Last night around the dinner table, I was saying how my day involved pulling 32 bankruptcy court files. "Guess," I said, "what was the average age of the car in which the debtor was claiming an exemption?" As my children rolled their eyes at another boring dinner conversation, my wife said "six months," and a guest offered "one year."
The answer is . . . .
The average car in which the debtor claimed an exemption was 9 years old, with a median age of 7 years old. It’s not as if most bankruptcy debtors are driving around in brand-new luxury automobiles. For joint filings, I counted only the car with the highest value, which
tended to be the newest car. If I had counted all cars claimed as
exempt, the age would have been even higher. The filings were randomly selected, although it was only three judicial districts. The files were all post-BAPCPA (i.e., after the bankruptcy law on October 17, 2005), mainly from earlier in 2006.
To cut down on perceived abuse, BAPCPA now makes chapter 13 debtors pay the full amount of the car loan (instead of the usually lower value of the car) if the car was purchased within 2 1/2 years of filing. Only 13% of the cars in the sample were less than 2 1/2 years old, although I had both chapter 7s and 13s.
Comments
5 responses to “Cars in Bankruptcy”
Very interesting data. For those cars that were purchased within two-and-a-half years of filing, have you been able to ascertain whether they were acquired for personal use and whether they were subject to a PMSI? Also, do you have any pre-BAPCPA car data such that you can figure out whether there is a statistically significant difference in the car age of pre- and post-BAPCPA debtors?
Great questions. I look foward to your study. Seriously, the answer to all of your questions is “no.” I was looking at the Schedule C’s for another purpose and just wrote down the car info out of curiosity.
This age data is interesting. I’d also be interested in knowing what the average value is. Age is only one factor affecting that. Others include the condition the car is in and the model in question. An old Camry can be worth more more than a new Neon!
Another thing to keep in mind is that if the debtor is keeping the car, there’s an incentive to get the court to accept a lowball valuation, even if a higher valuation figure is equally plausible.
You point out that only 13% of the cars are less than 2 1/2 years old, but the BAPCPA change focuses on time since the purchase. Were you able to determine what percentage of the vehicles were purchased within 2 1/2 years of filing?
I’m a debtor’s attorney in Dallas. I haven’t seen enough BAPCPA cases to corroborate your findings, but at first blush I thought, so BAPCPA may not have as much of an effect on car loans as we thought. On second blush, I realized that I may be looking at it all wrong. In cases like In re Hardacre, the courts are denying debtors a means test ownership expense deduction for cars on which the debtor has no loan or lease payment; instead they are allowing an additional $200 per month for maintenance expenses. For those debts forced into Chapter 13 cases, will that $200 a month be enough to get them through five years of Chapter 13 payments with cars that were 7 to 9 years old at the outset? Of course not.