People often tend to let their emotions govern their choices, especially in legal matters. It’s ultra-common in divorces, where the parties would rather battle over some issue, keeping the case open another few years and increasing attorneys fees, rather than coming to a sensible resolution. (I once saw a conference where the parties decided to go to trial, adding more legal fees and expenses, rather than settle a dispute over $5,000.00.) This emotional attachment to property is more prevalent in bankruptcy, where the stuff that gets taken is always your stuff. A curious case out of the Southern District of Florida evidenced this, where a debtor tried to save it all, but ended up losing more than he would have if he would have taken a step back and viewed his situation without emotion.
In this case, the debtor filed a chapter 13 case in June 2011. It appears that the purpose of the bankruptcy filing was to cure some child support arrearages, as well as to try and save his house, which was in foreclosure. The debtor had a chapter 13 plan confirmed, and paid it for more than four years.
Unfortunately, the debtor was unable to come to a resolution with his house, so that was foreclosed. Additionally, his business had been flailing, to the point where it couldn’t support him any longer. Although he had paid through the chapter 13 plan more than creditors would have received had he filed for chapter 7, he decided to convert his case to a chapter 7 case. The only thing he had left was a 2004 Lexus vehicle.
Upon conversion of the case from chapter 13 to chapter 7, the trustee made a motion demanding that the debtor turn over the vehicle, which had some unprotected equity. The trustee wanted to sell the case, give the debtor his protected share, and then use the rest of the monies to make payments to creditors. The debtor argued that he had paid in the chapter 13 case more than creditors would have received had he filed a chapter 7 case from the beginning, so taking his car would be inappropriate.
Unfortunately, the court did not agree with the debtor. It ruled that, as the law reads, upon conversion of a case from chapter 13 to chapter 7, a new estate is created based on the property available as of the date of conversion. Unfortunately, for the debtor, his car was one of these things. In re Loycano, 11-28370-EPK (Bankr. S. D. FL., Dec. 10, 2015).
It is unclear why the debtor adopted this strategy. He could have dismissed his case, upgraded his car to a newer one, and then filed a chapter 7 case. He could have tried to figure out a way to make the chapter 13 payments for nine more months and obtain his discharge. These alternatives were briefly addressed in his papers, but he chose to go down this path for finality, just wanting to get on with his life. Often times, emotions make us act one way, which is why a detached view of our circumstances is critical.
If you would like to discuss bankruptcy as a strategy for you or your business, contact LORK.