Vehicle Values, Exemptions, Reaffirming Mortgage

[TerribleName]

My wife and I are possibly looking to file a Chapter 7 in Illinois, and have some specific questions, so I'll split them up. I have researched for months now, so if I missed some easy answers I apologize:

-We have 2 vehicles. One is pretty heavily beaten up (3 minor accidents, no repairs, check engine light on, interior damage, etc.), but is showing a "fair" value on kbb.com of $2557. The other has a kbb.com "good" value of $13,069. Both of our names are on both vehicles. From what I understand in IL, we have $2400 in car exemptions, and $4000 in Wild Card exemptions, multiplied by 2 (total of $12,800).

1. My first question I could not find an answer to anywhere. If we do not exempt the full amount on either vehicle, will they take it? For example, if we place $11,000 in exemptions on the second vehicle, and its auction/trade-in value is around $11,100, will they actually take the vehicle and, most likely after fees, lose money? They still have to give me $11,000 even if the vehicle sells for (hypothetically) $9,000, correct?

2. If they will only take a vehicle with a significant value over exemption, can anybody estimate about how much value I would need to exempt in order to keep either vehicle? I know it is difficult to know as everywhere is different, but if anyone has experience or insight, that would help.

3. We also have a large family (7 people). Will that factor into any of this?


-I have read around the forums, and have noticed that many people do not believe anything should be reaffirmed in a CH7.

4. We are keeping our home no matter what. We have basically no equity, are not underwater, and are not past due (just completed remodification). I would also like to start rebuilding my credit ASAP (insurance rates, emergencies), and reaffirming this seems like a viable option. Thoughts?


-My understanding about personal possessions is that we will need to itemize everything we have in our home.

5. What types of home items would we need to exempt? For example, the only thing that seems worth anything is our TV, about $500. I have old computers and computer parts not worth anything. How invasive is this process?

6. We are still debating on whether to file on our own or with a lawyer. Considering the above, which do you recommend?


Any help with any of these would be great. Thanks!

[AngelinaCatHub]

My wife and I are possibly looking to file a Chapter 7 in Illinois, and have some specific questions, so I'll split them up. I have researched for months now, so if I missed some easy answers I apologize:

-We have 2 vehicles. One is pretty heavily beaten up (3 minor accidents, no repairs, check engine light on, interior damage, etc.), but is showing a "fair" value on kbb.com of $2557. The other has a kbb.com "good" value of $13,069. Both of our names are on both vehicles. From what I understand in IL, we have $2400 in car exemptions, and $4000 in Wild Card exemptions, multiplied by 2 (total of $12,800).

1. My first question I could not find an answer to anywhere. If we do not exempt the full amount on either vehicle, will they take it? For example, if we place $11,000 in exemptions on the second vehicle, and its auction/trade-in value is around $11,100, will they actually take the vehicle and, most likely after fees, lose money? They still have to give me $11,000 even if the vehicle sells for (hypothetically) $9,000, correct? Incorrect. Nobody gives you anything. You cannot make a profit on bankruptcy. IF the vehicle is clear title, you will get money back on what they sell it for after costs. Then you are DONE on your vehicle exemptions and cannot carry it over to other items. The first entity would be the mortgage company if it is not clear titled. If it is within your exemptions, you are clear of worry.

2. If they will only take a vehicle with a significant value over exemption, can anybody estimate about how much value I would need to exempt in order to keep either vehicle? I know it is difficult to know as everywhere is different, but if anyone has experience or insight, that would help. That would be up to the Trustee as it is a certain amount of trouble and expense. You could possibly do a "buy back" of non-exempt stuff in your BK. We did.

3. We also have a large family (7 people). Will that factor into any of this? No.


-I have read around the forums, and have noticed that many people do not believe anything should be reaffirmed in a CH7. YES. I too believe that as you lose all BK protection. Something got you here, no? However we did reaffirm as my whole Credit Union was offline to me and my car only had two payments to go. I would safely say, it depends on your circumstance, but as a majority the answer is "Pay Through" don't reaffirm.


4. We are keeping our home no matter what. We have basically no equity, are not underwater, and are not past due (just completed remodification). I would also like to start rebuilding my credit ASAP (insurance rates, emergencies), and reaffirming this seems like a viable option. Thoughts? Yes and no need to reaffirm, just keep doing as well as you are.

-My understanding about personal possessions is that we will need to itemize everything we have in our home. Not really. Basic guide is go by category, such as clothes (flea market prices on all things), furniture, tools, etc. Anything such as rare collections and big price stuff would not apply and would be separate.

5. What types of home items would we need to exempt? For example, the only thing that seems worth anything is our TV, about $500. I have old computers and computer parts not worth anything. How invasive is this process? Usually and I cannot state from IL law and experience, not invasive at all unless a suspect of fraud may exist.

6. We are still debating on whether to file on our own or with a lawyer. Considering the above, which do you recommend? I cannot speak for you and we were so stupido. Our lawyer sucked and gave us no real help. I can say at this time and what I have learned I could go prose' but I don't intend to repeat this experience again. It is what you think that counts.


Any help with any of these would be great. Thanks!

There are more on this wonderful forum that can chime in. I only speak of my experiences. I wish you well. 'Hub

[LadyInTheRed]

It doesn't sound like your vehicle is in fair condition. It sounds more like poor condition. Did you try their condition quiz? http://www.kbb.com/car-advice/articl...ondition-quiz/

The trustee is not going to want a vehicle if he can't sell it and make more than it costs him to do so. You could try not exempting that vehicle and hoping the trustee doesn't want to bother with it. But, you will be taking a risk. If you don't exempt it and the trustee doesn't abandon it, you may be able to buy it back from him. But, you'll have to come to agreement regarding the value. You may want to prepare yourself by getting some repair estimates.

Yes, if the trustee sells your car that is partially exempt, he would have to pay you the exemption amount. The trustee may also allow you to purchase your non-exempt interest. Again, there may be some haggling over the value.

If you don't have enough exemptions to cover your household goods, you need to exempt what is most important to keep. Most trustees don't want to bother with your household stuff. Like the cars, you might get an offer by the trustee to buy your non-exempt assets, or he may just abandon them.

I bet your TV isn't worth as much as you think it is.

The old computers and computer parts aren't worth anything. They should probably be grouped together and valued at a very low value. I wouldn't waste exemptions on them or agree to buy them from the trustee. The trustee would probably be doing you a favor to take them. I sure wish somebody would come and take all the computer parts in my basement that my husband can't get himself to part with. I did finally get him to get rid of the 3 or 4 old computers. If you think this stuff really is worth something, why not sell it to help pay attorney fees?

There are no bright line rules for when a trustee will abandon a non-exempt asset. But the Chap 7 Trustee Handbook (that link is to a PDF file) says "A trustee may sell assets only if the sale will result in a meaningful distribution to creditors." An attorney familiar with your local trustees should be able to give you an idea of how the trustee will deal with partially exempt property and non-exempt household goods and recommend a strategy for exemptions. That is a big advantage of hiring an attorney if you have non-exempt assets that you don't want to lose.

I wouldn't reaffirm the mortgage. You don't know what the future holds. Circumstances could someday make you glad your mortgage was discharged and you can walk away without any liability for a delinquency.

[TerribleName]

There are more on this wonderful forum that can chime in. I only speak of my experiences. I wish you well. 'Hub

Thank you so much for your answers.

I think you misunderstood the first question; there is no "making a profit" in my scenario.

To show what I mean, I will demonstrate in an absurd way: From your response, you are saying if kbb.com shows it as $12,800, and I exempt $12,800, and they take it and sell it for $100, they can give me $100 for a vehicle worth $12,800? That does not seem logical.

[TerribleName]

It doesn't sound like your vehicle is in fair condition. It sounds more like poor condition. Did you try their condition quiz? [won't let me repost links]No, it is in poor condition, but I did not see any condition values lower than fair.

The trustee is not going to want a vehicle if he can't sell it and make more than it costs him to do so. You could try not exempting that vehicle and hoping the trustee doesn't want to bother with it. But, you will be taking a risk. If you don't exempt it and the trustee doesn't abandon it, you may be able to buy it back from him. But, you'll have to come to agreement regarding the value. You may want to prepare yourself by getting some repair estimates. That makes sense. It runs, which helps me, but it is pretty visible that it would cost a good amount to get it to "fair" condition.

Yes, if the trustee sells your car that is partially exempt, he would have to pay you the exemption amount. The trustee may also allow you to purchase your non-exempt interest. Again, there may be some haggling over the value. This is where I am confused. I assume they sell at auction, but am not sure. If I exempt $11,000, kbb lists it as $12,800, and it sells at auction for $10,500, I should still be entitled to my 11K regardless of what chances the trustee took, no? I illustrated this point in my previous response above. I have years of experience in car repossessions/sales/auctions, and they will be VERY lucky to get 11k out of ours. After fees, it will be less.

If you don't have enough exemptions to cover your household goods, you need to exempt what is most important to keep. Most trustees don't want to bother with your household stuff. Like the cars, you might get an offer by the trustee to buy your non-exempt assets, or he may just abandon them.

I bet your TV isn't worth as much as you think it is. $699.99 retail, $540 on sale right now at Walmart, 3 months old (gift). Maybe $400...?

The old computers and computer parts aren't worth anything. They should probably be grouped together and valued at a very low value. I wouldn't waste exemptions on them or agree to buy them from the trustee. The trustee would probably be doing you a favor to take them. I sure wish somebody would come and take all the computer parts in my basement that my husband can't get himself to part with. I did finally get him to get rid of the 3 or 4 old computers. If you think this stuff really is worth something, why not sell it to help pay attorney fees? No, they are not worth anything (in fact, you are in the same situation as my wife ). Maybe $100 for one of my old laptops.

There are no bright line rules for when a trustee will abandon a non-exempt asset. But the [won't let me repost links] (that link is to a PDF file) says "A trustee may sell assets only if the sale will result in a meaningful distribution to creditors." An attorney familiar with your local trustees should be able to give you an idea of how the trustee will deal with partially exempt property and non-exempt household goods and recommend a strategy for exemptions. That is a big advantage of hiring an attorney if you have non-exempt assets that you don't want to lose.

I wouldn't reaffirm the mortgage. You don't know what the future holds. Circumstances could someday make you glad your mortgage was discharged and you can walk away without any liability for a delinquency.

I hope that all makes sense.

[TerribleName]

OK, After I posted, I realized I was thinking through the lens of my experience and need to explain.

What I am confused about with "vehicle values" is the fact that the debtor is forced to use the "Fair Market" value, when in reality, the trustee will NEVER get that much if he decides to sell it. This discrepancy is the basis for my questioning.

So using my example, if my vehicle was worth 14K "Fair Market" value (what it would cost to replace the vehicle, as the bankruptcy paperwork demands), and I only had 12.8K in exemptions with no chance of paying the $1200 difference, they could hypothetically sell the vehicle for 11K, and I lose even more money from a vehicle worth 14K. Thank you for your help explaining that to me.

In this scenario, the trustee knows IMMEDIATELY that there will be no chance of any money to distribute to the creditors after the exemptions. This would obviously go against the Trustee Handbook that Lady posted (Thanks!), so would there be any recourse against the trustee? This seems unethical, but worries me.

EDIT: I just confirmed through kbb.com that it does not provide "poor" car values.

[justbroke]

What I am confused about with "vehicle values" is the fact that the debtor is forced to use the "Fair Market" value, when in reality, the trustee will NEVER get that much if he decides to sell it. This discrepancy is the basis for my questioning.

When it comes to valuing for purposes of the Schedules, it's always fair market value (FMV). However, it's an auction when the Trustee sells it, so you get wholesale (auction) value (WV). What makes it even more interesting, is that if you were to redeem the vehicle, you could also claim WV since the creditor would not stand to get as much at auction.

It's hard to realize this, but FMV would be what "you" would get in a private party sale. That's the real value of the vehicle. However, if you're trading it in, only WV (wholesale value or "trade-in" value) is appropriate since many car dealerships just send those cars to auction (unless they are really pristine, less than 70,000 miles, and less than 5 model years old). It has a lot to do with financing.

Don't fool yourself. Trustee's have squabbled over as little as $600! Remember, they make no money if you have no assets or they pursue your assets but are not successful. (Chapter 7 Trustees earn about $60 per case for a no-asset case.) In your particular scenario, the Trustee is HIGHLY likely to ask you to buy the non-exempt amount. If you force their hand, they will sell the asset, unless they figure that there would be absolutely no money after the cost of selling the asset and giving you your exemption amount.

[TerribleName]

If you force their hand, they will sell the asset, unless they figure that there would be absolutely no money after the cost of selling the asset and giving you your exemption amount.

This is exactly my question. So in my scenario, the auction value is going to be at most 11.5K before auction fees, therefore maybe 11K. If I exempt 11K, there is not going to be any money for the creditors. If the trustee says I need to pay the difference from $13,069 to keep the vehicle, and I say no, he sells it at auction. So that's where I am.

Now, he sells it, it most likely gets 10K at auction, after fees about 9.5K. That is all I get for a 13K vehicle, just because the trustee tried to make a couple bucks for himself. I lose 3.5K in this scenario, and the creditors get nothing. This is what I am afraid of.

[TerribleName]

This is exactly my question. So in my scenario, the auction value is going to be at most 11.5K before auction fees, therefore maybe 11K. If I exempt 11K, there is not going to be any money for the creditors. If the trustee says I need to pay the difference from $13,069 to keep the vehicle, and I say no, he sells it at auction. So that's where I am.

Now, he sells it, it most likely gets 10K at auction, after fees about 9.5K. That is all I get for a 13K vehicle, just because the trustee tried to make a couple bucks for himself. I lose 3.5K in this scenario, and the creditors get nothing. This is what I am afraid of.

So my next question is this: If I choose to do exactly what I wrote above, and the trustee decides he wants to sell the vehicle, can I restructure my exemptions, or do I have to claim exemptions once and nothing can be changed?

[bcohen]

Don't fool yourself. Trustee's have squabbled over as little as $600! Remember, they make no money if you have no assets or they pursue your assets but are not successful. (Chapter 7 Trustees earn about $60 per case for a no-asset case.) In your particular scenario, the Trustee is HIGHLY likely to ask you to buy the non-exempt amount. If you force their hand, they will sell the asset, unless they figure that there would be absolutely no money after the cost of selling the asset and giving you your exemption amount.

Although I am sure there have been cases where a trustee has gone after a mere $100 in non-exempt assets just to prove a point, I have been advised by several attorneys that for less than $1000 in TOTAL non-exempt property, the trustee will not bother. I filed for Chapter 7 last year, with about $650 in property above the state's meager exemptions (about $300 of that being money in a bank account) and the trustee did not bother trying to recover that pittance to put toward my $50k in unsecured debt. Also, the trustee did not attempt to contest the "garage sale" valuations I placed on my housewares, personal items, or home electronics. Nor did he attempt to contest my use of the state's exemption for "one typewriter" to cover a computer and a printer.

If your first car is in as bad condition as you say, maybe it's not worth wasting ANY exemptions on it. It is possible--but not guaranteed--that upon showing proof that the vehicle is in terrible condition and won't even pass emissions, he'll abandon the asset. It would be a huge risk to sell a car which has many things wrong with it, and it is highly probable that a trustee won't bother. Even if he does choose to sell the car, it is unlikely to sell for more than scrap value, which would hardly result in any recovery for your creditors.

I would suggest that you fully exempt your $13k car and any cash or cash equivalents which you wish to keep. I would not waste my wildcard exemption on things like clothing, linens, furniture, or home electronics. A used TV or computer should NEVER be declared for more than $50 to $100 unless it is an expensive model, and almost new. Even after just one year of use, a computer which cost $500 new can barely be sold for $100. You don't want to value things at more than "fire sale" or garage sale prices, because otherwise the trustee will come after you for property that isn't really worth much anyways.

[TerribleName]

Although I am sure there have been cases where a trustee has gone after a mere $100 in non-exempt assets just to prove a point, I have been advised by several attorneys that for less than $1000 in TOTAL non-exempt property, the trustee will not bother. I filed for Chapter 7 last year, with about $650 in property above the state's meager exemptions (about $300 of that being money in a bank account) and the trustee did not bother trying to recover that pittance to put toward my $50k in unsecured debt. Also, the trustee did not attempt to contest the "garage sale" valuations I placed on my housewares, personal items, or home electronics. Nor did he attempt to contest my use of the state's exemption for "one typewriter" to cover a computer and a printer.

If your first car is in as bad condition as you say, maybe it's not worth wasting ANY exemptions on it. It is possible--but not guaranteed--that upon showing proof that the vehicle is in terrible condition and won't even pass emissions, he'll abandon the asset. It would be a huge risk to sell a car which has many things wrong with it, and it is highly probable that a trustee won't bother. Even if he does choose to sell the car, it is unlikely to sell for more than scrap value, which would hardly result in any recovery for your creditors.

I would suggest that you fully exempt your $13k car and any cash or cash equivalents which you wish to keep. I would not waste my wildcard exemption on things like clothing, linens, furniture, or home electronics. A used TV or computer should NEVER be declared for more than $50 to $100 unless it is an expensive model, and almost new. Even after just one year of use, a computer which cost $500 new can barely be sold for $100. You don't want to value things at more than "fire sale" or garage sale prices, because otherwise the trustee will come after you for property that isn't really worth much anyways.

Excellent advice, thanks! Yeah, I am definitely thinking about leaving the junker. If they took it, we could probably replace it easily.

[keepmine]

Why not just sell the junker and use whatever you get for legal fees. That's one darn sure way to make certain the trustee never touches it.

[justbroke]

Although I am sure there have been cases where a trustee has gone after a mere $100 in non-exempt assets just to prove a point, I have been advised by several attorneys that for less than $1000 in TOTAL non-exempt property, the trustee will not bother.

I absolutely agree. The only part that is questionable is the Trustee. (We just had someone on BKForum that had a "new" Chapter 7 (panel) Trustee. These tend to be the more aggressive Trustees.

[TerribleName]

Why not just sell the junker and use whatever you get for legal fees. That's one darn sure way to make certain the trustee never touches it.

I won't be able to sell it, and we need two cars for work, school, and the thousand other things our kids do. This is more of a "when it comes up" sort of situation.