Kentucky Bankruptcy Law

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Chapter 13 Planning: Purchasing a car prior to filing part 2

Last post explained some of the issues the debtor had to be aware of in purchasing a car prior to filing a Chapter 13. Today I want to complete that discussion with two other considerations. The first is really a concern for the creditor who sells the car. Timing matters in the perfection of the lien on the title of the car to make the car debt a secured one.  Under 11 USC Sect. 547(e)(2)(C)(ii), the seller of the car has up to 30 days after the filing of the bankruptcy to perfect their lien. Perfecting a lien means that they get notice of the lien on the title of the car. A lien must be perfected to be enforceable or not avoided. The reason this matters mainly for the creditor is that if the creditor fails to perfect the lien within 30 days of filing the bankruptcy then they cannot get paid in full AND yet they cannot repossess the car. Essentially, they become unsecured creditors only and they only get pennies on the dollar.

Although that impairs the creditor, the of ways this impacts the debtor, though, is that extra litigation is practically guaranteed to get the lien removed from the title later on. Despite this extra work, the debtor would still have to pay the same plan payment whether that car debt is secured or not. So, it is just cleaner to allow plenty of time (at least 30 days) for the creditor to get that lien perfected.

The second way it impacts debtors for a lien to go past this deadline to be perfected has to do with exemptions. Suddenly, if the lien is not properly perfected, then the whole value of the car must either be exempted or the non-exempt part may increase what has to be paid into the Chapter 13 plan. A Chapter 13 plan must propose at least an equal amount of payments that go to unsecured creditors exists in non-exempt assets. So, when “wild car” exemption plus the vehicle exemption fall short, the plan payment might have to be increased.

September 30, 2013 Posted by | Bankruptcy, Chapter 13, Disposable Income / Budget, Plan payments, Planning, Pre-filing planning, Security interests | , , , , , , , , | Leave a comment