During a Chapter 13 case, the Bankruptcy Court in the District of South Carolina retains control over your property or assets, whether they be a car, a house or a piece of furniture. A debtor in a Chapter 13 case is not allowed to dispose of any property or assets without first obtaining the permission of the Bankruptcy Court.
WHY IS THIS REQUIRED?
When you filed your Chapter 13 case, your creditors are not allowed to take your assets. Instead, you pay the creditors as much or more than the creditor would receive if your property was sold now. However, if a debtor wanted to use up the assets or sell the assets and then convert to a Chapter 7 case, the creditors might get less than they would have received if the assets of the debtor had been sold when the Chapter 13 Case was filed.
WHAT PROPERTY CAN YOU GET RID OF WITHOUT A COURT ORDER?
The only property that you can get rid of during the Chapter 13 case without a Court Order is basically cash. You can use your cash to buy groceries, pay utility bills, purchase gasoline, clothes or other normal living expenses.
DID I REALLY SAY “GET RID OF”?
Unfortunately, I did say “get rig of” regarding disposing of property while in a Chapter 13. In many Chapter 13 cases that have been going on for a while, something will wear out, become valueless or otherwise become a burden to the debtor if kept. The car that no longer runs cannot be left sitting in the driveway or the Homeowner’s Association or governmental agency will start levying fines against the debtor.
No one really cares if the television dies and is thrown out even though throwing out the television is a technical violation of the rule against disposing of anything without the approval of the Bankruptcy Court. What happens, however, when the thing has a title and you need to sign the title over to the junk man?
You will need to get the approval of the Bankruptcy Court by filing the proper paperwork. Filing the paperwork will probably cost you more than the thing you are trying to get rid of is worth. Even so, do not break this rule as it can hurt your case.
The Bankruptcy Rules can be cumbersome and slow, but, the reason for requiring these rules is because people will push the limits. If a used up car is worth $250.00, then so what. If the used up car is worth $500.00, then maybe it is not so unimportant.
WHO DETERMINES THE VALUE OF THE ASSET?
One of the things that has to be determined is what is the value of asset? By going through these steps, creditors know that they are not being ripped off by with assets being sold and the debtor running off with the proceeds from the sale of assets.
Remember, one of the reasons everyone goes along with a Chapter 13 case is that the system is trusted. The system works hard to protect the position of the creditors so that they receive more than they would receive more than the creditor would receive in a Chapter 7 case. The system works just as hard to try and allow a debtor to keep assets.
The tension between these two goals causes some of these issues, but, I believe that they are a small, but necessary, tradeoff to allow debtors to keep their property.