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A.J.
A.J., Attorney
Category: Bankruptcy Law
Satisfied Customers: 4300
Experience:  Experienced consumer bankruptcy attorney.
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We are under Chapter 13 Bankruptcy. We just paid off in full

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We are under Chapter 13 Bankruptcy. We just paid off in full one of our cars. When I called Wells Fargo, our finance company, they said they could not release the title until the Chapter 13 is finished. My son will need to buy a new car fairly soon and he will need the title to trade in the car. Is that correct. Please advise us as what we should do.

SavyLawyer :

Hello, and thank you for contacting Just Answer. My name isXXXXX am a bankruptcy law professional, and I look forward to answering your question this evening.

SavyLawyer :

Unfortunately, generally a car lender who holds title to the car is not obligated to give up title to the car until after the chapter 13 plan has been completed and the debtor receives a bankruptcy discharge. The issue, here, is that in the chapter 13 plan, often a car lender is receiving less than they otherwise would on the loan, and in any event are prevented from taking normal collection action on the loan during the course of the bankruptcy.

SavyLawyer :

So, even if the agreed upon amount for that particular loan has been paid per the bankruptcy plan, the entire plan must be completed before the lender must hand over the title.

SavyLawyer :

This is because if the plan fails for some reason, and the debt is not discharged, the lender would then have the right to collect on the remainder of the debt and use the security interest to claim the car. Consequently, they will not give up the title until they have no grounds to collect on the debt, because it is part of their leverage if the bankruptcy plan fails for any reason.

Customer:

The car was not part of chapter 13. We paid it outside Chapter 13. We, of course, had to keep up the payments.

SavyLawyer :

So the trustee was not making payments on the car loan? You were paying directly to the lender, and the debt was not in any way reduced by the bankruptcy? Was the debt listed in the bankruptcy petition?

Customer:

We were paying directly to the lender and the debt was not reduced. It was listed as having to be paid as usual and not default on payments.

SavyLawyer :

Thank you for the extra information. In that case this may come down to what your loan agreement said in regards XXXXX XXXXX If the loan agreement calls for title to be held during the course of a bankruptcy, regardless of where payments are coming from, then ultimately the agreement would still hold and they can hold the title. However, if the loan agreement does not address what happens to the title in bankruptcy, and the debt is not being discharged in a chapter 13 and has been paid, I cannot think of a justification for their holding title.

SavyLawyer :

If the debt is not being discharged under the chapter 13 plan, has been fully paid under the terms of the original loan agreement, and the loan agreement does not expressly state that title to the vehicle will be held in the event that a bankruptcy is filed until after completion of the bankruptcy case, then they may in violation of the automatic stay against collection, because the only grounds for holding the title (other than a right to under the loan agreement), would be to try and collect further money. If they have no way of collecting more money, because the debt is paid, then an argument could be made that they are in violation of the automatic stay under 11 USC section 362.

SavyLawyer :

So, first, check the terms of the original loan agreement, it likely has some terms regarding bankruptcy, but it is worth checking to see if it deals directly with holding the title until after a bankruptcy is complete.

Customer:

So, it utimately depends on what is said in their loan agreement. And there is nothing else we can do. I don't know how my son will purchase another car with the title on the present one. I guess we could store the car someplace until the bankruptcy is discharged. Please advise.

SavyLawyer :

What it says in the original loan agreement is one factor, yes, if the debt is not being discharged in the bankruptcy (meaning it was not being handled as part of the bankruptcy plan and was not reduced in any way), then their only argument for keeping title is that the original loan agreement gives them the right to. If, however, the agreement does not address this, then you could try to file a motion to have the creditor considered in breach of the automatic stay and seek title to the car through the court (this is only if the debt was not altered in any way through the bankruptcy plan, and the loan agreement also does not give the creditor the right to keep the title until after the bankruptcy is discharged).

SavyLawyer :

Unfortunately, a loan company with a thorough agreement could certainly have such a clause (secured loan agreements for things like a car or a home often have clauses dealing specifically with what will happen in the event of a bankruptcy). The vehicle could still be driven, and the loan company would not have any argument for repossession of the vehicle, but it could not be sold until the bankruptcy is complete. Putting in storage would deal with having to have insurance on the vehicle and would reduce expenses until the bankruptcy proceeds.

SavyLawyer :

I hope this helps, and let me know if you require any additional information or have further questions. If you do not have any further questions, please remember to RATE my answer so that I can receive credit for my work.

Customer:

I believe they said it's in their loan agreement. I wished I had been advised of this when I filed for bankruptcy. This was never explained to me. Just as an aside, I am not happy with my bankruptcy lawyer. That why I searched the internet for some answers. I don't want to call him if I don't have to. He's very brisk and now that I'm in my 3rd year of 5 years of this bankruptcy, he doesn't always want to talk to me unless I pay him more money. I'm not satisfied with him, but what can I do. I didn't know of any bankruptcy lawyers and I picked him from the yellow pages. This is my first time going through bankruptcy.

SavyLawyer :

I understand, it can be very frustrating when you do not feel as if you are getting the service that you expect from your attorney. I think you can probably argue that this should have been explained before filing, but it honestly is not something that people often ask about, in part because it is often necessary to include the car payment in the chapter 13 plan. An attorney certainly has an obligation to be diligent, and to advise clients on their rights and responsibilities under the law, particularly in a bankruptcy where so many different issues can come up. However, I'm not sure that this would rise to the level of actual misconduct by the attorney. The Rules of Professional Conduct (so that you have them) can be found at:

SavyLawyer :

http://www.nysba.org/Content/NavigationMenu/ForAttorneys/ProfessionalStandardsforAttorneys/NYRulesofProfessionalConduct4109.pdf

SavyLawyer :

(it is a pdf, so it takes a little while to load when you cut and paste that web address)

SavyLawyer :

When dealing with an issue like bankruptcy, an attorney does have an obligation to counsel a client on the potential benefits and drawbacks of filing for a particular type of bankruptcy, particularly when it comes to property that the client is trying to hold on to. However, unless you could reasonably argue that you would not have filed had you known that the lender could keep the title until after the bankruptcy, or you have been materially harmed in some other way by failure to communicate this to you, it may not rise to the level of attorney misconduct.

SavyLawyer :

You certainly do have the right to raise this issue with the attorney, and make the argument that advising you on this issue should not cost you anything else as it was something that should have been addressed before filing. You also have the right to file a misconduct charge with the court disciplinary committee. For information, go to:

SavyLawyer :

http://www.courts.state.ny.us/ip/attorneygrievance/complaints.shtml

SavyLawyer :

However, this is generally seen as a last resort where the client has been irrevocably harmed and cannot resolve the issue with the attorney directly.

SavyLawyer :

I can understand your frustration, and I hope this helps further. Let me know if you have any additional questions or need clarification of anything, I am happy to keep chatting. Otherwise, please remember to RATE my answer so that I can receive credit for my work.

Customer:

OK, Thank you very ;much and I will rate your work.

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