Chapter 7 Creditor Side Question
About six months ago a loaned a n'er-do-well former friend of mine a considerable chunk of change to buy a used car so she would be able to keep her job and her house. She signed a formal note on the loan, made a couple of payments and then stopped paying. I took action against her in small claims and won a default judgement as she did not show up. She now tells me that her Chapter 7 filing had been delayed and that she will be able to list the judgement I won against her in with the rest of her creditors. I set it up as an unsecured loan because I wasn't entirely sure how to do a lien across state lines and I certainly didn't want to hold the title to the car because I didn't want to get mixed up in any complications of her wrecking the car, etc. Now ... the car was worth $1000 more than I paid for it according to the Blue Book because she had to bring the actual bill of sale to her state taxing authority to prove that she paid less than the Blue Book for the car. Now, from numerous things I have read, a person can only keep $1000 - $2000 "interest" in a vehicle, and I believe this one is probably worth about $3000 - $3500 Blue Book. Now, I assume that her other unsecured creditors -- Mastercard, Visa, etc, will have a stronger claim than me because they are older creditors, but how exactly would that work ... say she has $2000 equity in that car more than she is allowed ... does she have to reaffirm her oldest $2000 in unsecured debt in order to keep the car or could I just explain to the judge the circumstances and that, from maybe a common law standpoint that car SHOULD be connected to that loan and ask that any excess equity she has in the car be connected to reaffirming my loan?
Different states have different exemptions. In some, there is a full exemption for the car; in others, none. If the trustee finds that the car has non-exempt equity, he/she can sell it and distribute the proceeds among those creditors who file claims. Since your debt is unsecured, any proceeds would be shared among all unsecured creditors; you get no better position by having made the loan for the car. I recommend that you speak with a bankruptcy attorney in the area where your (ex) friend filed. He or she should be able to let you know how best to proceed.
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