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  • Carl Rolsma

One of the most common questions I am asked by Debtors is, "Can I keep my car in a bankruptcy?" The answer is, "If you want to keep your car, you can almost always keep your car." One scenario in which you may not be able to keep your car would occur when you have more equity in your car than you can exempt. In Wisconsin, if you have $4,000 or less in equity in your vehicle you can usually exempt it. If you have more equity than that, then, it depends. The most equity you can possibly exempt in a vehicle in Wisconsin is $17,900. How is a car loan treated in a bankruptcy? There are four options in Chapter 7: reaffirmation; ride-through; redemption; and surrender. In Chapter 13, depending on the circumstances, you can: continue to pay your loan outside the Plan; pay the loan off in your Plan over a longer period of time and possibly at a lower interest rate; pay off the loan with a principal reduced to the value of the vehicle ("cramdown"); surrender the vehicle; or a combination of the afore-mentioned. I will be describing those options in more detail in subsequent blog entries. For an explanation of what exemptions are and how they work, give us a call.

According to Yahoo News, a 35-year-old man had his $100,000 in student loans discharged by a bankruptcy court in Delaware 2 weeks ago. The Debtor represented that "he struggled to find a full-time job after graduating college in 2010, and nine years later, when working full-time for ride-hailing services, he had a seizure and totaled his car." The judge decided that the Debtor met the standards for an "undue hardship" needed to qualify for the discharge of student loans in a bankruptcy. Will the Debtor ultimately prevail? It seems that he will, for although the U.S. Department of Education filed a notice of appeal of the decision, The Daily Poster reported a few days later that the Department has now announced that it is withdrawing its appeal. The history of decisions on this issue has set a high bar for those wanting to get a discharge of student loans in a bankruptcy. The Yahoo News article goes on to point out that there has been movement in both the U.S. Senate and the U.S. House of Representatives to make it easier to get student loans discharged in a bankruptcy. This seems to indicate that Congress does not believe there is currently a statutory basis for allowing courts to ease the undue hardship standard. It is hard to know at this point whether the Delaware case is a harbinger of things to come in other bankruptcy courts around the nation or whether it is just an outlier.

Although the pandemic has caused widespread economic disruption and financial hardship, to the surprise of some experts this has not been accompanied by a rise in personal bankruptcy filings. On the contrary, the Wall Street Journal reports that Chapter 7 personal bankruptcies fell 22% in 2020. The likely explanation for this unexpected drop is simple: many Americans have lost their jobs, but stimulus payments, eviction moratoriums, and student loan suspensions have eased some of the financial pressures that often prompt people to seek out bankruptcy.

Still, the Journal reports that economists expect this sort of financial relief will be only temporary for many. Future stimulus payments are unlikely and eviction moratoriums do not prevent past-due rent from piling up. Were you considering bankruptcy but these pandemic-related policies have been keeping you afloat for the past months? If you worry that bills will start coming due again and think bankruptcy might again be the right choice, please give us a call or submit a free bankruptcy evaluation.

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