Thursday, September 2, 2010

Special Rules Regarding Vehicles in Bankruptcy

     One reason many people choose bankruptcy protection is to save a vehicle from repossession or replevin.  Few people actually know that certain rules apply to vehicles when they file.  Most people only know they can keep their car.  In 2005 Congress enacted BAPCPA.  Included in the changes were specific rules dealing with automobile liens.  The most widely criticized and litigated of the automobile changes is the so called “hanging paragraph”.
     The “hanging paragraph” states that if you purchase a personal vehicle and file bankruptcy within 910 days you are not allowed to “cram down” the value of the vehicle.  This means that you would have to pay the full amount owed to the lien holder over the life of your Chapter 13 Plan.  Of course you can still reduce the interest rate and extend the term but sometimes that is not enough.
     Luckily in Chapter 11 cases the “hanging paragraph” does not apply.  This means that there are no time restraints on when you can value a vehicle and when you cannot in a Chapter 11 case.  However,  I am not telling anyone to buy a vehicle and file Chapter 11 a few days or even weeks later because there are still issues of whether the bankruptcy was filed in bad faith or issues of fraud to deal with.  Nevertheless it can be a real benefit for someone that is on the fence about Chapter 11 bankruptcy.
     Again I am not saying that everyone that has a vehicle purchased within 910 days should file a Chapter 11.  I am simply stating that it is an added bonus for people that choose or are forced into Chapter 11 bankruptcy.  Also please note that the “hanging paragraph” does not apply to business vehicles in any chapter of bankruptcy.
     Should you need more information or clarification please feel free to call or email me anytime.  My email is jason@cwbfl.com and web address is www.chapter11jax.com

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