Return of the Mac (Chorus), Return of the Mac

Hi all. I've been away for a few weeks as the office has been expanding a bit with our summer interns coming in. Fret not (none of you are fretting), for I am back with even more general legal advice for your consumption.

This week, I'd like to talk about what I typically discuss on my first dates: New York Bankruptcy Law and its relationships to motor vehicles.  I know, I know...still on the market. Shocking.

Anyway, heres the deal with your car if you file for Bankruptcy in New York.  There are some possibilities and scenarios to work with here.  Lets say you pass the Means Test and you want to keep your car.  How do you know if you can?

In New York, if you file for Bankruptcy you can use either the NY Bankruptcy Exemptions, or the Federal Ones.  The NY ones provide that you can protect up to $4000 in equity in a vehicle.  That means if your car is worth $4000 and you have no note on the vehicle, you're fine and you get to keep it.  Same goes for a car worth $10,000 or below, with $6000 still owed on it.

Under the Federal Exemptions, to make things simple, under certain circumstances you can protect up to about $12,000 worth of equity in a vehicle.  

So lets go through the scenarios:

1. Leased Cars.  Keep em.  You don't own them.  

2. Financed Cars: If you just bought a MINI (Park Slope humor), and you put down a very small downpayment, chances are that there is absolutely no equity whatsoever in the vehicle. Which means you get to keep it. Why? Because a car depreciates as soon as it leaves the lot. And so, six months later, its almost a certainty that it will not have gone up in value, and you're likely not making extra payments, so there is no equity.

3. Financed Car, but its old. A Trustee can only make money if they can sell your car and theres money above the exemption (basically protected interest in a piece of property). So let's say your older 2007 MINI with 60,000 miles is worth $9000 but you still owe $5000. You get to keep it under both NY and Federal Exemptions. Further, if the car is worth $9500 or even $10,000, you may still be able to keep it and pay nothing if the Trustee "abandons their interest." Why?  Because the Trustee has to pay people to sell it, and after he/she pays them, there will be no money left to pay creditors (or to keep as comission).

4. Car is close to brand spanking new and theres no note on the vehicle (Thanks Dad!). So, here you can really do a couple of things. First, you can give the car up (silly).  Second, you can use the Federal Exemptions and protect up to $12,000 in equity in certain circumstances and then negotiate a deal on the rest.

Heres what I mean: If your car is worth $17,000 and you protect $12,000 in equity using your exemption, you have about $5000 thats unsecured, which means the Trustee can take the car and sell it right then and there. Unless you make them an offer. As I said, it may cost up to $1000 to sell the car. So, you can tell the Trustee (your lawyer should really be doing this) that you'll make them an offer to pay them the $4000 that's unprotected after fees over a period of a few months to allow you to keep the car. Isn't it crazy to pay for something you already own though? Not really. Not if paying $4000 means you'll get rid of $40,000 in debt. It just typically makes financial sense. Now the Trustee may want the money quicker, but that's really about knowing the Trustee's in the district.  Most bankruptcy attorneys worth their weight will have been before each individual Trustee, and they'll know their temperment and what they typically want.  So be mindful of that before you file your case.

I hope this was helpful.  As always, you can E-mail me at daniel@danielgershburg.com or follow me on Twitter @Danielgershburg with any questions or comments.

Now, back to my dating life...