Is A Docket Entry or Minute Entry Appealable?

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What is a docket entry or minute entry? These are entries made by the court to document what took place at hearing or other court proceeding. Never of these entries meant to be like a transcript of what took place, but a short and concise summary of what took place. It is documenting the events of a hearing or court proceeding in an efficient manner. So what if there is ambiguity or you just disagree with what the docket entry or minute entry says? We are all human and sometimes minute entries need to be edited or corrected. Fair enough. Can a minute entry be appealed because you believe the entry is wrong and has of course negatively impacted you as a party in the case?

It seems like at some point in time there is an appeal of everything that takes place in cases whether appealable or not. So here we go. There is a minute entry and you do not like.

Is a Minute Entry Appealable?

The Ninth Circuit Bankruptcy Appellate Panel recently discussed this issue resulting from an appeal of a minute entry from a bankruptcy case from the District of Arizona. The Chapter 11 bankruptcy filer filed on his own an application for an order to show cause to sanction other parties in the case. The other parties filed a motion to strike the application for an order to show cause on the basis that the bankruptcy filer had a bankruptcy attorney retained and it was not appropriate for the bankruptcy filer to represent himself in the bankruptcy case. The Bankruptcy Court granted the motion to strike the application for an order to show cause and vacated the hearing on the application for an order to show case. The Bankruptcy Court is merely saying the hearing on the order to show cause is off the calendar given the motion to strike was granted.

The original minute entry was as follows: “VACATED: ORDER Granting Motion to Strike and [sic] (Related Doc 453) and Order Denying without prejudice the Application for Order to show cause (Related doc 422) signed on 4/4/2017.”

A couple weeks after the above minute entry was placed on the docket the clerk’s office modified the minute entry to include: “*** THIS M.E. ONLY VACATES THE APRIL 28, 2017, HEARING ***.”

At a hearing held a week after the minute entry was modified, the bankruptcy court rejected the bankruptcy filers interpretation of the original minute order as including vacating the order on the motion to strike the application for order to show cause. According to the bankruptcy court, the original minute entry only vacated the hearing on the application for an order to show cause that had been scheduled for the day of the minute entry.

Now The Appeal

If we were to read the transcript of these various hearings or listen to them I believe we would all know beyond a doubt that the Bankruptcy Court granted the motion to strike the application for order to show cause and vacated the hearing the application as moot given the Bankruptcy Court granted the motion to strike.

The bankruptcy filer again representing himself appealed the minute entry. This calls into question the appealability of the minute entry. Let just cut to the chase here. There is not appealable order or final ruling. The Bankruptcy Court granted the motion to strike and entered an order granting the motion. That is not what is being appealed. The Bankruptcy Court vacated the hearing on the application for an order to show cause as moot given it struck it down. That is not really what is being appealed. The bankruptcy filer is appealing the subsequent minute ENTRY which arguably has some ambiguity as to what is be vacated, but it is not an order.
So there is no appealable order under these circumstances.

A minute entry may constitute a dispositive order for notice of appeal purposes if it: (1) states that it is an order; (2) is mailed to counsel; (3) is signed by the clerk who prepared it; and (4) is entered on the docket sheet.” See, e.g., Brown v. Wilshire Credit Corp. (In re Brown), 484 F.3d 1116, 1121 (9th Cir. 2007); Mullen v. Hamlin (In re Hamlin), 465 B.R. 863, 868 (9th Cir. BAP 2012).

This minute entry was just an administrative recounting of what took place and not a substantive ruling.

Everything about this case and appeal is strange. Why did the bankruptcy filer not have is Bankruptcy Attorney file the application for an order to show cause to begin with? Then after the Bankruptcy Court granted the motion to strike given the bankruptcy filer was representing himself while having a retained attorney the bankruptcy filer still did not have his retained attorney file the application for an order to show cause but instead chooses to appeal the subsequent minute entry. It is always possible there is something that is missing from the record that could shed some light on these circumstances. If you want to represent yourself you need to file a substitute of attorney form saying you now want to represent yourself and your old attorney is longer your attorney. That did not happen here. It also appears the attorney of record for the bankruptcy filer did not file a motion to withdraw from the case either.

Update Regarding Paul Teutul’s Chapter 13 Bankruptcy May 8 2018

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Since the last time I took a look at American Chopper star Paul Teutul’s Chapter 13 bankruptcy filing a lot happened. Again, as a fan of American Chopper I am saddened by Mr. Teutul’s bankruptcy filing. At the same time and I am a huge advocate for second chances and our right to seek protection under the Bankruptcy Code as Congress wrote it and the President of the United States of America signed into law. I am hopeful Paul Teutul, Sr., can get the relief he desires and save his home from foreclosure. Since my last update I learned that Paul Tuetul, Sr. is actually legally a junior and that is why the bankruptcy petition provides Paul Teutul, Jr. filed for bankruptcy protection and that appears to be legally correct. Who knew?

Paul Teutul, Sr. Has Changed Attorneys

The first noteworthy occurrence was Paul Teutul, Sr. changed bankruptcy attorneys from Michael A. Koplen to Erica a. Aisner on or around April 5, 2018. There are any number of reasons to change bankruptcy attorneys and it would be improper to speculate as to why. Every bankruptcy filer has the right to represent themselves in bankruptcy or hire an attorney of their choosing to represent their interests in a bankruptcy case. See Section 527 of the Bankruptcy Code for more information on that.

Motion For Relief From Stay Filed By JTM Motorsports, LLC

The backbone of the bankruptcy process is the automatic stay that goes into effect as soon as a bankruptcy case is filed enjoining or stopping any and all collection activity such as foreclosures, repossession, lawsuits, wage garnishments and other debt collection activity. A creditor, or party that is owed money or has a claim at the time the case is filed may request the bankruptcy court grant relief from the automatic stay under certain circumstances. Relief from the stay gives that creditor or claimant holder bankruptcy court permission to continue to enforce their state law rights against the bankruptcy filer to collect on the debt or alleged claim owed to them. The most common reason for a creditor to seek relief from stay is unpaid mortgage payments or unpaid vehicle loan payments. These are secured debts so the creditor will want relief from stay to continue to enforce their rights against the collateral securing their debt by beginning or continuing a foreclosure action on real property or repossess personal property like a vehicle.

Paul Teutul, Sr. listed a 2009 Corvette ZR1 as an asset and JTM Motorsports alleges they have a lien, or garagemans’s lien, against the 2009 Corvette ZR1, securing a debt owed to them by Paul Teutul, Sr. The Amended Chapter 13 Plan Paul Teutul, Sr. filed does not provide a treatment for JTM Motorsports, LLC’s alleged secured claim against the 2009 Corvette ZR1, the collateral securing the alleged lien. I say alleged claim given Paul Teutul, Sr. may be able to object to the claim being secured. JTM Mortorsports, LLC, is saying either pay us through the Chapter 13 Plan or give us our collateral back, the 2009 Corvette ZR1. Time will tell how this all plays out.

JTM Motorsports LLC’s Objection to Confirmation of Paul Teutul Sr.’s Chapter 13 Plan

When a secured debt is not listed in a Chapter 13 Plan a creditor does normally object to confirmation or approval of the Chapter 13 Plan of reorganization for this reason. Confirmation of a chapter 13 plan means approval of the terms of the chapter 13 plan pursuant to Section 1325 of the Bankruptcy Code. As the motion for relief from stay filed by JTM Motorsports, LLC, also alleges, the Paul Teutul Sr.’s Amended Chapter 13 Plan does not provide for payment to allegedly secured creditor JTM Motorsports, LLC. The hearing on JTM Motorsports, LLC’s motion for relief from stay is schedule for June 5, 2018. Again, time will tell what happens.

Amendments of Petition and Statements

Paul Teutul, Sr. recently amended his schedules to include many more vehicles and all-terrain vehicles to his assets with values listed. This is 54 pages of changes and provides a clearer picture of Paul Teutul Sr.’s assets. This is not uncommon given for most filing for bankruptcy is a last resort to preserve assets. Again, I hope Paul Teutul, Sr. gets the relief he wishes and saves his home from foreclosure.
That is it for now. I hope to next provide an update that the case is moving along, not dismissed and relief is just around the corner.

How Much Time Do I Get If I Am Being Evicted Then File Bankruptcy?

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What a question. It depends upon many things and if you want a guarantee of time before you must leave the home or apartment for nonpayment of rent when you are behind on the rent or lease payments someone would have to lie to you. Since that will not happen around here the answer to this question requires asking a few questions to know what is possible or not when a bankruptcy petition is filed and staying in a rental unit. There are just too many moving parts to make some sort of blanket statement about how much time you will get before you have to move out. So I will do my best to answer the question, “What happens if I am being evicted then file bankruptcy? How much time will I get in my place?”

So some guy calls me and says, “I got this form here from the internet that says I get thirty days.” Okay, what form? Response: I do not know. Does your landlord have an unlawful detainer judgment against you already? Response: I do not know. Okay, well, that is almost nothing to go on so here is what is possible if you file for bankruptcy protection and your landlord is trying to get you evicted.

Filing Motion For Relief From Automatic Stay

Once a bankruptcy petition if filed the automatic stay takes effect, is self-executing, and stops/enjoins any and all collection activity against you including evictions. A creditor/landlord can ask the Bankruptcy Court for relief from the automatic stay to continue the eviction though. In the Northern District of California Bankruptcy Court the local rules provide a hearing can be scheduled by creditor/landlord for a motion for relief from the automatic stay on 14 day’s notice. A creditor/landlord could also file a motion for shortened notice and try and get a hearing scheduled on their motion for relief from the automatic stay on less than 14 day’s notice. The notice procedure for hearing is different in different jurisdictions though so this timing may or may not apply in your jurisdiction. Also, this is assuming the landlord/creditor filed the motion for relief from stay as soon as possible after the bankruptcy case is filed. Generally notice of any bankruptcy case takes 4 – 7 days given notice to creditors is mailed via United States First Class Mail by the Bankruptcy Noticing Center. So a landlord/creditor would not even find out about the bankruptcy case until days after your bankruptcy attorney files the bankruptcy petition unless notice was faxed to the landlord/creditor given you are worried about eviction …. FRBP 4001(a)(3) also stops the enforcement of an order grating relief from the automatic stay unless FRBP 4001(a)(3) is waived. So if this rule is not waived you get another 14 days to stay before the order granting relief from stay is signed/entered.

But again does the landlord/creditor already have a judgment in the unlawful detainer lawsuit or have they even filed an unlawful detainer lawsuit against you?

Your Landlord Already Obtained An Unlawful Detainer Judgment For Right of Possession

If your landlord has already obtained an unlawful detainer judgment for right of possession then there is no automatic stay pursuant to Bankruptcy Code Section 362(b)(22). Section 362(b)(22) provides the automatic stay pursuant to Bankruptcy Code Section 362(a)(3) does not apply if: subject to subsection (l), under subsection (a)(3), of the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor.

I will get to subsection (l) in a moment. For now our facts are your landlord sued you in an unlawful detainer action and has a judgment for possession before you filed your bankruptcy case. If so there is no automatic stay and as an experienced bankruptcy attorney I do know of attorneys out there that have had sheriff departments evict people within days of the filing of a bankruptcy case. The attorney for the landlord was good and knew what there were doing. Along with the other documents it takes to have someone evicted the landlord attorney also sent Section 362(b)(22) of the Bankruptcy Code and the sheriff followed the law. You get evicted in a matter of days of the filing for bankruptcy protection.

What Is This 30-Days I Get After Filing Bankruptcy If I Am Facing Eviction?

So finally we get to what this caller was actually talking about, Subsection (l) of 362 of the Bankruptcy Code. Subsection (l) provides: (1) Except as otherwise provided in this subsection, subsection (b)(22) shall apply on the date that is 30 days after the date on which the bankruptcy petition is filed, IF the debtor files with the petition and serves upon the lessor a certification under penalty of perjury that— (A) under nonbankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment for possession was entered; and (B) the debtor (or an adult dependent of the debtor) has deposited with the clerk of the court, any rent that would become due during the 30-day period after the filing of the bankruptcy petition. This is now Official Form 101A: “Initial Statement About an Eviction Judgment Against You.” You must also deposit with the Clerk of the Court the rent amount for that 30 day period. That 30 days you get is not free. For the automatic stay to continue after the 30 days you must also then pay the entire amount due in the unlawful detainer judgment against you and fill out and file Official Form 101B: Statement About Payment of an Eviction Judgment Against You.
Are there other circumstances that this article may not address the could change what I just wrote above? Yes. Generally speaking if facing eviction you either do not have an unlawful detainer judgment entered against you or you do.

What Happens When A Cotenant In A Tenant In Common Ownership Agreement Does Not Pay

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In many large cities like San Francisco the only way to afford purchasing a home is to purchase a property in which you are tenants in common with other owners of the property. Sadly some of the same issues described here can occur with condominium associations also. In San Francisco there many multi-floor homes that have been separated into individual beautiful homes for purchase. The circumstances I will be discussing in this article arise when there is a single mortgage for the entire property and the tenants in common are all responsible for paying the entire mortgage.

Unfortunately this is a long one given how much took place and the litigation is still ongoing. This will last for over a decade most likely.

Hopefully your tenant in common property has separate mortgages for each separate livable part of the property and there are a few small shared expenses. Yes, all tenants in common are usually responsible for the entire mortgage payment each month regardless of who is paying or not by agreement upon purchase if there is only one mortgage for the entire building. That means your agreement to purchase your portion or percentage of the property will include language that the other owners and you are responsible for paying the entire mortgage each month even if one of the other tenant in common does not pay their portion. The following is how thousands of dollars in mortgage payments and attorneys’ fees and costs will result from one tenant in common not paying their percentage of the monthly mortgage payment then arguably following the law to protect their rights. This case is still actually ongoing and the attorneys’ fees and costs are still piling up. At this point the attorneys’ fees and costs are around three times the real world actual damages …… Something you should think about before retaining an attorney.

Tenants In Common Agreements

A tenant in common agreement is like owning a unit in a condominium building and is a great way to get into a real estate market for less than purchasing a free standing single-family home. You must consider that you will never have complete control over your property though and the other owners or tenants in common can always affect your property and mess with your life. Under California law, co-owners of real property holding undivided interests, such as tenants in common, are considered “cotenants.” In re Fazzio, 180 B.R. 263, 268 (Bankr. E.D. Cal. 1995); Harry D. Miller & Marvin B. Starr, California Real Estate § 11.1 (4th ed. 2017) (“Miller & Starr”). While tenants in common generally each have an equal right to occupy the property, tenants in common in multi-unit residential buildings may agree to give each owner an exclusive right of occupancy in particular dwelling units pursuant to which each may respectively exclude the others from their private residential unit. Tom v. City & Cty. of S.F., 120 Cal. App. 4th 674, 676 (2004). The issue is when there is a single mortgage for the entire property and not each undivided interest.

The tenants in common agreement I will be discussing provided that the three tenants in common agreed to pay a certain percentage of the mortgage for the entire property depending upon their portion of the building occupied. The three original cotenants entered into this agreement in 2003. The property was split up into not equal square footage so the mortgage payments were apportioned by percentage occupied. Fair enough. The original tenant in common agreement of 2003 also provided that if one cotenant did not pay their share of the mortgage the other cotenants were required to pay the non-paying cotenant’s share in addition to their own share. In the case I am discussing one of the original three co-tenants sold their share in 2004 and an amended tenant in common agreement was entered into by the two remaining original cotenants and the new 2004 purchasing cotenant with the same terms as the original three cotenants had. Begs the question why one of the original 2003 cotenants decided to sell in a year or less after original purchase and entering into the 2003 tenants in common agreement? Did the original cotenants all know each other? Was there problems brewing already? Did the value increase that much that selling resulted in walking away with a lot of money? Now an unknown third party purchased one of the original cotenants’ interest a year later. That is life though and how it works. To muddy the waters a little more another of the remaining two original cotenants sold their interest in 2007 for cash. Luckily the purchaser paid with cash, so this resulted in the other two cotenants receiving cash distributions from the sale proceeds and that eliminated the new purchaser’s obligation to pay any part of the remaining mortgage. No doubt the value of this San Francisco property increased significantly allowing the selling cotenant to make this happen and walk away with a great profit. What about the remaining two cotenants still responsible for the mortgage? This left one cotenant, the 2004 purchaser responsible for 25.765% of the monthly mortgage payment and the other cotenant, the last remaining original cotenant responsible for 74.23% of the monthly mortgage payment.

A Cotenant Does Not Pay Their Share As Agreed

So finally we get to the problems. The cotenant discussed with the obligation to pay 25.765% of the mortgage stopped making their share payment of the mortgage in 2011, or four years after the other cotenant sold their interest for cash and 7 years after their original purchase.

In 2011 the 2004 purchaser that ended up with the percentage of 25.765% ($1,215.15 a month) after the cash buyout stopped making their monthly payment. The 74.23% ($3,489.50 a month) cotenant was forced to pay the nonpaying cotenants share pursuant to the amended tenants in common agreement and more importantly to avoid potential foreclosure proceedings. It is unclear whether the total monthly mortgage payment of approximately $4,704.65 includes property tax and insurance. It most likely does include property tax and insurance given there is no additional litigation over direct payment of property tax and insurance in the various court filings.

What Do If A Cotenant Stops Paying?

In the case I am discussing the 74.23% cotenant decided to seek arbitration first. By the way, the 25.765% cotenant’s portion of the mortgage payment is $1,215.15 each month if that was not clear above and the 74.23% cotenant has to pay $3,489.50 each month. It is not clear what happened in this case before the paying cotenant took the not paying cotenant to arbitration. It is possible, since they live in the same building; the cotenants spoke directly to resolve this. Maybe a letter was sent first? It is unclear the steps taken in this case leading up to the “lawyering up,” but ultimately arbitration was chosen as the means to enforce the breached amended tenant in common agreement. It is possible the amended tenant in common agreement required arbitration to resolve disputes.

The arbitrator found in favor of the paying 74.23% interest cotenant. What defense did the 25.765% not paying cotenant have? Did you sign the amended tenant in common agreement upon purchase? Yes. Did you stop making your percentage payment as required by the amended tenants in common agreement? Yes. The arbitrator awarded and ordered the nonpaying cotenant to pay the paying 74.23% cotenant $9,136.26 for the payments they made on the mortgage on behalf of the not paying 25.765% cotenant, that the 25.765% cotenant start paying their portion of the mortgage again and awarded the paying 74.23% cotenant attorneys’ fees and costs of $58,369.29. So we have an amended tenant in common agreement and proof of payments made by the 74.23% cotenant to prove there is a problem here and this resulted in $58,369.29 attorneys’ fees and costs to get to, “you are right and have been wronged in the principal sum of $9,136.26.” The point here is that when things go wrong it gets expensive quickly to arbitrate or litigate the problem. As this issue continues it only gets more expensive also.

What Happened After The Arbitration Award?

After an arbitration award the arbitration award can be entered as a judgment by order. The 74.23% now with their arbitration award did in fact request the Superior Court for the State of California to enter judgment. The judgment entered against the not paying 25.765% cotenant was $68,656.07 ($9,136.26 + $58,369.29 + interest) plus the attorneys’ fees and costs totaling $4,214.50 for having the Superior Court for the State of California enter the judgment on the arbitration award. The proper procedure under the law to enforce a judgment when the defendant owns real property is to record the abstract of judgment with the county the defendant owns real property so the judgment attaches as a judgment lien to the property. The 74.23% owner did just that and recorded an “Abstract of Judgment” totaling $72,870.57 with San Francisco County. After the cost of arbitration, entering of the arbitration award as a judgment and then recording the abstract of judgment nothing become simple as you will read below….

The 25.765% Cotenant Fought the Judgment and Sale of the Property in State Court

The not paying 25.765% cotenant spent the next two years fighting the 74.23% cotenants attempts to enforce the judgment and avoid paying the share of the monthly mortgage payment. The 74.23% continued to follow the law and procedure to enforce their rights and eventually obtained a California Superior Court order to sell the nonpaying 25.765% cotenant’s share of the property to satisfy the judgment lien. Of course the continued litigation costs money and the 74.23% cotenant’s attorneys added more missed payments by the not paying 25.765% cotenant and requested the Superior Court of California add an additional $35,074.40 in attorneys’ fees and costs to the judgment. The Superior Court of California said no, the arbitration award and the judgment you drafted and provided the Court to enter does not include a provision for post-judgment attorneys’ fees and costs. The paying 74.23% cotenant’s attorneys now have to amend the judgment to include post-judgment attorneys’ fees and costs…… In the meantime the 74.23% cotenant is still enforcing their rights and a sheriff’s sale of the 25.765% cotenant’s interest was scheduled. The 25.765% owner filed a motion to quash the sale and then appealed the Superior Court for the State of California’s denial of the motion to quash or stop the sale. The California Court of Appeals denied the not paying cotenant’s 25.765% appeal.

In the meantime on June 9, 2014, a day before the June 10, 2014, sheriff’s sale the not paying 25.765% cotenant filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code.

The 25.765% Cotenant’s Bankruptcy Case Under Chapter 7 of the Bankruptcy Code

So at some point the not paying 25.765% cotenant consulted a bankruptcy attorney. To keep the story as short as possible I will summarize the events of the Chapter 7 bankruptcy case as best I can without leaving out important information. The not paying 25.765% cotenant filed their own bankruptcy case, then hired one bankruptcy attorney, then substituted in another bankruptcy attorney and then ended up representing themselves in the Chapter 7 bankruptcy case. The Chapter 7 case progressed and eventually the Chapter 7 Trustee filed the notice of no distribution which provides the trustee does not believe there are any assets to be disbursed to creditors. The not paying 25.765% chapter 7 bankruptcy is therefore progressing as a no asset chapter 7 bankruptcy case. At some point the 74.23% cotenant decided to file a motion for relief from stay to continue to enforce their state court law rights to sell the 25.765% interest in the building to satisfy their judgment/arbitration award. An order was entered by the Bankruptcy Court confirming the automatic stay was terminated was entered on June 5, 2015. More attorneys’ fees and costs are added to the 74.23% cotenant’s enforcement of their rights.

After the Chapter 7 bankruptcy case was discharged and closed on October 3, 2016, the 25.765% cotenant/debtor requested the Chapter 7 case be reopened to seek sanctions against the 74.23% cotenant under Section 524 of the Bankruptcy Code for violating the order of discharge they received. The 25.765% cotenant/debtor also filed an adversary proceeding lawsuit, a bankruptcy court lawsuit, against the 74.23% cotenant alleging the abstract of judgment for their arbitration award/judgment from the California Superior State Court is deficient and therefore the 74.23% cotenant has no secured debt or valid lien that passes through the Chapter 7 bankruptcy case. Now this is extremely interesting given valid liens recorded against real property will survive the order of discharge in a Chapter 7 case. The 25.765% cotenant/debtor is trying to discharge all that took place previously by the 74.23% cotenant to enforce their rights. In the bankruptcy adversary proceeding lawsuit the Bankruptcy Court held that the abstract of judgment did not comply with the requirements of California Civil Procedure Section 674(a) and therefore there is no valid judgment lien securing the arbitration award regarding the unpaid mortgage payments or attorneys’ fees and costs. This is a huge development and could have enormous implications to the 74.23% cotenant’s ability to collect for all that took place previously leading up to the filing of the Chapter 7 bankruptcy case. The 74.23% paying cotenant appealed this decision by the Bankruptcy Court and the appeal is still pending.

So after 7 plus years, over $80,000 is attorneys’ fees and costs incurred by the paying 74.23% cotenant the not paying 25.675% cotenant may erase all that took place previously by obtaining the Chapter 7 bankruptcy discharge. It will be interesting to see what takes place moving forward in this case. What is fascinating if the vigorous enforcement of rights by both sides in this case. Arguably both are merely following the law as it exists under the circumstances. What is unfortunate is how much time and money has been spent as a result of a tenant in common agreement going bad for whatever reason.

This is what can happen when you put your lot it with others and you can never completely control their choices. It is something to consider long and hard before purchasing a condominium or entering into a tenant in common agreement.

What Can I Do If I Cannot Afford My Monthly Vehicle Loan Anymore?

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What can I do if I cannot afford my monthly vehicle loan payment anymore? The problem is you have a vehicle loan payment that is too high and causing you problems each month with your bills. What can you do about it? There are any numbers of options to try and reduce the payment or get rid of the vehicle in the real world. Most of them end with the vehicle loan company sending you a bill once the vehicle is gone. This article focuses on forcing a set of terms, more favorable loan terms, on loan companies by filing for bankruptcy protection.

Depending upon the circumstances bankruptcy can reduce the principal amount owed on a loan and reduce the loan percentage rate thereby reducing your vehicle loan payment amount each month. The entire point of filing for bankruptcy protection is to eliminate, reorganize and reduce debts. Here we are talking about redeeming a vehicle for its fair market value in a Chapter 7 bankruptcy or cramming down on a vehicle loan in a reorganization case under Chapter 13, 9, or 12 by filing a motion to value the collateral of the secured loan.

So What Are The Savings To You?

The simplest answer is the savings will be the difference between what your vehicles is worth and what is owed on the vehicle loan, plus any reduction in the loan percentage rate. The larger the gap between the value and loan balance the larger the savings. If you vehicle is only worth $10,000 and the balance on your loan is $18,000 filing bankruptcy can reduce the amount you have to pay back to what your vehicle is worth ($10,000), not what is owed on the vehicle loan. So in our example the difference or savings is potentially $8,000. See below for issues that could make the savings less though.

Redeeming A Vehicle For Its Retail Value or Fair Market Value In Chapter 7 Bankruptcy

In a Chapter 7 the result is substantially the same as in a Chapter 13 reorganization case, but the law is different in reducing the vehicle loan. In Chapter 7 liquidation cases vehicle loans are reduced by redeeming the vehicle for its fair market value with new financing. A new loan is obtained for the retail or fair market value of the vehicle, as in our example $10,000, and the old loan company is forced to take the $10,000 in satisfaction of the original $18,000 vehicle loan. This is a 722 redemption. A motion has to be filed with the court and depending upon the jurisdiction a hearing may have to be held. In the Northern District of California we can notice motions on scream or die notice and seek a default if no opposition or request for hearing is filed with the court. The motion should cost anywhere from $500 – $1,400 depending upon your bankruptcy attorneys. The catch here is usually the new financing, new loan to pay off old loan, has a high percentage rate and there are process and origination fees usually. I have to say I am not a fan of redeeming vehicles for their fair market value under 722 of the Bankruptcy Code.

Courts have previously articulated its general approach to redemption under § 722 in the case of In re Lopez, 224 B.R. 439 (Bankr. C.D. Cal. 1998). Under that approach, the proper date for valuation of property under Bankruptcy Code §722 is the date of the hearing on the redemption motion. In re Lopez, 224 B.R. at 444. But see In re Eagle, 51 B.R. 959, 962 (Bankr. N.D. Ohio 1985) (date of valuation is petition date).

Cramming Down A Vehicle Loan In A Reorganization Case

In a Chapter 13 or some other reorganization case a motion to value the collateral, the vehicle, is filed and the value of the collateral is determined. This is the amount that has to be paid through the chapter 13 plan to the original vehicle loan company. Again, in our example a motion to value the vehicle would be filed valuing the vehicle at $10,000. What many bankruptcy attorneys do not tell you is you have to add in the attorneys’ fees and the chapter 13 trustee fee to truly calculate the savings via a chapter 13 case and chapter 13 plan. In our example I will use attorneys’ fees of $4,000 [$67 of the monthly chapter 13 plan payment] and the chapter 13 trustee gets a percentage of the monthly plan payment. I will use $67 a month for the chapter 13 trustee too, or $4,000 over the life of the chapter 13 plan. Even if the savings is not huge, no matter what, the monthly payment will decrease significantly since the chapter 13 plan will re-amortize the loan in the three to five year chapter 13 plan. For example the original loan in our example has a principal balance owed of $18,000 at 17% interest. The total amount financed is $28,841 and the monthly vehicle loan payment is $447 a month for five years. After filing for chapter 13 bankruptcy and valuing the vehicle/collateral at $10,000 with percentage rate of only 5% the total payoff is reduced to $11,323 and the monthly vehicle loan payment is reduced to $189, a reduction of $258 each month. For many people this reduction allows them to keep the car and pay their other living expenses on time each month without stress.

How To Value The Vehicle Under The Bankruptcy Code?

There is no absolute formula when determining the value of a vehicle. Courts will generally begin with determining the retail value figure based upon the year, make, model and mileage for the vehicle.

As a general principle, absent unusual circumstances, the retail value of a vehicle should be calculated by adjusting the Kelley Blue Book or N.A.D.A. Guide retail value for a like vehicle by a reasonable amount in light of any additional evidence presented regarding the condition of the vehicle and any other relevant factors. See In re Coleman, 373 B.R. 907, 912-13 (Bankr. W.D. Mo. 2007); In re Carlson, No. 06-40402, 2006 WL 4811331, at *2 (Bankr. W.D. Wash., Dec. 8, 2006); In re Eddins, 355 B.R. 849, 852 (Bankr. W.D. Okla. 2006).

There are usually competing appraisals provided to the bankruptcy court. One from N.A.D.A. or another from KBB. Or two different valuations from KBB. Regardless the court has to make a determination of what value to start at. After that the bankruptcy court should look at the specific condition of the vehicle as of the date the petition for bankruptcy protection was filed. If the vehicle in excellent (less than 5% of vehicles) good or fair condition. The will then make a reasonable adjustment to the starting point valuation discussed above.

What Evidence Should I Present To Prove Value?

I am of the opinion that more is more and not more is less under these circumstances. A picture does speak a thousand words. Take a picture of each scratch in the pain and each dent. That could result in 30 pictures of every little scratch or dent. So be it. Take pictures of the interior of the vehicle and each and every discoloration or stain on the upholstery. Every crack in windows and even measure what is left on the tire tread. Does the timing belt need to be changed? When was the last oil change? Are the windshield wipers new or in need of replacement? You can sure assume the vehicle loan company will provide value of the vehicle as if everything is perfect on the vehicle. Declarations describing the condition of the vehicle and pictures showing the condition of the vehicle is essential. Then there are the vehicles currently being sold and advertised prices. There is what KBB and N.A.D.A. says about value and then there is the real world. Just because KBB says the retail value is one number does not mean the real world market agrees. Review advertisements for the sale of vehicles similar to your own. Are the retail advertisements higher or lower than what KBB or N.A.D.A. says your vehicle is worth? The bottom line here is to leave nothing out for the Bankruptcy Court to consider in determining the value of your vehicle.

A debtor may also wish to submit photographs of the vehicle and evidence as to the retail values of other like vehicles for sale by retail merchants in the debtor’s geographic area. Evidence of this nature will assist the court in determining whether an adjustment to the guide retail value is warranted.

At the very minimum include the following basic information:

(1) a description of the vehicle, including any options installed and special features;
(2) a description of the condition of the vehicle as of the petition date, including any damage, general deterioration, and past or necessary repairs;
(3) the vehicle’s mileage as of the petition date; and
(4) the age of the vehicle as of the petition date.