Kind of off topic but..

A friend of mine asked me this tonight and I told her I'd ask around...

She leased a vehicle and voluntarily surrendered it last week. She had 5 months more to go on the lease but she just couldnt do it. Anyways, she is going through chapter 13 bankruptcy right now so of course she's going to have to pay for this in the long run, but here's the question. Is she responsible for just the remainder of the lease payments? (She would have turned the car back in at the end of the lease anyways) OR will she be responsible for the book value of the actual car? She says that the way she understands it is that they are going to sell or "auction" the car and she will be responsible for the difference of the book value.... I personally dont see how that can be since its only a lease with 5 payments left. If she turned the car in at the end of the lease of course she wouldnt be responsible for the value of the car, etc... Does anyone know what the real answer is? Thanks!

rob

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Rob, why is she going Ch. 13? I think its a shame she can't do Ch.7 because her credit will be better sooner if she does it that way and then she could afford to keep the car. Under Ch. 13 she will still be responsible for the difference in the price they sell it for and the terms of her lease...I THINK.

The attorneys I work for usually only recommend Ch. 13 if there are large outstanding amounts owed for taxes, or other debts that cannot be discharged in Ch. 7. Ch. 13 forces the creditors to work with the debtor, but does little by way of helping cut back the stress because those payments to the trustee still have to be made.

You might want to post this over at Bayhouse because I think Christine might know more about this sort of issue than I do.


L

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Well she owns a home.... valued at around $260,000. Her debt total is around $65,000. I didnt think she was able to file chapter 7 since she owns the home?

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How much is her equity? Is she current on the mortgage? This would make a big difference. If she has less than 10K in equity, she can take that as an exemption. If she has 50K, it is a different story. Some trustee's will work with you, so that if say she has $25K in equity in her home and takes the $10K exemption, she could make payments to the trustee for the additional $15K to be distributed to her creditors.

Check with her to make sure all of this has been explained to her by her attorney. Would sure hate to see her file 13 and end up worse off if she can get away with Ch 7


L

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Oh, and if she owns the home outright with no liens or mortgages, she could alway get a home equity loan to pay off her debts...since you haven't mentioned that as an option, I'm just assuming that she has a mortgage.


L

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Dumn question.....

what is Equity and how do you determine it?

Yes, she has a mortgage. :o)

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The difference in fair market value of the home and what she owes the bank on her mortgage. If she could sell the house for 250,000 and she owes the bank only 245,000, then she would have 5,000 equity in the home.

L

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Ok... this is confusing to me.. sorry, this is what i found out...

She says she doesnt have a "mortgage", she already had taken out a home equity loan a few years ago... for $42,000 to make improvements to the house, etc. She also had some sort of home improvement loan in the amount of $10,000 that she has to repay that was some sort of program the county was doing. The value of her home is now $250,000. Her credit card debt and "other" debt from unpaid taxes from when she owned a business, etc, total around another $40,000.

Does she have any hope or can she file chapter 7 or ??? As it is now, from what I/we understand, when she sells her home (which she plans on doing within the next 6 months or so) everyone will be paid out of the money from the sale of the home. I really hate to see almost $100,000 "taken away" from her for these debts. All mainly due to a business that failed.

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Okay...she doesn't have a mortgage, but she had a home equity loan...two of them. Have both or one of them been paid back?

I'm not expert here, but I would highly recommend she check into Ch. 7...or else another home equity loan to pay everything off if she has the equity.

How much is her debt? See the thing is...the way I understand 13's to work...she will have her hearing and the trustee will set up the payment plan...let's just assume it will take her two or three years to pay the trustee. At that point, the bankruptcy will be discharged, which means it stays on the credit report for ten years from the time of discharge, which easily could be 12-14 years. Ch. 7 is a flat 10 years.

Anyway...she needs to look into this more and talk to her lawyer about it.

L

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Ch. 13 is reported 7 years from filing.

http://www.bayhouse.com/credit-forum/showthread.php?threadid=475

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Uhmmm...actually, I believe it is from discharge...not from filing. I could be wrong though :) Am more often than not...lol.


L

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Okay...you were right, Christine...it *is* from the date of filing...but it can be reported for up to ten years apparently according to NOLO:

'Chapter 13 bankruptcy can stay in your credit file for up to ten years from the day you file your papers, although rarely are Chapter 13 bankruptcies reported for more than seven years. After your case is over, however, you can take steps to improve your credit. In fact, some Chapter 13 bankruptcy courts have established programs to help you do just that. In such a program, if you have paid off around 75% or more of your debts, you may attend money management seminars and apply for credit from certain local creditors."


L

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