New Jersey Bankruptcy Blog

What is an automobile cramdown?
A cramdown is applied in a chapter 13 case. In general, a secured creditor must be paid in full if a debtor is keeping the collateral (property). In other words, typically, someone who wishes to keep an auto, whom is behind with their finance payments, must pay the arrears through the bankruptcy trustee payments while still making their regular monthly payments on a timely basis.
However, under certain circumstances, a person may be able to keep his auto without paying the full amount of the secured auto loan.  A cramdown permits a person to keep their auto by paying through the bankruptcy plan only the retail fair market value of the auto, plus a fair rate of interest. The value is determined as of the time of the bankruptcy filing. The interest rate is based on a formula that is relative to the prime rate, as of the filing date.
Example:
Retail Auto Value                    $10,000.00
Auto Financing Payoff           $20,0000
Contract Interest Rate           8%,
If the debtor is able to cramdown the secured interest in the auto, the debtor would be permitted to pay only $10,000.00, plus a fair interest rate, amortized over a three to five year chapter 13 plan. The allowable interest rate at this time is about 5.25%. In the above  example, a debtor is permitted to keep the auto by paying $11,391.59, through the bankruptcy plan, over the life of the plan.
The criteria for a chapter 13 cramdown is as follows:

1. Can cramdown any commercial or non-personal vehicle;
2. Can cramdown a personal vehicle if the financing was obtained at any time, other than at the time of purchase;
3. If the auto was purchased with the financing for personal use, the auto must have been purchased at least 910 days or more, prior to the bankruptcy filing date.

You may contact NJ bankruptcy lawyer Robert Manchel at 1 (866) 503-5655 to discuss your bankruptcy questions.

Can I Keep luxury personal property in a chapter 13.
A chapter 13 requires a debtor to pay monthly payments to a trustee for 36 to 60 months.
A chapter 13 bankruptcy trustee will never sell a debtor’s luxury property. However, if the value of the property cannot be totally exempt, the debtor will be required to pay additional funds to their unsecured creditors (ie. credit card debt) through their monthly bankruptcy payments. The debtor must pay to the unsecured creditors, through their bankruptcy plan, at least, the amount that a chapter 7 trustee could have received, if the same debtor filed a chapter 7 bankruptcy case.
In other words, the debtor or his attorney must perform an analysis to determine how much a chapter 7 trustee could have received, if anything, from the sale of the luxury item(s), if that same debtor filed under a chapter 7 case. In most chapter 7 cases a trustee would not be able to sell a luxury item, which means that no additional funds must be paid to the unsecured creditors in a chapter 13.
The analysis, in this situation, is the same analysis that is applied to determine whether a chapter 7 trustee can sell a debtor’s luxury item in a chapter 7 case. This is explained, under the blog heading “Chapter 7”, blog named, “Can I keep luxury personal property in a chapter 7”.  The bankruptcy code lists the exemptions that may be applied to certain types of property. Part of the list of exemptions, is an $11,950.00 wildcard exemption that may be applied towards any property. Please note that the amounts of the bankruptcy code exemptions are periodically modified.
For example if one debtor owns a boat valued at $10,000, the debtor, if he wishes, may apply $10,000.00 of the wildcard exemption so that the boat is totally exempted. Under this scenario, the debtor would not be required to pay any additional funds to the unsecured creditors, as the boat is fully exempt. However, if the boat has a value of $20,000 and the debtor can only apply exemptions of $11,950, the debtor would be required to pay at least $8,050.0 towards his unsecured debt, through the plan. If the debtor could not afford this monthly trustee payment, he must sell the boat or be unable to file a chapter 13 case.
The second issue deals with a luxury item that is financed. The debtor must pay through the bankruptcy plan, the total amount of his monthly disposable income. However, the disposable income is the amount left over after payment of the debtor’s necessary and reasonable expenses, which should not include a payment on a luxury item, such as a boat. Under this scenario, the debtor must either surrender the boat to the finance company, sell the boat, if possible, or settle the issue with the trustee, if possible, by increasing his trustee payment.
You may contact the bankruptcy attorney in the state of New Jersey, Robert Manchel, at 1 (866) 503-5655, to discuss your situation.

There are two issues that deal with the question of whether a debtor can keep luxury personal property in a chapter 7 case. The first deals with whether the debtor is able to fully exempt the equity of the property. The second relates to whether the property is financed and the payments are current.
A bankruptcy trustee only has the ability to take and sell the debtor’s personal property if the specific property cannot be fully exempt. If the property can be fully exempt, the trustee cannot take or sell the property. The bankruptcy code provides a list of exemptions that a debtor can apply towards different types of property. For example, the court allows a debtor to apply an exemption of $3,450.00 towards the value of an auto and up to $21,450.00 per person in connection with their residence.
To be more specific, the exemptions are applied towards the equity of each property. Equity is the difference between the value and the secured interest in the property. For example, property having a value of $10,000, with a financing payoff of $6,000.00, has equity of $4,000.00. The equity of property that is not financed is equal to the value of the property.
If an auto has a value of $3,000.00, the debtor can keep the auto because the auto is fully exempt after applying only $3,000.00 of the allowable $3,450.00 in auto exemptions. Each debtor may be able to apply an additional $11,975.00 of their unused portion of their residential exemption, towards any property or properties. If the $11,975.00 is available, it may be applied to a number of properties, until exhausted. In other words, any portion of the $11,975.00 may be applied towards as many properties as possible, until the entire amount is depleted. If the property is not financed and may be fully exempted, the debtor can keep the property.
The second issue relates only to luxury property that is financed. If the debtor is in default with the financing, the finance company will be permitted to repossess the property, after discharge, or, during the pending case, after permission from the court. Even though the creditor may pursue the repossession of the property, based on a default, depending on the property’s value and other circumstances, the finance company may not wish to repossess the property.
The code indicates that even if the debtor is current with the finance payments, the finance company will be permitted to pursue the repossession process, if the debtor fails to sign a reaffirmation agreement, that is approved by the bankruptcy court, within a certain time period. However, in reality, this is very unusual, if the debtor continues stay current with the payments.
Also, based on the criteria of a chapter 7, the debtor should not be able to pay the monthly financing payments on a luxury item.
New Jersey bankruptcy law expert Robert Manchel can be reached at 1 (866) 503-5655 to explain which property you can keep in a chapter 7. He can also answer any questions that you may have about filing for bankruptcy protection.

Here we will discuss a Chapter 7 trustee’s questions and concerns that will come up during the Meeting of Creditors’ Hearing [341(a) hearing]
Please note that it is unusual for a trustee to sell a debtor’s asset.
Although there are number of issues that the trustee is concerned about, in general the most important issues relate to the following:
1.  The value of the debtors’ property.
The trustee is entitled to a percentage of the funds that are distributed to creditors, including the liquidation of assets. Therefore, the trustee is interested in the value of all the debtor’s property. Assets include any interest in any personal property or real estate. An asset includes the debtor’s right to sue for money, such as a breach of contract action or a personal injury action. For example, if the debtor has a right to sue someone for an injury that was caused by a third party, the trustee may have a right to such money.
2.  Ensure that the debtors’ monthly household income is less than their reasonable and necessary expenses.
The main criteria for a chapter 7 is that the debtor’s monthly household income is less than the debtor’s household’s monthly necessary and reasonable expenses. Typically, the expenses only include necessary items such as: food, clothing, utilities, mortgage payments, transportation, etc. The monthly expenses do not include payments on credit card debt.
3.  Ensure that the filing was not fraudulent
The trustee must ensure that the debtor unexpectedly found themselves in a situation that required the filing of bankruptcy protection and that the bankruptcy filing is not fraudulent.
In addition to the above, the trustee is interested in other issues, such as his right to pursue the debtors’ creditors for money. However, most of the questions relate to the above listed issues. Some of the questions that a chapter 7 trustee will ask are as follows:
–        Is your petition true and correct?
–         Did you review the petition prior to signing?
–         Does the petition reflect your signature?
–         Does your petition require any modifications or additions?
–         Do you own any stocks, bonds, or investments of any kind?
–         Can you sue anyone for any reason, including a personal injury action?
–         Do you own any real estate?
–         If so, when did you buy the real estate and how much did you pay to buy the real estate?
–         Did you own or sell any other real estate within the last five years?
–         Do you have a safe deposit box?
–         Are you entitled to receive any money from the estate of a person who passed away?
–         Did you transfer any money or property to anyone within 2 years prior to the filing?
–         Did you sell any property within the two years prior to the filing?
–         Did you pay any creditor, including a family member in the last year?
–         Do you owe or receive alimony or support?
–         Have you ever filed for bankruptcy before?
–         Do you presently or have you in the past five years owned any interest in a company or operate your own business?
–         What happened in your life that required you to file for bankruptcy protection?
You may contact experienced bankruptcy attorney in NJ, Robert Manchel, at 1 (866) 503-5655,  to discuss chapter 7 issues and protection from bankruptcy.