How Much Car is “Too Much Car” in a Bankruptcy Case?

By Ben Lovell

“Pigs get fat…Hogs get slaughtered” -Unknown (but probably a bankruptcy attorney)

Bankruptcy cases are full of various trade-offs.  A debtor receives significant help getting out of his or her debt, but in return, must disclose all financial information, usually including projected income and expenses, current debts and assets, and any transfers recently made.  Creditors may end up stuck with unpaid debts resulting from the process, but they also have the resources and ability to appear and be heard in bankruptcy cases, either through the filing of claims, the confirmation process or through contesting dischargeability of certain debts.

Particularly in consumer cases, the retention of a debtor’s car or truck with high monthly payments can be a conundrum in getting a case to successful completion.  Courts are loathe to favor expenditures which are for luxury goods or which serve to perpetuate a luxury lifestyle.  In re Loper, 367 B.R. 660 (Bankr. D. Colo. 2007); In re McNichols, 249 B.R. 160 (Bankr. N.D. Ill. 2000).  Expensive sport utility vehicles often catch the attention of trustees and judges, and are generally luxuries that are not enjoyed by the average American family.  In re Nicola, 244 B.R. 795 (Bankr. N.D. Ill. 2000), In re Zaleski, 216 B.R. 425 (Bankr. D. N.D. 1997).  Likewise, a single debtor that retains multiple modes of transportation at the expense of his or her creditors is not likely to find favor with a bankruptcy court.  In re Allawas, 2008 WL 6069662 (Bankr. D. S.C. 2008); In re Brown; 546 B.R. 642 (Bankr. E.D.N.C. 2016).

The matter in question for most courts is whether a debtor has entered into a bankruptcy case in “good faith” when proposing to both retain and pay for an expensive car while discharging much of the existing unsecured debt.   A court will not abide a debtor using his or her income to maintain a luxurious lifestyle at the expense of the unsecured creditors.  In re Martellini, 482 B.R. 537 (Bankr. D. S.C. 2012).  Most courts fail to find good faith when a debtor proposes to retain a sports car or other luxury vehicle, such as a Mercedes or Lexus.  In re Nadeau, 520 B.R. 380 (Bankr. D. R.I. 2014); In re Walls, 2010 WL 2219329 (Bankr. M.D.N.C. 2010). In the Middle District of North Carolina, a debtor proposed a Chapter 13 plan retaining three vehicles subject to secured claims, most notably a 2008 Nissan Titan worth $25,375.00 that was used primarily to take trash to the dump.  In re Mazzarella, 2010 WL 4452352 (Bankr. M.D.N.C. 2010).  The plan proposed no dividend to unsecured claims.  Id.  The court denied confirmation finding the retention of the 2008 Nissan Titan to be an unnecessary luxury.  Id.

The lesson for both consumers potentially considering bankruptcy and for bankruptcy attorneys is to carefully consider whether to retain that new truck, expensive SUV, or sportscar as part of the bankruptcy case, particularly if the plan is to discharge substantial unsecured debt without payment.  Many years ago, a rule of thumb was that a debtor could not drive a car nicer than the bankruptcy judge, but that rule likely still holds true in most courtrooms today.  If a debtor wants to retain “luxury” items, some kind of payment on the unsecured debt should be proposed.

Put another way, pigs get fat and hogs get slaughtered.