional vehicle, if he agrees to reduce some other expense and pay more funds to the unsecured creditors.
Robert Manchel may be contacted at 866 503 5644 to discuss your bankruptcy concerns.