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Tuesday, February 23rd, 2010

Your Car in Bankruptcy

For many people considering filing for bankruptcy, it’s important to know whether they’ll be able to get on with their lives afterward—and for many, that will be determined by whether or not they have a car.

And, with car issues in the news pretty often these days, they’re certainly on our minds. Here’s a little crash course on what you can expect to happen to your car if you file for bankruptcy.

Chapter 7 & Chapter 13 Bankruptcy

Whether you file under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code, you can expect an automatic stay to take effect. This stay prevents debt collection, wage garnishment, lawsuits related to your finances, foreclosure and repossession.

The automatic stay remains effective until the court discharges your case.

Cars in Chapter 7 Bankruptcy

Chapter 7 bankruptcy offers filers a complete discharge of many unsecured debts. Your car loan, though, is a secured debt (it’s attached to property—your car). If you file a Chapter 7 case, you’ll have three options for your car loan:

  • Redeem: This option involves one lump sum payment to your creditor for the car’s current fair market value. If you can afford to do this, it may make life easier in the future, since you’ll have eliminated car payments. But because most people file for bankruptcy at a time when cash is not handy, it may not be a viable option for many filers.
  • Reaffirm: This option allows you to essentially continue making payments on your lease or loan as you did before you filed for bankruptcy. In reaffirming your debt, you agree a second time to continue making payments according to a schedule agreed upon by both you and your creditor.
  • Surrender: If neither continuing payments nor redeeming the car will work for you financially (for example, if you owe more on the car than it’s currently worth), you can also choose to surrender your vehicle to your creditor and have the remainder of your debt discharged.

Cars in Chapter 13 Bankruptcy

If you file under Chapter 13 bankruptcy, your car’s future will depend on when you bought it.

  • Newer cars: If you bought your car within 910 days of your bankruptcy filing, you’re required to pay the full value of the car loan, though your interest rate may be reduced.
  • Older cars: If you purchased your car more than 910 days before filing for bankruptcy, you’re only required to repay the car’s current fair market value.

Additional Resources

Understanding Vehicle Financing (PDF)

Understanding Vehicle Repossession (PDF)

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Posted in Legal Info | 1 Comment »

Wednesday, September 9th, 2009

Bankruptcy Filing Jeopardizes Prize Money Destined for the Blind & Deaf

Months after winning $1 million on a game show, Georgia’s state superintendent of schools and her husband reportedly filed Chapter 7 bankruptcy.

However, this isn’t a story of why they filed; it's a story about what happened afterward.

In fact, according to the Atlanta Journal-Constitution, Superintendent Kathy Cox was selected to appear on Fox’s “Are You Smarter than a Fifth Grader?” partly because she wanted to play to win money for Georgia schools.

Unfortunately, getting her prize money to the children of Atlanta hasn’t been as easy as she hoped.

Background: She Wanted to Spend Winning on the Blind & Deaf

Sources indicate that Cox planned to donate her TV winnings to three state-run schools for children with vision and hearing impairment.

And, as the first person ever to win the top prize of one million dollars on “Fifth Grader,” it looked like the schools would be receiving some cash.

The Filing Bankruptcy Twist

But, three months after her winning, Cox’s husband filed for Chapter 7 bankruptcy protection, largely because of debt his construction company accrued.

In a Chapter 7 bankruptcy:

  • A filer’s non-exempt assets can be liquidated. The money raised from the liquidation sale is then distributed among the filer’s creditors to cover debts.
  • The trustee determines how to distribute funds. A bankruptcy trustee, who is a federal employee, makes decisions about how much money goes to which creditors.

In the Coxes’ situation, their trustee has reportedly sued the Coxes and Fox Broadcasting Corporation in an attempt to get the prize money paid to the Coxes’ creditors rather than the schools.

Indeed, most state bankruptcy laws consider cash above a certain amount to be a non-exempt asset and therefore destined for the filer’s creditors.

Naturally, a protest has been scheduled and people on both sides of the debate are fervently determined to fight for their cause.

The Underlying Issues

Part of the reason for the hullabaloo and confusion is that the various parties can’t agree about whether Cox participated in the game show as a representative of the state schools or as an individual.

The check she received from Fox was allegedly made out to her, which complicates matters.

Ultimately, the judge who presides over the court case between the two parties will have to decide whether the money Cox earned on the show is legally hers or the state’s.

Learn more about filing bankruptcy.

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Posted in Bankruptcy News and Events | 2 Comments »

Friday, July 17th, 2009

Bankruptcy Could Protect Jammie Thomas from RIAA Damages

In a strange twist to an already surprising case, a recent change to bankruptcy law could shelter Jammie Thomas-Rasset from the $1.92 million in damages she has been ordered to pay the Recording Industry Association of America, according to a CNET article.

Thomas-Rasset was recently found liable for willful copyright infringement and ordered to pay damages of $80,000 for each of 24 songs she was accused of sharing illegally over the Internet.

This is the second time that a jury has ruled against her.

In 2007, a jury ordered her to pay $222,000, but that decision was thrown out after the presiding judge acknowledged he had made a mistake while giving the jury their deliberating instructions.

Filing Bankruptcy Means She Might Not Have to Pay

In both instances, Thomas-Rasset has told reporters that she does not have the means to pay the RIAA and would not do so even if she were able. In fact, filing bankruptcy might help her.

According to Ira Rothken, an attorney who has represented Web sites that offer mechanisms for free file-sharing, the bankruptcy court may allow Thomas-Rasset to avoid paying the damages.

Historically, the bankruptcy law prevented a defendant from discharging the debt of someone found liable of willful copyright infringement.

However, Rothken believes that in 2008, the Ninth Circuit Court of Appeals found in the case of Barboza vs. New Form that “willful” meant one thing in a civil trial and something else during bankruptcy proceedings.

In copyright cases, “willful” simply means the defendant understood what they were doing.

According to the Ninth Circuit, bankruptcy laws mandate that for debt to be non-dischargeable, the plaintiff (the RIAA in this case) must prove that the defendant (Thomas-Rasset) was “willful and malicious” in her actions, and intended to cause the RIAA harm.

Kathryn Bartow, an attorney whose firm often represents major film studios, wrote in February that “(Barboza vs. New Form) serves as a warning to trademark and copyright owners as well as the counsel who represent them in willful infringement cases.”

Copyright Infringement and Bankruptcy

If the jury in her recent case had found Thomas-Rasset guilty of copyright infringement as opposed to the “willful infringement” she was eventually declared guilty of, her debt would have been even easier to discharge.

“If she had one on that point,” Rothken says, “[the debt] would be absolutely dischargeable without even having to have another hearing in bankruptcy court.

Now her conversation [with the RIAA] must be, ‘Hey, if we can’t settle, I’m going to go forward and file for bankruptcy,’ and they’ll say “Well, you’ll have to have another trial.”

Fred von Lohmann, an attorney for the Electronic Frontier Foundation, which advocates for Internet-users, believes that proving Thomas-Rasset’s malice might be very difficult for the RIAA.

“No. 1, I’m not at all sure they’d be interested in trying this case again,” von Lohmann says. “And No. 2, I’m not sure they’d win.”

The RIAA may not wish to push the matter to the point where Thomas-Rasset opts to seek shelter in bankruptcy. It has said that it wishes to settle the matter out of court, particularly since they have already achieved a coup by proving their case sufficiently to twenty-four average Minnesotans with no ties to the recording industry.

Pushing the matter further, many industry insiders agree, expends their public relations point and causes the group to be seen as bullies.

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Posted in Bankruptcy Courts | 1 Comment »

Wednesday, January 24th, 2007

Bankruptcy in Canada: Cross Border Debt

Individuals with assets and debts on both sides of the border are a special case. If they face possible bankruptcy, they should seek professional help in the country where their situation is desperate.

However, if they have major assets in the other country, their bankruptcy attorney or trustee is likely to hold up the bankruptcy until those assets are liquidated.  Bankruptcy in either country does not wipe out debts in the other country.

Bankruptcy laws in Canada differ from those in the U.S., so it is important for consumers in Canada to get information and advice that are valid in the Canadian system.

Some of the major differences:

  • The professionals who handle bankruptcy cases are known as bankruptcy trustees, and are not lawyers but chartered accountants, the Canadian equivalent of CPAs.
  • Canadian bankruptcy trustees are permitted to provide credit counseling, although they commonly refer clients to non-profit credit counseling agencies.
  • In Canada, personal "bankruptcy" is most similar to the American chapter 7 bankruptcy.
  • The nearest Canadian equivalent to a chapter 13 bankruptcy is a "consumer proposal", a legally binding repayment arrangement between unsecured creditors and the consumer.

On the other hand, there are many similarities in Canada:

  • Canadians have many of the same reasons as Americans for facing financial difficulty,  including unforeseen major expenses, loss of employment, and excessive credit card debt.
  • Canadians can use the same initial solutions, such as debt consolidation and better personal financial management through credit counseling.
  • Just as there are state and local differences in the application of American bankruptcy laws, there are provincial differences in Canada.

Bankruptcy Canada provides extensive information on bankruptcy and its alternatives in Canada. Those who don't readily find the answers they need can submit anonymous questions to the site's blog. The site is owned and advised by bankruptcy trustees, so that consumers can trust its accuracy and reliability.

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