Bankruptcy Court Decision Addresses Question of Vehicle Equity

     Debtor owned a 2005 Hyundai Sonata with no lien when she filed for Chapter 7 bankruptcy. She believed her vehicle had a value between $2,000.00 and $2,500.00 based on a value she obtained from a dealer, in addition to the fact that the car had been in two accidents. The Chapter 7 Trustee, who reviews Chapter 7 bankruptcy petitions for assets, believed that the vehicle had a value between $3,675.00 and $8,505.00 based on NADA and Kelly Blue Book values at the time the case was filed. Although the debtor was allowed to protect $2,400.00 of the value of the car, any value that exceeded that amount was subject to sale by the Trustee (however, the debtor can always “re-purchase” her vehicle from the Trustee). The Trustee filed a motion for turnover, requesting that the debtor give him her car so he could sell it (to the debtor, via public auction, or private sale), which the court granted. In order to keep the car and not have to “repurchase” it, the debtor had to prove to the court that the money the Trustee would get from the sale of the car, beyond the $2,400.00 she was entitled to keep, would be minimal and therefore not worth selling. However, the court found that “so long as some method of sale holds a reasonable prospect of a meaningful recovery” above and beyond the $2,400.00 the debtor is entitled to keep from the sale, the car has value to the Trustee and the bankruptcy case and therefore could be sold by the Trustee. Therefore, the debtor was required to give the Trustee her car so it could be sold. The debtor was allowed to purchase it from the Trustee if she chose to, or he could sell it at auction or to a private party. If he sold it to someone besides the debtor or at auction, he would have to give her the $2,400.00 she was entitled to keep. The balance would go to her creditors. As far as determining the value of the car, the court stated that as long as the negotiations between the debtor and the Trustee were reasonable and the value fell somewhere between liquidation and retail, the value would be allowed. (NOTE: the amount of a vehicle that a debtor who files in New York may protect in bankruptcy has recently increased from $2,400.00).

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