There are times when the less you owe a creditor under a Chapter 13 repayment plan, the unhappier the creditor. Take, for example, the case of the debtor who chooses to keep a car wrecked in accident that’s part of a Chapter 13 plan.
Let’s say you file a Chapter 13 bankruptcy, and you’re making your regular payments to your creditors, one of which holds the lien on your car. You’re involved in an accident—and are uninjured, thankfully—but the car, while insured, is wrecked. At this point, we’d think everyone is happy because the insurer will pay the creditor the remaining balance of the loan per its agreement with you.
The creditor is happy with this arrangement for two reasons. First, by the time you’ve been in an accident, your car is worth less than the loan on it. In other words, if you’d surrendered it to the creditor, the car’s value would’ve been worth its value in scrap metal. Second, if you stopped making your car payments, the creditor would’ve taken your car, which again would be worth only scrap metal. Less for the creditor. After the accident, though, the creditor doesn’t have to worry about either of these outcomes and gets paid out of the insurance now rather than in the regular course of your Chapter 13 plan, which would take longer.
Here’s the twist: You’re an auto aficionado and like “Click and Clack” from Car Talk, you intend to repair your vehicle. This sometimes infuriates the creditor because it won’t get the remaining balance of the auto loan. Once you chose to keep your vehicle, the insurance company reduces the payout to the creditor by the car’s “salvage value,” which is usually equal only to the car’s remaining value. This leaves the creditor in the same position it was in before: you may either surrender it to the creditor for scrap or you may find yourself in the situation of being unable to complete the loan payments.
In these admittedly rare circumstances, the creditor will pressure in the circumstances laid out above to give up the totaled vehicle so they can get their money back sooner rather than later, if ever. They may pressure you to sign documents to this effect. Consult with your bankruptcy attorney instead.
For more questions about cars, Chapter 13 plans, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced chapter 13 Bankruptcy Attorney Brooklyn NY Bruce Weiner for a free initial consultation.