Husband and wife forced to keep old car in Chapter 13 case

Floridians who are considering filing for Chapter 13 bankruptcy protection may want to take note of a recent case decided in the U.S. Bankruptcy Court for the Eastern District of North Carolina. In the case, the debtors were not allowed to surrender their 15-year-old vehicle with high miles to the secured lender.

The husband and wife had purchased a 2001 car with 144,000 miles on it five months before filing for Chapter 13 bankruptcy. The secured lender had perfected its secured interest in the car. Not long after the couple filed for Chapter 13 bankruptcy, the car started having mechanical issues. When the state would not pass it for its inspection, the couple were unable to register the car and were unable to drive it.

The couple proposed a plan in which they would surrender the vehicle to the secured lender. In exchange, the creditor would have a deficiency amount on which it could collect as an unsecured debt through the couple’s modified plan. The husband was a service consultant at a car dealership. The court found that given his employment as well as the fact that the vehicle was 15 years old and had so many miles, the couple should have foreseen that mechanical problems were likely. This resulted in a denial of their proposed modification. The court also noted that they could choose to dismiss their bankruptcy, allow the car to be repossessed, and then to refile it. The court noted that another alternative was for the couple to convert their bankruptcy to one under Chapter 7.

Filing for bankruptcy may provide debtors with the ability to have a fresh financial start. Debtors may want to talk about their various assets with their bankruptcy lawyers so they have a better understanding of the chapter that is most appropriate for their individual situations.