Expert: Mark J. Markus- California Bankruptcy Attorney - 12/30/2004

Question
Regarding Bankruptcy protection in the State of California for someone in his or her early 30's without any available income and a less than poor credit rating.  Debts include credit card debt apprx. $15,000.00, healthcare/hospitalization apprx $90,000.00, an active car loan that is late and currently attempting repossession, apprx $11,000.00, and federal student loans that have had NO activity since 06/97 apprx $10,000.00.  I assume that the above would constitute pursuing bankruptcy if the annual income were less than $30,000.00 with no assets or savings.

A question regarding the vehicle, the vehicle is subject to repossession should the lien holder/auto finance company find it.  However, the vehicle was towed from a private parking lot after it was declared "parked illegally" and is being kept in a privately owned tow yard waiting release.  When the car was towed the owner was unable to pay the initial release fee and that fee continues to grow each day by $25.00, most likely it's up to $1,500.00 by now.  If a judge grants Ch. 7 will the debt to the tow yard be dischargeable and will the tow yard release the vehicle to its owner without payment?  It seems like that is the least of the problems but the lack of a vehicle makes finding work and getting to work very difficult.  Additionally, to make matters more difficult the vehicle has a co-signer/co-owner.  First, what will happen with the money owed to the finance company, apprx $460.00/mo and apprx $11,000.00 total value (Kelly Blue Book gives a trade-in value of $7,525.00)? Is the vehicle simply returned to the lien holder/finance company or are new arrangements made to reduce monthly payments and make the situation more economically manageable, i.e. reduced payments, extension of the loan term to lower payments, reduction of the APR, etc?  I do not imagine that a judge would simply discharge that loan and then let the owner take full possession of the vehicle, although it would sound very nice to the vehicle owner.  
Second question regarding the vehicle and bankruptcy; Assuming that there are ways to deal with a financed vehicle with personal bankruptcy and NOT loose the vehicle all together, if the individual seeking bankruptcy protection is granted protection from the court and an agreement is worked out between the vehicle owner, the lien holder/finance company, and the courts...and this is the big important question...what happens to the "co-signer/co-owner"?  Is any protection available from the court to that person who is NOT pursuing bankruptcy protection?  It would seem pointless to go through bankruptcy proceedings and have a new contract worked out for the vehicle that lowers my payments to a hypothetical $200.00/mo which would be manageable to the vehicle owner, but would not be advantageous if the lien holder/finance company just goes after the co-signer/co-owner for the remaining $260.00 to make it a full/normal payment.  The situation with the vehicle is the most pressing.  The co-signer wants the car to be sold so that her name can get off the papers as soon as possible.  She does not have great credit to begin with but this situation is just fanning the flames.  However there is negative equity in the vehicle.  If it is sold payments will still need to be made for quite some time and as I said before, remove the vehicle from the equation and it directly effects potential income by shortening the area in distance where one can find work.  It is a damned if you do damned if you don't situation.
And is it ever possible to have a federal student loan discharged?  I know there is some stipulation that allows discharge if the account has had no activity in a certain time frame, 7 or 10 years I think.  And what does "activity" constitute?  No payment has ever been made by the recipient of the loan but the IRS has seized the yearly tax return refund every year since the loan went into default.  Does that action constitute "activity"?

Any information would be helpful.

Thank you for your time and warmest wishes for a prosperous and safe New Year in 2005.

Jason


Answer
That's a lot of questions and I suggest that you contact me to schedule a time for a more comprehensive consultation.  But, to try and answer some of your questions:   

1.  The tow yard probably (although I'm not sure) has a lien on the vehicle for the storage charges--equivalent to a mechanics' lien, but I'm not sure.  If they do, then they would have the right to sell the vehicle and I don't think you could get the vehicle back in a bankruptcy, although you might be able to in a Ch. 13.  I'd really have to research that.  It doesn't come up very often.

2.  In a Chapter 7 case you have the right to redeem the vehicle for a lump sum payment of the fair market value of the car (usually the low blue book value).  In a Chapter 13 you can restructure the payments on the vehicle and pay it off over 3-5 years based on the private party value of the vehicle usually.  I would have to research how this would affect the co-owner of the vehicle.  I suspect that it doesn't affect them at all and they would stlil be resposible for the full balance owed.

3.  For student loan dischargeability please see the student loan information on my webpage at http://www.bklaw.com/chapter7.htm

Regards,
Mark

http://www.bklaw.com/