Bankruptcy Blog

Q: I was behind on my car payments, and my car was repossessed. Can filing a bankruptcy help me get it back?

A: Not by filing Chapter 7. Chapter 13’s are often used to cure defaults on car notes.

Having a car repossessed does not cause you to lose all of your rights in that car. Under state law, you have the “right to redeem” a car (by paying for it in full) for 10 days or until the car is sold, whichever is longer. Thus, if the car has not been sold, you can use a Chapter 13 to force the lender to give it back, and let you pay for it over a period of years through your Chapter 13 plan. We can normally recover a repossessed car very quickly by filing a workable Chapter 13… assuming that you have full coverage insurance in place with the lender listed as the lienholder on the policy.It is not true that you must lose your car if you file Chapter 7.

Q: What is the effect of filing a Chapter 7 on a repossession?

A: A Chapter 7 is generally of no use to you if your objective is to get the car back, and if the lender doesn’t want to work with you. Secured lenders have real power in Chapter 7 if you are in default. They are not obligated to work with you to cure missed payments. Instead, that is what Chapter 13 is used for. However, a Chapter 7 will wipe out any “deficiency” owed, so at least you can get a fresh start and then hopefully replace it with another vehicle that you can afford.

Of course, it is not true that you must lose your car if you file Chapter 7. Filing Chapter 7 is not an event of default if you are otherwise in compliance with your obligations under the note. (For example, you are not behind in your payments). In most Chapter 7’s, debtors keep and keep and continue to pay for cars (that is, they “reaffirm”). Rules pertaining to “reaffirmation agreements” are addressed elsewhere on this web site.

Call attorneys H. Brooks Cotten or Gina Karrh at 678-519-4143 to discuss your particular situation, and they can discuss your options with you. 

It’s common knowledge that you can’t “bankrupt on child support or alimony”. Obligations “in the nature of support” (even if they are labeled something else in the divorce decree) have never been dischargeable in either Chapter 7 or in Chapter 13. This means that you can’t get rid of them without payment.

Over the years, this principle has become stronger and stronger. It is no longer possible to discharge a property settlement (as distinct from a support obligation) in Chapter 7. Thus, you should not expect to “fix” a bad result in divorce court by filing a Chapter 7 bankruptcy. It may be possible however, under limited circumstances, to pay property settlement obligations less than in full under a Chapter 13, and still receive a discharge. There is nothing easy or automatic about this, and you would have to discuss your particular situation with a lawyer to be confident about how this would work out for you.

If you are still married and are merely contemplating a divorce, a joint bankruptcy might make your way easier in the future. Assume that you divorce without filing bankruptcy. If you owe some debts jointly with the ex, the divorce decree should direct which of you is supposed to pay those joint debts. If you share the obligation to pay, that will require good communication and cooperation between you. That might well be a problem. It usually works best for each spouse to be totally responsible for paying any given debt.

However, even if each spouse is assigned separate debts to pay, that does not affect the right of the creditor to collect from either one of you if both names are on the account. Thus, if the ex is supposed to pay a debt but does not pay it, you can still be sued by the creditor. Your only remedy would be to return to Superior Court to have it enforce the obligation that it ordered in the divorce. Similarly, if you don’t owe debts jointly with your spouse, a divorce court can order you to pay a debt that never was in your name as part of a “division of marital liabilities”.

When you file for divorce, you want to achieve peace if at all possible. You don’t want to set yourself up for future conflicts either with your ex or with your old creditors. If you file bankruptcy and wipe out these debts, neither one of you will have to pay them in the future, and the divorce decree will not need to address them. This if often the best strategy for avoiding stress and conflict in your future life.

Please call us at 678-519-4143 to discuss your particular situation with our lawyers. 

Some, but not all, old tax debt can be wiped out (“discharged”) in a Chapter 7. (In some, but not all, Chapter 13’s, that same debt can be paid less than in full…pennies on the dollar).

Tax debt can be wiped out in Chapter 7 if, but only if, all of the following are true:

1. 1)  The debt is for personal income taxes (not, for example, business trust fund taxes like

   employee withholding taxes), and

2. 2)  The tax first came due more than three years ago (not counting extensions granted for time to file the return, and not counting time spent during that period in a prior bankruptcy), and
3. 3)  You must have already filed the appropriate tax return. You must have filed it:

a) either on time,

b) or if you filed it late, you must have filed it at least two years ago, and 4) Your return was not audited within the last eight months.

The good news is that if all of the above are true, old tax debt is discharged in bankruptcy just as surely as a medical bill or credit card debt would be.

Because tax debt “ages”in bankruptcy, April 15th is an important day. On that day each year, one more tax year becomes dischargeable if all of the factors listed above are true. Thus, as of April 15, 2014, taxes for tax year ending December 31, 2010, became dischargeable for the first time. (Before April 15, 2014, 2010 taxes could not possibly have come due more than three years ago, and would not be dischargeable under any circumstances).

If you owe old tax debt, you need to 1) know the tax years in which those taxes were incurred, and 2) you need to know when you filed the return. Shortly before tax day, we sometimes counsel clients to wait until after April 15th to file for bankruptcy, because it can save you a lot of money to have another year of old taxes discharged.

Call us, at 678-519-4143 and one of our lawyers will be happy to discuss your particular situation with you. 

Photo Courtesy of efile.com

Q: I was behind on my car payments, and my car was repossessed. Can filing a bankruptcy help me get it back?

A: Yes. Chapter 13’s (not Chapter 7’s) are often used to cure defaults on car notes. Having a car repossessed does not cause you to lose all of your rights in that car. Under state law, you have the “right to redeem” a car (by paying for it in full) for 10 days or until the car is sold, whichever is longer. Thus, if the car has not been sold, you can use a Chapter 13 to force the lender to give it back, and let you pay for it over a period of years through your Chapter 13 plan. We can normally recover a repossessed car very quickly by filing a workable Chapter 13… assuming that you have full coverage insurance in place with the lender listed as the lienholder on the policy.

Q: I received a letter from the car lender saying that I have ten days after repossession to “redeem” the car by paying for it in full. I don’t have that kind of money. Does that mean that the car will be lost after 10 days if I don’t pay for it in full?

A: No. By statute in Georgia, the car lender has to give you ten days to “redeem” the car by paying for it in full. After 10 days, they can sell it, and if it is sold in an “arm’s length” transaction, that will cut off your rights so that you can’t get it back. What’s more, they can sue you to collect any “deficiency” if the car sells for less than what you owed on it.

However, the car will remain your property even after 10 days has run so long as it hasn’t been sold. In other words, so long as the car has not been sold, you can stop the lender from selling it by filing a Chapter 13, and then you can force the return of the car to you as property that is necessary for the successful completion of your plan.

Q: Are there any circumstances where I can’t get the car back?

A: Yes. If the car was legitimately sold before you filed bankruptcy, you can’t get it back. Second, you can’t force the lender to give it back unless you can prove to him that you have valid full coverage insurance on it. Thirdly, to benefit from Chapter 13, you need to be able to file a good, workable plan.

If you can’t file a passable plan for one reason or another, the lawyer should not file the case just to get a car back, because it won’t work in the long run either for you or for anybody else.

Q: How long does it take to get a car back after I file Chapter 13?

A: In most cases, you can get the car back in a matter of hours or in a day or so. You’ll need to prove full coverage insurance, and of course, we would have to successfully reach a decision maker by telephone or fax. This is not usually a problem for major car lenders, and is only occasionally a problem with smaller lenders. Of course, if you have a terrible relationship with your lender, that will make getting them to cooperate more difficult, but not impossible.

Q: Are there any other advantages to filing Chapter 13 after a repossession?

A: Yes. It is often cheaper to pay for a car through Chapter 13 than under the contract. In Chapter 13, the interest rate can be reduced to a rate that is around two or three percent over prime, which may be much less than what you are paying under the contract. Further, you can stretch the payments out and take up to five years to pay. In a given case, this can substantially reduce what you are paying monthly.

Call attorneys H. Brooks Cotten or Gina Karrh at 678-519-4143 to discuss your particular situation, and they can discuss your options with you.