The recent rise in used car prices will impact both Chapter 13 and Chapter 7 cases in Georgia. The Wall Street Journal recently reported that “prices for used cars hit a record high in April and are poised to go even higher as production cutbacks during the recession and the more recent Japanese earthquake has made used vehicles a hot commodity as dealers dive into the depleted pool for cars to fill their lots.”
The rising used car prices will change the battleground in Chapter 13 bankruptcy cases. In the past, bankruptcy debtors and car creditors have argued over how much the car will depreciate after the bankruptcy case is filed. Chapter 13 plans are required to pay a car creditor a monthly payment that will protect the creditor from losing value of their collateral from depreciation. These payments are called adequate protection payments. Since most used cars are now increasing in value, debtors won’t be required to make large adequate protection payments like many have in the past.
Instead of arguing over depreciation, I predict that car creditors in Chapter 13 bankruptcy cases will focus more on the value of the car. In many bankruptcy cases, a Chapter 13 debtor will underestimate the value of their car. A great place for you see how much your car is worth is NADA.com. In cases where the car was purchased within 910 days of the filing of the bankruptcy case, the value will not matter because the bankruptcy code requires that this type of claim be paid in full. In contrast, debtors are required to pay only for the value of the car and not full amount owed when the car was purchased more than 910 days from the date of filing. In cases where the car was purchased more than 910 days from the date of filing, creditors are going to push for the highest value they can to maximize their recovery.
In Chapter 7 cases, I think we might start seeing some creditors refuse to allow the debtor to reaffirm the debt. I’ve seen this happen with some used car dealers in Dalton, Georgia. Nothing in the bankruptcy code requires a car dealer to participate in reaffirmation agreements. If they want, they can file a motion for relief from the automatic stay and then go get the car after the order is entered. With high demand for used cars, repossessing the car and selling it auction becomes more appealing.
One of the appeals of Chapter 7 is the fact that you can surrender an expensive car to a creditor and then go buy a cheaper replacement after your bankruptcy is discharged. Rising used auto prices will make this more difficult. In some cases, it might make more sense to keep the current car and pay for it at a lower interest rate in a Chapter 13 bankruptcy.
If you would like to explore all of your bankruptcy options, please call me today at 706-295-0030 for your free consultation.