Category Archives: Chapter 13 Bankruptcy and Plan Payments

You Can Get Rid of Your Car Title Loan By Filing For Chapter 13 Bankruptcy

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If you have a title loan and are paying 20% or more in interest for the life of the loan you should really consider filing for Chapter 13 bankruptcy and reducing the percentage rate to around 5%. Yes, only around 5%. So you can get rid of your title loan, pink slip loan or equity loan by filing for chapter 13 bankruptcy. The chapter 13 plan reorganizes the debt owed and more or less gives you a new loan for 36 or 60 months depending upon your circumstances under reasonable terms. We have recently had an epidemic of clients with horrible title loans. The monthly car title loan payments were $1,710 and $2,100 respectfully. The percentage rates were above 80%! The highest cash for cars percentage rate we have ever witnessed in writing was 1,000 % interest. How can this be legal in California? Why have your state legislators not made this type of loan illegal?

What happened to state usury laws limiting interest rates?

First of all California title loan or cash for car loans are operating within a loophole in California usury law limiting interest rates. I previously wrote about the downfall of most state usury laws placing a cap on credit card interest rates. See www.westcoastbk.com/blog/2012/07/how-can-credit-card-companies-charge-such-high-interest-rates/ Our Supreme Court of the United States held in Marquette National Bank v. First of Omaha Corporation, 439 U.S. 299 (1978) that a bank could charge interest to customers allowed by the state law where the bank was located, not according to the limitations placed by the usury laws of the state the customer lived in. So what happened? A few states eliminated their usury laws limiting interest rates in that state. Banks then set up shop in the states without usury laws and charged their credit card customers higher credit card interest rates throughout the United States.

If you actually look up California State Usury Laws good luck. There are so many exemptions to the rule why have the rule at all? Title loans or equity loans are perfect example of a loophole being taken advantage of. Just because it is technically legal does that make it right? Our system works better when there is capitalism with a conscience. How can charging 99% interest ever be acceptable?

What is a title loan or cash for cars loan?

A title loan is when you have the pink slip for your vehicle because the vehicle has no outstanding loan but the owner of the vehicle needs some quick cash to take care of some other expense that must be paid soon. The title loan company will take the title to your vehicle and hold it until you pay off the loan. Now they have you and do whatever they want to you. Do you believe or think someone trying to obtain a car for cars or title loan has the money to fight when they are overcharged interest or payments are not properly accounted for? No, there is no recourse in most circumstances. I do not know the percentage of the vehicles repossessed for nonpayment on these title loans, but I have to believe these title loan companies are repossessing a lot of vehicles and making a killing auctioning them off. Or, title loan companies are making a killing charging additional fees for missed payments and stringing the loan out more and more making you pay more and more to get your vehicle title back.

How can Chapter 13 Bankruptcy Help?

There are many ways filing for Chapter 13 Bankruptcy will help you deal with horrible cash for cars or title loans. The first is permanently reducing the interest rate to hopefully around 5%. For example let us say you obtained a title loan about 6 months ago for $4,000 at 99% interest over 36 months. The monthly payment will be about $350.18 a month for 36 months or a total paid of $12,606.48 for the original $4,000 loan received. When filing for chapter 13 bankruptcy, assuming the principal balanced owed at the time of filing is around $3,650, you will pay that principal back at 5% or approximately pay $110 a month in the Chapter 13 Plan for the vehicle loan until the chapter 13 plan is completed in 36 months. And this is all by federal court order. You need to add in bankruptcy attorneys fees and the Chapter 13 Trustee fee to truly calculate the monthly chapter 13 plan payment.

If you really want to get into this topic and how the interest rate can be reduced so much, research topics dealing with the hanging paragraph of Section 1325(a)(9) and its interaction with Section 1325(a)(5) of the Bankruptcy Code. Most bankruptcy lawyers will talk about a vehicle being a 910 day vehicle loan or not.

Second, the amount you pay back on the loan could be reduced depending upon the value of the vehicle and the amount of the title loan.

Third and most important is you will no longer make the payments directly to the car title or equity loan company. Your loan payment will be paid through the chapter 13 plan and by the chapter 13 trustee. This should prevent any funny business with accounting for payments being made and ensure you will get your pink slip back after completing the chapter 13 plan. In the real world you will be at the mercy of the title loan company accounting for your payments properly and being honest about whether you completed the loan and should receive your pink slip back. Take a few minutes and research how many people have problems getting their pink slip back. No doubt someone is getting screwed right now.

What is a Hardship Discharge in a Chapter 13 Bankruptcy Case?

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If you are currently having problems making your Chapter 13 plan payments each month due to circumstances that you cannot control there may be some help for you. If you currently have a bankruptcy attorney you should seek his or her advice immediately before your case is dismissed for nonpayment. Most Chapter 13 trustees have a quick trigger finger when plan payments become delinquent. If you do not have a bankruptcy attorney you need to consult with one immediately to see what your options are. There are generally three main options if you are unable to make your Chapter 13 plan payments. The first one is to modify your Chapter 13 plan to a lower payment you can afford either temporarily or permanently depending upon the circumstances. Some Chapter 13 trustees will enter into a stipulation to repay the missed payments without filing a motion to modify and obtain court approval. Another option is to convert your case to a Chapter 7. The third option is to obtain a hardship discharge. All three of these options are dependent on court approval and would depend on your particular circumstances. Today we are going to discuss the hardship discharge.

Pursuant to 11 U.S.C. §1328(b), a hardship discharge is available for people that cannot modify their Chapter 13 plans in a practical manner and had circumstances come up that they could not be held accountable for that made them unable to continue their Chapter 13 plan payments. Additionally, they need to have paid into the plan not less than what they would have paid to their Chapter 7 creditors if their bankruptcy estate was liquidated. It is also important to note that the hardship discharge is only available to people whose Chapter 13 plan was confirmed or approved by the bankruptcy court. If your plan was not confirmed you are not eligible for the hardship discharge. See Toste v. Smedberg (In re Toste), BAP 9th Cir., 2014).

So what exactly does the hardship discharge cover? Does it discharge all your debts or only some of them? To truly understand the hardship discharge we need to know about what is dischargeable or not in a regular Chapter 7 bankruptcy and what is dischargeable in Chapter 13 bankruptcy cases. In a Chapter 7 bankruptcy your general unsecured debt is dischargeable unless it fits into a category under 11 U.S.C. §523(a). These are debts such as those incurred through false pretenses or fraud, priority tax debt, student loans, domestic support obligations, death or personal injury caused by operation of motor vehicle while driving under the influence, restitution, unscheduled debts, and much more. For a complete list you should review the exceptions to discharge under §523(a). Be sure to provide your bankruptcy attorney detailed information about how your debts and how they were incurred if there are any not so good circumstances.

Chapter 13 bankruptcy discharges are broader than Chapter 7 bankruptcy discharges. There are certain debts that are non-dischargeable under §523(a) that are dischargeable in a Chapter 13 case. Pursuant to 11 U.S.C. §1328(a), you are entitled to a full discharge of your debt except for the following debts: debts that provided for a cure for any defaults on any secured or unsecured debts (for example: if you were behind on your mortgage or car payments and the Chapter 13 plan provided for the cure amount), debts for priority taxes, student loans, money obtained by false pretenses or fraud, unscheduled debt, fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny, domestic support obligations, death or personal injury caused by person filing for bankruptcy who was driving under the influence. Additionally, debts for restitution included in the sentencing of a conviction of a crime or restitution awarded in a civil action against the person filing for bankruptcy as a result of willful or malicious injury that caused personal injury or death to someone is also non-dischargeable in a Chapter 13. Thus, if you successfully complete the Chapter 13 plan, the non-dischargeable debt in §523(a) other than the debts enumerated in the above paragraph will be dischargeable. Some issues pursuant to Section 523(a) may require an adversary proceeding to be filed to prove the grounds for a debt to be not discharged.

So what happens if you initially filed a Chapter 13 case but circumstances occurred where it was no longer feasible for you to continue making payments in your Chapter 13 plan? You can obtain the hardship discharge, but the discharge is narrower than the normal Chapter 13 bankruptcy case discharge if you complete the plan and receive a §1328(a) discharge given all of the regular §523(a) exceptions to discharge provisions apply. See Toste v. Smedberg (In re Toste), BAP 9th Cir., 2014). You can look at it as you are receiving a Chapter 7 discharge rather than a Chapter 13 discharge.

How Do I Make My Chapter 13 Plan Payments?

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You are responsible for making your Chapter 13 plan payments on time every month once your Chapter 13 bankruptcy case is filed. You will receive a notice from the trustee’s office in the mail detailing when the first payment is due and how to make the payment. Most bankruptcy lawyers also send you the same information at the time your case is filed. The Chapter 13 trustee that is assigned to your bankruptcy case will be providing you with information on when and where to make your Chapter 13 plan payments. The trustee can and will file a motion to dismiss your case if you fail to make these monthly payments. Some trustees are more lenient than others when it comes to filing a motion to dismiss for nonpayment. Some trustees will file the motion immediately after a missed payment and some trustees will wait until you are a month or more behind before filing a motion to dismiss for nonpayment. However, you should always be aware of how much you owe and when you have made a payment. You cannot rely on the trustee to tell you that you are late on a payment because that may be too late to save your Chapter 13 bankruptcy case from dismissal.

There are several ways to make a plan payment to your Chapter 13 trustee. One way is to have the plan payments be directly deducted out of your paycheck. This way ensures that your plan payments will always be made on time. However, some people just do not like seeing their paychecks decreased for any reason and like to make the payments themselves. That is fine as well. You can personally mail in the payment to the trustee every month. Most trustees require that you pay with cashier’s check or money order only. They do not want to deal with bounced checks. You should keep copies of all payments that you have made so that if there are any errors in accounting you can provide proof of payment. What happens if you mailed your payment into the trustee but the trustee never received your payment? Unfortunately, having your payment lost in the mail is one of the possibilities and risks of mailing in a payment. If the trustee indicates that he or she never received your payment you can look into canceling the cashier’s check or money order that was not received and obtaining a new one to mail to the trustee immediately. One method of ensuring that you know exactly where your payment is would be to purchase a delivery confirmation or some other way of tracking the mail. However, that may be costly and adds up over time. The choice is entirely up to you. Not all trustees have set up or approved paying by ACH, but a third way of making a payment that is becoming more common is to pay the trustee electronically through your checking account. Most trustees do not take regular “bill pay” from your bank since it is similar to a personal check: it could bounce and would be a headache to resolve and would also result in lots of fees that you would need to pay. The electronic payment would most likely be from a third party vendor approved by the trustee that you would need to go through. There are costs involved but it would probably save you a lot of time and would be convenient so you would need to weigh the convenience factor against the cost.

If you are not able to make a payment because of changed financial circumstances you should contact your bankruptcy lawyer immediately to modify your Chapter 13 plan. Do not wait until it is too late before contacting your attorney. If you do not have an attorney you should modify your plan yourself once you know that there will be changed circumstances such as being on disability, less work hours, or being laid off. There are a lot of different ways in which your financial circumstances could change. If you are planning on filing a Chapter 13 it is highly recommended that you seek the services of an experienced attorney to help you through your Chapter 13 bankruptcy case.