Topeka's Only Consumer Bankruptcy Law Specialists Now Helping Borrowers with Federal Student Loans
“TRANSFORMATION†RULE AND NEGATIVE EQUITY DISCUSSED; GAP
INSURANCE, SERVICE CONTRACT NOT PART OF COLLATERAL
In re Miller, Case No 08-40935
December 2008, Judge Karlin
Debtor sought, and was permitted, to pay only the cost of the car, rather than cost plus other charges. Court did not rule on whether certain fees not adequately addressed by either side were part of the PMSI. Good discussion of the transformation rule and negative equity.
Digest by:Â Jan Hamilton, Trustee
NEGATIVE EQUITY ISSUE NOT RULED UPON IN 1327 CASE
In re Kuhasz, Case No. 07-20282
November 2008, Judge Somers
Court noted split within the district. Judge Karlin excluded negative equity from PMSI claim in In re Padgett, 389 BR 203, while Judge Nugent included it. In re Ford 387 BR 14827 but declined to rule on the issue because the plan had been confirmed and the elements of 1329 had not been met.
NEGATIVE EQUITY ROLLED INTO LOAN IS NOT PMSI
In re Padgett, Case No. 07-41284
May, 2008 Judge Karlin
Car creditor objected to debtor’s attempt to avoid paying the negative equity in a 910 case. After analyzing the UCC as it exists in Kansas, the Court confirmed its opinion in Vega, but disagreed with Judge Nugent’s decision in Ford.
NEGATIVE EQUITY IS PMSI FOR PURPOSES OF 910 CAR LOANS
In re Ford, Case No. 07-11561
May 2008, Judge Nugent
Court held that negative equity in a trade in vehicle, financed by lender, is a part of the price of the collateral and constitutes value given to enable debtors to acquire collateral. The entire balance was found to be a “910†obligation under the hanging paragraph of 1325.
NEGATIVE EQUITY IS NOT PMSI
In re Kellerman, Case No. 06-22028
August 2007, Judge Berger
Pre petition payments are to allocated between refinanced negative equity and the PMSI portion of a 910 vehicle claim under 1325(a)’s hanging paragraph by reference to KSA 84-9-103(c). Under Kansas law, PMSI is the purchase price, not negative equity. Start with the vehicle’s cash purchase price and the apply pre petition payments in accordance with the parties written agreement. If no agreement or other manifested intent, the prepetition payments are applied first to unsecured negative equity and then to PMSI.
BUSINESS USE MUST BE “SIGNIFICANT†TO ESCAPE 910 FULL PAYMENT
In re Wilson, Case No. 06-40637
December 2006, Judge Karlin
Debtor sought to avoid the full payment requirement of the 910 car loan provision. Debtors were using the vehicles in question for personal and business use, as they served as foster parents. The court followed Lowder and Bolze. The Court adopted a “significant and material†approach and found that the vehicles were used “significantly†for personal purposes in finding that the vehicles were subject to the 910 paragraph.
Digest by:Â Jan Hamilton, Trustee
10th CIRCUIT ‘RULES’
In re Rule, Case No. 06-22145
July, 2008, Judge Berger
Judge Berger followed In re Ballard 526 F. 3d 634 (10th Cir. 2008), in finding that a 910 car loan may have a deficiency balance after sale of the vehicle. [Read more…]
CAR OWNED BY CHILD CAN BE CRAMMED DOWN BUT NOT GOOD FAITH
In re Lewis, Case No. 06-20027
August 2006, Judge Somers
The vehicle the debtors proposed to cramdown in the plan was found to belong to the daughter, even though titled to debtors. Daughter made the payments. However, the Court found that the plan was not filed in good faith, citing Young and Flygare, and granted stay relief to the creditor.
SURRENDER IN FULL SATISFACTION OF 910 AND PAYMENT IN FULL
WITH NOT INTEREST NOT ALLOWED
In re McClay, Case No. 07-20106
October 2008, Judge Berger
910 vehicle case. Plan provided for payment of full debt with no interest and option to surrender in full satisfaction. This was found to be an attempt to modify prospectively and Court opined that 1329 would have to be used. Court followed 10th Cir. In re Jones, 530 F3d 1284, (10th Cir. 2008). Debtor must pay interest. In re Ballard, 526 F3d 634 (10th Cir. 2008) holds that deficiency must be provided for if vehicle is surrendered. [Read more…]
PERSONAL VS. BUSINESS USE FOR 910 CAR CLAIMS
In re Lowder, Case No. 05-44802
August 2006, Judge Karlin
Creditor objected to confirmation as debtor sought to avoid the 910 car loan restriction by arguing that she used the car to get to and from work and, therefore, not “personalâ€. Debtor contended that Toyota is entitled to no interest. Creditor sought the Till rate. Judge Karlin restated her position from Vega. Additionally, she found that these facts supported “personal†use and not a “business†use. Further, Till applies, in order to provide the creditor with the present value of its claim.
“PERSONAL USE†NOT THE SAME AS “PERSONAL, FAMILY OR
HOUSEHOLDâ€
In re Humphrey, Case No. 06-20783
October 2006, Judge Berger
Debtors attempted to cram down a 910 motor vehicle. The Court determined that “personal use†is not the same as “personal, family or household use†used elsewhere in the code. A vehicle acquired for the debtor’s spouse is not subject to 1325(a)(5)(B) and 506 applies. Cramdown allowed.
CAR PURCHASED FOR COMMON LAW WIFE IS PERSONAL, NOT BUSINESS
In re Bolze, Case No. 06-40036
August 2006, Judge Karlin
Creditor objected to plan that sought to escape the 910 hanging paragraph. The Court restated the rules established in Vega and Lowder. Debtor attempted to distinguish amongst “householdâ€, “family†or “personalâ€. Basically, the Court said “personal†is not “business†and vice versa. Therefore, a car purchased for Mr. Bolze’s common law wife was “personalâ€.
COST OF FORCED PLACED INSURANCE IS PART OF PMSI FOR 910 VEHICLE
In re Townsend, Case No 07-20956
April 2008, Judge Somers
Noting that BAPCPA does not define PMSI but that the phrase is a term of art under the UCC, the Court found that under Missouri law, 9-103 governs and forced place insurance falls within the Missouri definition of PMSI.
Collateral: The property that is subject to a lien. A creditor with rights in collateral is a secured creditor and has additional protections in the Bankruptcy Code for the claim secured by collateral. The measure of the secured claim is the value of the collateral available to secure the claim: it is possible to have a lien on property that is subject to a senior lien or liens such that the security available to pay the claim is really without value to the junior creditor. The general rule with respect to liens is “First in time, first in right.†More on Secured Debts.
Jan Hamilton Trustee
Jan Michael Hamilton, standing chapter 13 bankruptcy trustee for cases filed in Topeka, was inducted into the American College of Bankruptcy Friday.  Hamilton was in the private practice of law from 1973 through 1999 when he was named to the trustee post.
Hamilton traveled to Washington, D.C., for the ceremony at the U.S. Supreme Court building. Thirty three attorneys and judges were in the 20th class inducted into the college.
The American College of Bankruptcy is an honorary association [Read more…]
EXPLANATION OF THE TOPEKA DISCOUNT RATE
by Jan Hamilton, Standing Chapter 13 Trustee
This rate will typically be changed no more than once a month, on the beginning of the
month.
Beginning on July 1, 2004, we began using our version of the Till rate. [Till v SCS Credit Corporation, 541 U.S. 465, 124 S. Ct. 1951 (2004)]. We start with the Wall Street Journal Prime as reported by www.bankrate.com. We will adjust prime for new cases filed once per month on the 1st day of each month. We then add 1.5% to that rate as the risk factor. This rate has never been challenged but certainly, in the appropriate case, the risk factor might be higher or lower.
This rate was approved by Judge Karlin in In re Lowder, Case No. 05-44802, in a decision entered on August 14, 2006. [Read more…]
Beware of Credit Offers Aimed at Recent Bankruptcy Filers
Small Loans
It is always best to save some money to cover unexpected expenses so you can avoid borrowing. But if you are in need of a small loan, avoid the following high cost loans:
Some “check cashers†and finance companies offer to take a personal check from you and hold it without cashing it for one or two weeks. In return, they will give you an amount of cash that is less than the amount of your check. The difference between the amount of your check and the cash you get back in return is interest that the lender is charging you. These payday loans are very costly. For example, if you write a $256 check and the lender gives you $200 back as a loan for two weeks, the $56 you pay equals a 728-percent interest rate! [Read more…]
If you are behind on a car loan or a home mortgage and you can afford to catch up, you can reaffirm and possibly keep your car or home. If the lender agrees to give you the time you need to get caught up on a default, this may be a good reason to reaffirm. But if you were having trouble staying current with your payments before bankruptcy and your situation has not improved, reaffirmation may be a mistake. The collateral is likely to be repossessed or foreclosed anyway after bankruptcy, because your obligation to make payments continues. If you have reaffirmed, you could then be required to pay the difference between what the collateral is sold for and what you owe.
If you are up to date on your loan, you may not need to reaffirm to keep your car or home. Some lenders will let you keep your property without signing a reaffirmation as long as you continue to make your payments. Sometimes lenders will do so if they think the bankruptcy court will not approve the reaffirmation agreement.
Source: Your Legal Rights During and After Bankruptcy:Â Making the Most of Your Bankruptcy Discharge Pamphlet, National Consumer Law Center, Boston, MA, www.nclc.org.
You may be able to keep the collateral on a secured debt by paying the creditor in a lump sum the amount the item is worth rather than what you owe on the loan. This is your right under the bankruptcy law to “redeem†the collateral.
Redeeming collateral can save you hundreds of dollars. Because furniture, appliances, and other household goods go down in value quickly once they are used, you may redeem them for less than their original cost or what you owe on the account.
You may have another option if the creditor did not loan you the money to buy the collateral, like when a creditor takes a lien on household goods you already have. You may be able to ask the court to “avoid†this kind of lien. This will make the debt unsecured.
Source: Your Legal Rights During and After Bankruptcy:Â Making the Most of Your Bankruptcy Discharge Pamphlet, National Consumer Law Center, Boston, MA, www.nclc.org.
If you are thinking about reaffirming, the first question should always be whether you can afford the monthly payments. Reaffirming any debt means that you are agreeing to make the payments every month, and to face the consequences if you don’t. The reaffirmation agreement must include information about your income and expenses and your signed statement that you can afford the payments.
If you have any doubts whether you can afford the payments, do not reaffirm. Caution is always a good idea when you are giving up your right to have a debt canceled.
Before reaffirming, always consider your other options. For example, instead of reaffirming a car loan you can’t afford, can you get by with a less costly used car for a while?
Source: Your Legal Rights During and After Bankruptcy:Â Making the Most of Your Bankruptcy Discharge Pamphlet, National Consumer Law Center, Boston, MA, www.nclc.org.
