Portland Bankruptcy Law Group

Don’t Surrender Your Vehicle or Let it Get Repossessed Before Talking with a Bankruptcy Attorney

posted on 12.24 @ 12:10 am

You may figure that with a vehicle loan it’s a take-it-or-leave it proposition—that in bankruptcy you either keep the car and keep on making payments on it, or you surrender it and get to write off any unpaid balance. The above is generally true, in a “straight” Chapter 7 bankruptcy.

But, in a Chapter 13 case you may be able to keep a vehicle you thought you couldn’t afford to pay for. Under certain conditions, you could pay less each month AND pay less over time, and at the end still own the vehicle free and clear.

Hanging onto a vehicle that you desperately need, but can’t afford the monthly payments on, puts you into a dreadful predicament. This is especially true if you have already fallen behind, and are worrying about your vehicle disappearing courtesy of the repo man. You know the contract requires you to make the payments or you lose the vehicle. You might even be trying to find a cheap replacement vehicle, talking to friends or relatives, but really worried sick about getting an unreliable vehicle. On the other hand, a part of you might also be looking forward to letting go of the vehicle you really can’t afford. That’s especially true if the vehicle is worth less than the loan balance.

But what if you could reduce what you have to pay for the vehicle down to fair market value? And lower the payments to an amount you could afford, while at the same time reducing or eliminating what you have to pay to your other creditors? We call that a “cramdown.”

You can do a vehicle loan cramdown in a Chapter 13 case if you meet two main conditions:

1) you got your vehicle loan more than 910 days before the Chapter 13 case is filed (that’s just about two and a half years); and

2) at the time your Chapter 13 is filed, your vehicle is worth less than the balance on your loan.

If your vehicle loan meets these two conditions, we can essentially re-write your loan. We can reduce the total amount you must pay down to the value of the vehicle, “cramming it down” to that lower amount. That’s called the “secured portion” of the debt. We then calculate a new monthly payment—the payment amount needed to pay off that smaller balance, sometimes at a lower interest rate than the contract rate, and often on a longer remaining term, which often results in a radically reduced monthly payment. You pay that each month as part of your Chapter 13 Plan.

So what happens to the “unsecured portion” of the debt—the part beyond the value of the vehicle? It gets lumped in with the rest of your unsecured debts. How much that part gets paid depends on everything else going on in your case. But in many situations, you do not need to pay anything more to your unsecured creditors as a result of your vehicle loan cramdown. The same amount you would otherwise pay to your unsecured creditors—if you are required to pay anything at all—would just get divvied up among them differently.

One more sweet twist: if you’re behind on your vehicle loan at the time you file your Chapter 13 case, you don’t have to catch up on that arrearage. It’s just part of new reduced “crammed down” obligation. You just make your new Plan payments, and not need to worry about scraping up the missed payment.

As you can see, before you surrender a vehicle or allow it to be repossessed, you need to see if you qualify for a cramdown. If you do, and we show you what the monthly payment would be reduced to, and how much less you would be paying for the vehicle over time, THEN you can make an informed decision about whether this cramdown makes it possible and worthwhile to keep that vehicle.

A Simple Business Bankruptcy

posted on 12.09 @ 6:11 pm

If you own a business and need bankruptcy help, figuring out the right game plan and making it happen is almost always more complicated than with a straight consumer case. Especially if you want to hang onto the business because it’s your livelihood. But it isn’t always that way. In this blog we give you some ideas about what a relatively simple business bankruptcy looks like.

1. Sole proprietor?

If your business is NOT in the form of a corporation, limited liability company (LLC), or partnership, but is rather a sole proprietorship, that usually greatly simplifies your situation, at least for bankruptcy purposes. “Sole proprietorship” is a fancy way of saying that you and your business are legally a single unit, unlike a corporation which is a legal entity separate from you. Unlike a corporation which owns assets and has debts independent of you as the shareholder and owner of the business, the assets and debts of a sole proprietorship are simply part of your own assets and debts. Dealing with all of the business and personal finances in a single package is much simpler than dealing with two or more (if there are partners or other owners) distinct legal entities.

2. Willing and able to be in a successful Chapter 13 case?

Except in rare circumstances, a straight bankruptcy—Chapter 7—is not the way to go if you have a business and want to keep it alive during and after your bankruptcy. It is difficult in a Chapter 7 case to exempt—protect from the trustee—all of the assets of a business. For example, the trustee may very well claim for herself (and the creditors) all the ongoing income from the business once the bankruptcy is filed, which of course you need for your own survival. The bankruptcy trustee would also have the power and often the inclination to shut down the business as soon as the bankruptcy is filed, especially if the business is not well-insured from any potential liabilities. Chapter 13 is much better suited to allow you to keep the business and all of its assets, and to maintain control over it.

3. Reasonably steady income?

Small businesses, particularly those considering bankruptcy, often have very irregular incomes. Chapter 13 requires you to have income “sufficiently stable and regular . . . to make payments under a plan under Chapter 13.” There is certainly some flexibility in how those plan payments are structured, including allowing for seasonal fluctuations or for anticipated future increases or reductions income. But if business income is highly erratic, putting together a realistic Chapter 13 plan and sticking with it to a successful conclusion becomes much more of a long shot.

4. Not too much debt, and not of the troublesome kind?

Naturally, having a huge amount of debt, and especially having certain challenging kinds of creditors—such as aggressive business landlords or angry former business partners—also reduces the odds that your bankruptcy will run smoothly.

Also, if your unsecured debts total $360,475 or more, or your secured debts total $1,010,650 or more, you cannot file a Chapter 13 bankruptcy case. These amounts may sound relatively high but remember they include BOTH personal and business debts. Also the unsecured debt amounts can include less obvious debts, like the cumulative amount owed on an abandoned business lease, or the unsecured portion of a personal or business mortgage that is “underwater.” If as a result you don’t qualify for Chapter 13, Chapter 11 is a possible option. But since Chapter 11 is so tremendously expensive—easily 10 or 20 TIMES the cost of a Chapter 13 case—it is seldom a practical solution.

These pointers should give you some idea whether your potential business bankruptcy would be relatively simple. But figuring out what is your best game plan—regardless how simple or complex that it is—requires a careful analysis by a highly competent attorney. You’re not just trying to preserve assets as in a consumer bankruptcy case, you are also fighting to preserving your livelihood. Get the help you need so that you can accomplish that.

Our Blog

Here’s what we have to say.

Don’t Surrender Your Vehicle or Let it Get Repossessed Before Talking with a Bankruptcy Attorney

A Simple Business Bankruptcy