Re: Motor Vehicle Values
An attorney emailed me a Chapter 13 petition today for a bankruptcy petition review. He had balanced out Schedule I and J and had a remaining excess of $2,822.55. However, when the attorney proposed a Chapter 13 Plan payment of $2,822.55; the Chapter 13 Plan calculator said the payment needed to be higher to cover the debts. An amount of $3,750.16 was suggested by the software program.
In many circumstances, when a law firm is faced with a similar scenario, they will immediately start trying to reduce expenses on Schedule J. This line of reasoning is NOT protecting the debtor. Before you reduce expenses and take money out of the debtors pocket (which should be a strategy that is used as a last resort), go over Schedule A and B with a fine tooth comb. You may be able to find an error you made or the attorney may be able to reduce the interest rates, calculate a different monthly payment, do a cram down, strip a mortgage lien or any other number of options to protect the debtor.
However, the petition I reviewed for my attorney today was caused by a very simple error that is impossible to see on the surface. I wanted to pass this important information on to you as soon as it happened so you can recognize the problem and deal with it on a future case to avoid this same problem. Allow me to explain the process I went through to solve this issue so you will have a better understanding of what I am talking about:
1. I began my analysis by reviewing Schedule A and B to understand how the debts were classified. Attorneys and their assistants often do not classify debts correctly and this will throw off the Chapter 13 calculation.
2. Next, I review Schedule I and J to see if any of the figures seemed out of line. (Note: If you are a beginner in this field, you will not be able to do this when you begin your career because it is a skill you need to learn over time.) For this particular petition, nothing was out of line so I had to dig a little deeper.
3. Next, I reduced the claim amount on the motor vehicles to the market value. This is called a CRAM DOWN. Because the claim amount was reduced, the monthly payment was reduced. However, this reduction still did not make any dent into lowering the Chapter 13 Plan payment from $3,750.16 to the $2,822.55 the debtors could afford. To read the article I wrote concerning cram downs visit:
http://www.713bankruptcy.com/archives/203
4. Next, I double and triple checked every piece of information on Schedule A and B. When I was reviewing the motor vehicles on Schedule B and determining if they could be crammed down any further I decided to check the Kelly Blue Book value on a 2008 Lexus. The attorney had a market value of $27,450 but Kelly Blue Book showed only $16,200.
I asked myself: Why was there an $11,000 difference on this one vehicle and the other vehicles matched their Kelly Blue Book values? I called the legal assistant at the law firm and asked her to get the client file and tell me what the year, make and model of the 2008 Lexus was. When she reviewed the car title she found that the model was different from the information the debtor provided on the Client Intake Forms. When the change to the market value on the 2008 Lexus was made on Schedule B, the Chapter 13 Plan balanced out perfectly with the $2,822.55 proposed monthly payment.
Think about this for a moment; this one tiny, simple little error could have cost the debtor almost $1,000.00 per month. I was so thankful that a lady in our office helped me to discover the problem so that it could be fixed before it went to court. Not only did this simple change save the debtor $1,000 per month, it also saved the attorney money and time because eventually they will discover the problem and need to fix it. Or, in the worst case scenario, the debtor stops paying into the Chapter 13 Plan and the case is dismissed for non-payment. However, making this minor adjustment prior to filing the bankruptcy petition, problems like these are eliminated.
Summary
Although this article centers around a Chapter 13 scenario; the information is essential for any other bankruptcy chapters also. It is EXTREMELY important to make sure you have the correct market value of ALL assets as well as ALL motor vehicles. Whether you use Nada Guides or Kelly to obtain motor vehicle values, when you obtain the [trade in] value dollar amount, PRINT the webpage to a PDF or paper so the attorney has it with him or her when attending the 341 Meeting. This print out provides the verification the attorney needs to negotiate settlements with the lender or aide in allowing the Trustee to accept the cram down dollar amount for the motor vehicle debt.
For a list of links specifically to help you when preparing bankruptcy petitions, visit:
http://www.713attorney.com/links/prepare_petitions.html
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NOTICE: Victoria Ring, the author of this article is not an attorney and has never attended law school. She has worked in the legal field since 1977 and obtained her Certified Paralegal Certificate in 2001. Victoria is also a Bankruptcy Specialist and obtained her certification testing through the Association of Bankruptcy Judicial Assistants. Victoria is also a speaker, training instructor and developer of all the products sold by the parent company 713Training.Com. To contact Victoria Ring directly visit:
http://www.713attorney.com/contact.html
