We sit down with Attorney, Darin Wisehart, to talk through the various factors that will determine if you can keep your vehicle through the bankruptcy process. In this interview, Darin covers the following:
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Disclaimer: Nothing in this communication is intended to provide legal advice nor does it constitute a client-attorney relationship, therefore you should not interpret the contents as such.
Welcome to Modern Family Matters, a podcast devoted to exploring family law topics that matter most to you. Covering a wide range of legal, personal, and family law matters, with expert analysis from skilled attorneys and professional guests, we hope that our podcast provides answers, clarity, and guidance towards a better tomorrow for you and your family. Here's your host, Steve Altishin.
Steve Altishin 0:28
Hi everyone, I'm Steve Altishin, Director of Client Partnerships at Pacific Cascade Legal. And today we have Darin Wisehart here with us to talk about what happens to your car when you file a bankruptcy. Hey Darin, how are you doing today?
Darin Wisehart 0:46
Great, I'm great. Things are moving right along today.
Steve Altishin 0:49
I like it. So we've done several Facebook Lives, and you've been around a lot. And folks may not or may have seen you. So for the ones who haven't, can you just tell us real briefly a little bit about yourself.
Darin Wisehart 1:03
So my name is Darin Wisehart. I'm a bankruptcy attorney here at Pacific Cascade, I specialize in chapter seven and chapter 13 work. And I do some chapter elevens every once in a while, do a little bit of tax work here and there. But mostly with the chapter 13 is you know, kind of focusing on helping people save their cars and reorganizing and getting back to to where their debts are within reach. And with a chapter seven is obviously just the normal path of helping people get out of the debt that may have been chasing them for a long time.
Steve Altishin 1:35
I love it, this is going to be perfect. So today, we're gonna kind of talk about you know, your car, because we talked a little bit and that's a major concern with most people who are going to file a bankruptcy. And so before we start, maybe we can just kind of go through a little bit on the general rule of, you know, bankruptcy and property that a person owns just, you know, in general.
Darin Wisehart 2:05
So looking at bankruptcy, anytime you look at bankruptcy, you want to make sure you understand that property needs to be protected in order to be kept. And so we always want to start a conversation with what exemptions are out there, what items are going to cover the value of your property so that you can keep the things that you want in the normal process of your life. That way on the ground, you don't have too many things change. Now in every state, there are protections when you file bankruptcy for a certain amount of items. So if we have a car, we're talking specifically about cars, today, you're going to have an exemption for equity in your car, in the balance around $4,000 per person that filed a bankruptcy. So that's usually your normal. Now we can talk all the other exemptions that are there, there's usually a lot of them. There's a house one, there's a you know household goods and furniture, there's there's a lot of different categories. Today, we're focusing on the vehicle aspect of it. So we want to make sure we were there, but usually around 4000 and equity is going to be protected. Anything more than that, we're going to have to talk about either paying that value back to the creditors through the bankruptcy process, or handing the vehicle back and having it liquidated sold. And then you know, having all the pieces fall back in place on that one.
Steve Altishin 3:21
Yeah. Well, you know, can't if I'm filing a bankruptcy, can I just decide, well, I want to put this debt into bankruptcy. But I don't want to I don't want to have my car debt as part of the bankruptcy. Can they do that?
Darin Wisehart 3:35
It's an often question is can I I don't want to have my car to the bankruptcy. So I'm gonna leave it out of the bankruptcy. Okay, that's the statement that usually made, we want to always make sure we're clear that when you file bankruptcy, bankruptcy is an all or nothing. When you deal with bankruptcy, chapter seven, or 13, you're getting into the process to have everything be discussed at one point. Now if you have an exemption for it, then you can protect it and keep it it doesn't come into play, you may not lose it. But you still have to add the debt in you have to talk about how you're going to deal with that debt. And then of course, the secured creditor has to come in so that they can either protect their interests or represent themselves in this situation as well. And everything gets put in just the same. We just want to make sure that we know, going in, if we can keep it and what, you know, a lot of times what the goal is for the individual. What do you want? Do you want to keep it, do you not want to keep it, where is the filer, your client, going to be on that situation?
Steve Altishin 4:35
You brought up the term secured debt and and let's kind of get into that but before that maybe made me think, you know, there's different ways people have cars and does it make a difference in bankruptcy for instance, you know, does it What if you own your car outright? What if you're leasing it? Or what if you're still financing the vehicle or does that make a difference?
Darin Wisehart 4:59
It does, it's all different categories. So when we talk about leasing, the question is, do you want to assume the lease? Do you want to keep the lease? Are you current on it. And if you're not current, then you have to talk about possibly doing a chapter 13 to keep the lease. So there's different roads, when it comes to a lease, you can definitely keep it, you know, creditors, I'll say this a few times creditors like money that don't necessarily like vehicles. So if you if you want to keep the thing and you want to keep paying for it, then a lease is it's okay to continue that. And with car loans, now we have a secured loan, your lender is owed a certain dollar amount for that car before you have an equity interest in that car. And so that's what we're talking about when we talk about security interests, we're talking about how much is that car loan, so your car loan is $10,000. And let's say your car is worth $15,000? Will you have $5,000 of equity in that car, that's yours as if you own a $5,000 car, right? And the first $10,000 will have to go to the lender if it's sold. And then you would get the last 5000. That's the idea of the security interest just to kind of give a little platform for that one.
Steve Altishin 6:08
So back to the car, then that what choices are there any other any kinds of different options people have if they're filing a bankruptcy, and they want to keep the car?
Darin Wisehart 6:23
There's a lot of choices. And the biggest the biggest conversation that I often have is, when you're when you're looking to keep the car, you want to make sure that it's going to be a good car for you in the future. Of course, that's always your first conversation is is it driving? Well? Is it you know, is it going to continue? Or is it going to run forever, you know, some somebody might say, Yeah, I got a Chevy Silverado and it's only got 80,000 miles on it, those things ride forever. So you want to have that conversation about where they are with the vehicle, and whether they want to keep it now, if they do want to keep it, most of the time, you're gonna be able to keep it. And there's a couple of off shoot conversations that we could have, you know, for creditors that really got wily and wanting to retake the car. But if you're current on your vehicle, going into a chapter seven, or chapter 13, most of the time, if that's your one vehicle, and you need to get a to b, you need to you need to use that vehicle to get to work, you're probably going to be able to keep it and that's of course, you can't say for sure, because every case is different. But at the same time, that's gonna be a conversation with your attorney that you want to make sure that going into it, you have the idea that you can likely keep it for sure. You know, in the chapter seven, you would be going down a road after you file the conversation is are you current on the debt, and that would be a big conversation, if you're current on the debt, then you want to reaffirm the debt if you want to keep it. And of course, you know, your your three choices, reaffirm the debt, which is to keep on the loan, Okay, keep going and keep everybody status quo. You can surrender the vehicle at that point. So you can hand it back to them and say that the thing is not running so hot, I want to go ahead and you know, I want to cut with that car and maybe get a new car down the road. And so you'll surrender that car to them. And then you usually come up with arrangements to find a way to have them pick the car up or to drop the car off. Or you can redeem the car, which is to pay the value of that car at that point in a chapter seven that doesn't come up so often. So we have you know, we have a lighter conversation on that one, because most of the time clients don't have the full value of the car to pay off the car right then. And that's usually what's necessary with a redemption.
Steve Altishin 8:34
So let's say I say, hey, I want to reaffirm the car. What are some things that should know?
Darin Wisehart 8:39
So if you want to reaffirm the debt, the car, the first thing, you want to make sure that you you know, that's the conversation, we walked backwards on that conversation of? Is it a good car? Is it? Is it a car that you can make the payments on? Because we want to be sure that you know the payments aren't $700 a month, and they're almost 50% of your income or something, you know, it needs to be a wise move. And that's more of an internal conversation between you and your attorney to just talk about, is this the right thing for us, we're going through bankruptcy or taking that negative hit, we're going to kind of move backwards a little bit and try to get rid of all the debt that we can. Let's try to be sure we set ourselves up for success after the case is finished. And part of that is if I reaffirm the debt, am I going to have that debt to pay? Is it really gonna hurt my budget moving forward? And that's that's a conversation that that really starts by the attorney in the client talking about, you know, what does this look like when we create your budget we find that you can make this payment easily or not? Is it going to be a struggle? Are there other avenues for you to maybe pay cash or get a car later down the road? So that's, that's your first and that's probably the most crucial aspect of it. Now, if you decide to reaffirm the debt, then the conversation will go depending on which attorney you have and where you know what state you're in. The conversation will change a little bit but it'll it'll basically take The flow of you'll reach out to the creditor tell them you want to keep the vehicle. If you're current on it, they'll send your attorney a reaffirmation agreement. And that'll be the, the 989 10 pages that will, we'll read up in it, we'll talk about the value of the debt, the the percentage, the interest rate, the payments, all the things that need to be there, and then it'll talk about your budget, can you make those payments, can you not? And so that's what you'll review with your attorney. And then you'll, you'll sign it and send it back to that creditor, and then they'll either file it, or your attorney will sign it one or the other.
Steve Altishin 10:35
If the company if the if the lending company says, oh, yeah, yeah, we'll do it. But but you know, that that 6%, you know, payment, you're making the, we got to make it 12%, can they do something like that?
Darin Wisehart 10:52
Well, here's the thing, you get a choice to sign it, right. And when you sign it, there's two different pads in our district. So it may change with what area of the United States you're in, then you definitely want to have that conversation with your attorney. But if they're looking to change the agreement, you know, that's, that's not something that would happen in that situation, they definitely wouldn't be raised, because there's no way that a judge or an attorney would want to sign that if you're paying more interest. And conceivably, you know, the idea is, maybe they have more risk, maybe they have, you know, these other couple of things, but it's a negotiation. And in this case, you're offering to put yourself on the hook for this debt in the future. And that that has a little bit of leverage with creditors, because they want the money, they want to make sure they continue with the money and they know they're going to make more money from you than they would if they just took the car back and then sold it at auction. So there's a little back and forth that goes on in there. Usually what you see in that reaffirmation agreement is that they, they either voluntarily or they kind of jostle a little bit, and they lower the interest rate a little bit, you know, that's, that's sometimes what you will see, because they know, we're going to try to sweeten the pot a little bit for you to do this, it's less work for us, it's less work for you, we can all win here. And the smarter creditors will do that without really prodding, if they have a 12% interest rate coming in, they might knock it down to six or seven, just to make sure that it's it's, it looks good for you and the attorney and the judge when they finally review that thing later.
Steve Altishin 12:26
So what what, what's the downside? I mean, what are the risks, what happens if four months after the discharge, you suddenly can't pay on? I mean, there are risks involved, because aren't you like reaffirming the loan after the bankruptcy is over?
Darin Wisehart 12:43
You definitely are. And that's a conversation that you will have in my office, we have that conversation multiple times, I have that conversation with them 234 times, because I want them to be aware, I want every client to know going into this, that they're giving up something here in order to keep paying on the loan to keep this vehicle. So if you choose to do the reaffirmation, and it gets to the end, and it's signed by the judge, you have a window of time where you can change your mind. The judges always like to remind you of that, and your attorneys will, your attorney will remind you that as well. That there's a window of time where you can change your mind. If you're outside of that window of time, you're on the hook for that debt now. So if you default if things change in your financial situation, and you say, hey, you know what, I can't make this car car payment, or the car ends up breaking down or something happens. You're you're stuck to that loan. And you of course you want to talk with your attorney in that case, because that's one of the offshoots one of the worst case scenarios really. And that's also why a lot of times when when I speak with this to clients, I want to be sure that there are that they understand sign in this thing is is the way for them to be on the hook for this thing a year down the road if they choose to change directions.
Steve Altishin 13:56
Yeah, yeah. You said a couple of times now, when the judge signs, does the judge have to approve this thing?
Darin Wisehart 14:04
In our district. So in every district that may be different. And I can't speak to all the districts because I don't know all the United States, but you will. And you'll discuss this with your attorney. If you get into this. They're going to talk exactly what to expect as this process goes. But in our district, if the attorney signs that, then there is there is no court review necessary because the attorney is saying this is in the interest. And of course the budget has to match up and things have to fall into place for the attorney to sign the if the attorney doesn't sign it, that it will be set for hearing. And it's a very brief hearing. But the hearing is really important because the hearing is set up for judges to have an opportunity to chat with your client and just ask the client can you pay the car payment can you do you need the car is this loan going to hurt you down the road? And their job is to sort of oversee you know the the protection of your interests moving forward and making sure that that creditor didn't just push you around you know Maybe you're representing yourself and that creditor has been changing the terms. And you know, they sent you a reaffirmation where they added $10,000 to it, every once in a while you see something, you know, something really strange like that. But the judges job is to kind of oversee and to just make sure that you're you understand that you're on the hook for this, if they sign it, that you that it's a lower dollar amount that you can make it that it's not going to hinder your progress financially down the road, and then they'll sign and every once in a while, you know, well, more than every once in awhile, but the judge will have 20 people that they'll talk with eight of them, they won't sign the reaffirmation, but they'll give a speech. And their speech is something to the effect of, if I don't sign this, it's actually a good thing for you, as long as the creditor allows you to keep making payments, and everybody stays happy. And there's there's case law out there that says, As long as people are current on their loans, that they can't have their vehicle taken anyway. So the reaffirmation really just gives the creditor something but doesn't necessarily give the individual client anything. So in those cases, the judge may say, Well, I'm not going to sign this. But if you keep making payments, everybody stays happy, nothing hurt, then a year down the road, you default, you don't have to worry about paying for it, they can't collect on it, they can just take the car. And so there's there's some protection in there, that the judges like to allow the people that, that go through that process, and it is legwork. It's you know, it's not fun to go before the judge for a lot of people that get nervous, and they don't like dealing with it. But most of the time it's on the phone. And you know, the judges, they're doing a really important job to make sure they help to sort of oversee the process.
Steve Altishin 16:40
Going through the process, and with an attorney, obviously, because it's just evident, there's a lot of ins and outs and nooks and crannies that you need to know about so you're protected. But what about Mom and Dad? Maybe someone who's cosign this loan, how does either reaffirmation or surrender affect them?
Darin Wisehart 17:05
A lot of different offshoots here, and most of what we talked to up to now have to do with just the individual that's filing the case. And so that's that's kind of where we were up to now, we talk a little about that cosigner, that individual that just came in to help you because maybe your credit wasn't good at the time, or maybe you couldn't, you couldn't get everything to work out so that you can get the vehicle, that person is not filing the case. And so in one way, sort of keeping your eye on what's going to happen with that person is important. If you file and you sign a reaffirmation and everybody stays happy with the thing, and you end up continuing to pay and you pay all the way down the road, then the creditor is not going to care. There is one change, of course, it'll show up on the credit report of that CO cosigner as protected under bankruptcy while the case is going on, because it is a debt that is protected under bankruptcy. And so there's a window of, hey, wait a second, we don't want to collect on the person who didn't file because the person who did file on this loan is protected under the automatic state, what basically stops everything in the bankruptcy. And so there is there is that kind of conversation that will happen of what happens with a credit report, and you will see it reflected on people's credit reports. And if it's accurate, it gets to stay there. So in this case, it would be accurate. Now, if you surrender the car, that's where the conversation changes completely. Because if you surrender the vehicle, and somebody cosign on that vehicle, then you are going to be as long as everything goes smooth and happens in a normal way, you're going to be zeroed out for that vehicle, it's going to be considered unsecured debt. And it's going to, you know, likely if you're in a liquidation of chapter seven, then you're going to get through the process and that debt is going to go away for you, the car will go back to the lender. In the perfect world, sometimes strange things happened in that one in that aspect too. But most of the time the car gets returned dropped off picked up by a tow truck, but then they sell it at auction. And then they assess $1 amount. And however much the difference between the loan and the auction amount, added a couple of fees here and there. That can then be a can't be collected on the person who filed the bankruptcy. But it can be collected on that code debtor, that individual who co signed for you. And they can go knock on their door and do all of the things that allow them then to go collect, garnish, you know, lien do all the things that they can do to get their money from that person who did not file. And so you always want to, you know, family, it's usually a family member. And you usually have a conversation about what's going to happen with them because you want everybody in the family to be happy. And you want to make sure you're representing the client fully and part of that is making sure they don't go to their parents house and have an angry parent.
Steve Altishin 19:52
Yeah, yeah, it's like, you know, I just have a personal attachment to this car. I love This car drove this car was a teenager. Well, you know, it that doesn't take necessarily a consideration other people who maybe don't love that cars much, but it could be on the hook. So now, what we've talked aboutt, is this a chapter seven relief, or is it chapter seven and 13 are a little bit mixed into both of them? I got my car, I'm going to file maybe a chapter 13, what's going to happen to my car?
Darin Wisehart 20:33
The chapter 13 path is is a little bit different. But it starts with the same nuts and bolts. So the idea is to keep it or to surrender it, if you keep it, you got to pay the loan, or the value of the car one or the other, depending on how long you've had it and what the situation is for that specific car loan. Okay, so the chapter seven kind of has that same idea. And that's where we start with a blueprint, the chapter 13 has a couple of things that are different one is, of course, the chapter 13 is designed to reorganize, to allow you to pay over time between three and five years, depending on what you qualify for. So it gives you time to pay off the car, and you can place the car into the bankruptcy and just amortize it, spread it out over 60 months if you want to. And that allows you just to pay the car loan to say, Hey, I might be behind in my car loan. And that's an important one. Because in chapter seven, in order to reaffirm in the perfect world, you're current with that loan. And so a lot of times people will call me and they'll say, Hey, I'm behind for payments, I think they're going to come take the car, I need to keep this car and you say okay, well we can have this discussion. But can you catch it up in the first month. And if not, then maybe instead of a chapter seven, you look at a chapter 13, to get into the case, so that you can guarantee if you have the car, you keep the car, they can't come and repossess it, once you file your case. And then your your idea is to spread that payment out over time. And really the only question at that point is, are you paying the value of the loan, which if you've owned it less than 910 days, you need to do in order to keep the car you pay the value of the loan that you owe them. And you'll pay that over 60 months if you want in, sometimes a creative fashion, but you got to pay the balance of it in order to keep the car or you can surrender the car. And you can say hey, I want to just hand the car back to them and do the same thing. That's that's an option in a Chapter 13 as well. And sometimes people who have two or three cars, you know, that's that's how we get rid of some of the debt that they may not want in their budget moving forward. And so that's a conversation. But there is one gigantic thing that you always want to kind of think about when you talk about chapter 13, and vehicles. And that is what they call a cram down. And I don't usually like to bog my clients down with the technical terms of these things. But what it means is, instead of paying the value of the loan, you're going to pay the value of the vehicle. So if you've owned this vehicle for 910 days, plus one, or a lot, you've owned it for a long time, you've been really tackling this thing I've been trying to pay it off, it's just hasn't gone anywhere, maybe the interest rates 20%, maybe it started at $50,000, who knows all the different things that come into play in real life. If you've had that, in your situation, what we look at is paying a cram down value. And that value is the value of the vehicle. And so of course, we have to be honest with it, some people want to come to me and say My car's only worth 1000 bucks, I don't know about that, you have to get an honest number. But if you get an honest number, you pay that value over your 36 to 16 months in a Chapter 13. And that allows you to move the interest rate and pay the value of it. So if you're underwater drastically on the vehicle, then you can get creative with how how it's, you know, dealt with. Another thing a chapter 13 can definitely help with here is if you came, let's say you traded your car in and you got them to pay off that loan, and then you got your new car. Well, there's there's some conversation there where that old amount that they paid off, or that other car should zero out or do something, you know some diminishing in order for you to keep that card that you've got from the lot on the trade, right? So there's a little play that you want to know You don't need to know all of the deep parts of that, just that as that topic moves on. Those are the bigger pieces that you discuss with your attorney to be sure that you're getting the best option as you go through the seventh or the 13th.
Steve Altishin 24:33
What I take away from this whole thing is that there are a lot of different situations that can result in different decisions that you're going to make and really needing to talk to attorney about your situation and being honest and open about it. And it's the only way you really going to be able to to kind of come to the really the answer you lot in one of the things I was just thinking about is, is, let's say you do a chapter 13, and you do a cram down. My question would be, well, my parents didn't have to pay for that extra part. I mean, there's just lots of different questions that that's what you're there for.
Darin Wisehart 25:18
Absolutely. And the biggest piece that I tell clients, before they get to the attorney to that consultation, that opening, opening conversation with the attorney, is try to understand, I mean, you definitely want to have the stats, and most clients will come to me and they'll say, I've written all this stuff down. And that's, that's great. That's a good thing to know how much you owe on the loan and what the interest rate is. And when when you bought the car, all the different stats, right? Those are, those are the black and white. But the the other piece is, you might start to formulate the idea with what you want to do with the cars, what's your goal? Can Can they the attorney gets you to that spot, that that is your goal, and you want to make sure you have your goal. A lot of times I'll talk to clients, and I'll say, Do you want to keep that car? And I say this in every consultation when we talk about a car, you know, do you want to keep it? Well, I don't know. It's a you know, and then the conversation is longer, because they haven't thought about whether they have an avenue to get other vehicles. And it doesn't necessarily mean in chapter seven people think this all the time, too. They think that if if you give your car back, because they file Chapter Seven, they'll never get another car loan, Oh, it'll be a long time before and get a new car loan. That's not accurate. I mean, you will get you get inundated by dealerships that will try to work you into a car loan very, very quickly after you filed a Chapter seven. And so you have plenty of opportunities, yes, the interest rate might not be glowing. But if you get a lower dollar amount, you get it, you know, within reason you can make that work. But it doesn't mean that you're done getting a loan. The conversation really starts though with with the the individual client, just voicing what their goal would be with that vehicle and saying, Hey, this is where I'd like to go, can we get there you can't always get get them to that spot. Because maybe the facts don't, don't lend to that. And maybe it's not good for him. But if you have an idea where you want to go, that helps the attorney to sort of create that path and the possibility and give you all your options so that you can see, this is good, this is bad, you know, how are we going to deal with this as the case progresses?
Steve Altishin 27:22
Well, that's wonderful. Well, of course, we just blew through our time. And so before we go, this conversation we had is just the kind of conversation I'm assuming that you would have with anyone who books an appointment and walks in and talks about wanting to get a bankruptcy.
Darin Wisehart 27:44
Every day, every day, I have these conversations. And they're the general consultations that they're what you hear on TV, you know, you consultation is free, that kind of thing. And that's exactly what we do. Everybody who calls, you don't have to worry about bringing your pocketbook, we're not worried about you know, charging or anything. But we're also not giving you legal advice in that in that meeting, either. So we're here to kind of tell you what pieces we think we can work with what your options are, and give you that opportunity to go those directions usually about 30 minutes is all I need to work through those choices and figure out what may be best in the situation. And then if we decide to move forward, then you know, we we arrange how we're going to get that done and come up with a blueprint. So it's, it is definitely something that we do all the time, you just have to call up and say, Hey, I'd like to speak with an attorney. And you can ask for me, you can ask for any attorney at our at our firm will, we'll be able to work through your specific situation, and figure out what the options are what you know, just counsel you on what we see, as as a good path for your situation.
Steve Altishin 28:47
That's wonderful. It really is wonderful. So there thank you again, once again, explaining, you know, these bankruptcy issues that you know, are are really complex, but you do talk to them about them. And you know, I can't even I can understand it. So it's just really a great option for people to have. And I would remind anyone else also that, you know, give us a call here at Civic cascade legal, we are happy to hook you up with there. If you want you can leave a note on Facebook here and we can get you hooked up. So like he said, take advantage of it. And with that, everyone thank you for joining us again today. If anyone has again any further questions posted here we get you connected with Darren right away. And until next time, stay safe. Stay happy, be well.
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