‘Trustees Gone Wild’ – Thoughts on In re: Williams Allegations

proving-bad-faithIn re Williams 475 B.R. 489 (2012) addresses the case of the “eve-of-bankruptcy car purchase.”

In this 2012 case before Judge Mayer, the debtors purchased a new car six days before filing their Chapter 13 petition in bankruptcy.  The Trustee alleged bad faith in proposing their plan and that the debtors were not paying their disposable monthly income to the plan.  The Court agreed with the
Trustee and ordered the Debtors to propose a new plan.

The Debtors had ­3 cars.  One was old but unencumbered by liens.  The other two had liens and were 5 years old.  The debtors purchased a new 2011 Lexus RX 350 sports utility and traded in the two encumbered vehicles (a 2007 Lexus RX 400H and a 2007 Lexus ES 350) and received a credit of $14,111.  The debtors borrowed $35,047.69 to pay for the new car.  The total cost was $56,507 after loan costs, taxes and fees.  The Court first details the Debtors’ options with respect to their 3 vehicles.

This is significant for several reasons:

First, when you have 3 vehicles – let’s be honest – you have options.  And you’d better be prepared to defend a new vehicle purchase prior to filing with this case in mind.  Contrast this case, however, with some families who only have one vehicle.  When you have one vehicle, you have fewer options (and thus it is more difficult for the Trustee to point a finger at you).

Second, in Williams, the Debtors appeared to offer no rationale for the purchase of the new vehicle.  Surely you can do better.  Is a smaller vehicle traded for a larger vehicle?  Are there medical or family reasons for the purchase?  Are there other rationales for the purchase that rebut an allegation that you filed a plan in bad faith to reduce payments to creditors?  Is it not almost always the case that a post-petition vehicle purchase will be at an increased interest rate than a pre-petition purchase?

Third, what is the difference between the vehicle being traded in and the new vehicle?  What is the difference in mileage?  What is the difference in interest rate?  What is the difference in value?  The smaller the gaps between the existing vehicle and the one being traded for, the more room to exploit an allegation that you ‘went buck wild’ with the purchase of a new vehicle.

It is the Trustee who may be ‘going wild’ trying to fit every pre-bankruptcy vehicle purchase into this case.  An allegation that your pre-bankruptcy purchase of a vehicle is always in bad faith is invalid and likely distinguishable from In re: Williams.

Should you have questions about your Chapter 13 bankruptcy case, or wish to consult with a bankruptcy attorney, please call Winslow & McCurry at (804) 423-1382.