[this8384]

Our shop completed work on a person's vehicle. If we place a lien on their vehicle through the courts and they proceed to follow bankruptcy, will the lien be discharged?

SOL allows us to collect on the bill until 2015; is it better to just sit on the account and see if they actually do file for bankruptcy within the next few years? Or is it more beneficial to file a lien right now and hope that they don't file?

[cdad]

There are 2 types of loans. Doing work on a promisary basis is in fact a loan. By putting a lien on the car you are securing the loan. You would have the right to reposes the car if it goes to bankruptcy. Or they will have to negotiate a payment plan to keep the car. If the do file and your listed as a creditor then you would have to go before the courts to collect so be sure all the documentation is kept for this outstanding debt.

[this8384]

There are 2 types of loans. Doing work on a promisary basis is in fact a loan. By putting a lien on the car you are securing the loan. You would have the right to reposes the car if it goes to bankruptcy. Or they will have to negotiate a payment plan to keep the car. If the do file and your listed as a creditor then you would have to go before the courts to collect so be sure all the documentation is kept for this outstanding debt.

Thanks for the info. We had this problem once before where someone didn't pay, we turned it over to collections and then she filed for bankruptcy. We're debating what to do with it at this point because for obvious reasons, we don't want history to repeat itself.

[XTC832]

The debt can be discharged, but liens are never discharged in bankruptcy.

[Fr_Chuck]

Ok, was suppose to disagree with XTC, oh well.

AS noted, once there is a lien on property or personal property and they go bankrupt, since this is now a secured debt it is treated different than a unsecured debt in court,
they have to either re-affirm the debt and work out a payment plan, or they will have to allow the court to take the property in question and sell it. The proceeds will be used to pay against the debt. Of course the person owed the money seldom gets evern close to their value

So as long as they allow the item to be taken and sold by the court and do not re-affirm the debt, they balance of all the debt is discharged

[twinkiedooter]

Ok, was suppose to disagree with XTC, oh well.

AS noted, once there is a lien on property or personal property and they go bankrupt, since this is now a secured debt it is treated different than a unsecured debt in court,
they have to either re-affirm the debt and work out a payment plan, or they will have to allow the court to take the property in question and sell it. The procedes will be used to pay against the debt. Of course the person owed the money seldom gets evern close to thier value

So as long as they allow the item to be taken and sold by the court and do not re-affirm the debt, they balance of all the debt is discharged

I worked for a bankruptcy attorney for 7 years down in Florida years ago before everything changed in the bankruptcy laws for filing, etc. But I'll say one thing Chuck, that's about the BEST detailed information I've ever read on the liens and bankruptcy discharges.

As Chuck pointed out your best bet would be to file the lien now against the car before they can sell it otherwise any money you may realize from this work you did on it will be gone.

This, honey, why is it that your shop is continually repairing cars for dead beats? Don't you take credit card payments? Even though they may cost the shop so much per transaction in fees wouldn't that be better in the end than having to run down these dead beats or turn the files over to that lame collection company who never seems to collect anything but dust? Look into the credit card thing and see if that won't work for you.

Also, if folks promise to make payments against the repairs are you getting these promises to pay in writing saying just how much per month they are to pay? You need to look into getting some sort of contract written up by an attorney that basically makes your repair contract payment thing something you can take to court much easier than what you're doing now.

[Fr_Chuck]

Also don't let them have their cars till you are paid, there is no way I could ever drive off the repair shop at Ford or Chevy garage until they are paid,


And of course if you have to do some on "time" always get a payment first that covers at least the part value, so you are never actually out any real money, just your profit.

and thanks Twinkledooter, one of those sidelines I never talk about, I used to write up bankruptcy paper work, and for this site, even go to first hearings and listen to what happens to people

[twinkiedooter]

Chuck - I devised my own questionnaire for the people to take home and fill out all the information for their bankruptcies. I would enter the info into the computer program, print it out, have them come in review and sign it, go to the Federal courthouse to file it and my boss would attend the hearings with the Trustee. I think I saw just about everything under the sun in the 7 years I did that. Kind of fun.

And yes, I wholeheartedly agree with you Chuck about not letting people have their cars until they are paid. You must remember, This, that they will give you every excuse why they need their cars and give you every excuse why they can't pay. You must remember to run a business and not a charity. You've been too good hearted to those people and now you must rethink the shop. Your decisions can either make or break the shop in the future. Maybe posting a big sign saying that the car doesn't leave the premises until the work is paid for for starters would be good. You and hubby need to sit down and really talk this over leaving no stone unturned. This economy is definitely going to put a lot of people out of business unless they change the way they do business.

[XTC832]

The question asked, Can a lien be discharged in bankruptcy? The answer is no. But the debt can be discharged. As I understand your question, you are a service shop that performed work and didn't receive payment. But my question is, who holds the title to the vehicle? Does he own it outright or does a finance company or auto dealer loan have a first position lien on it? There might also be a payday loan with a 2nd position lien on it?

If you wish to put a lien on it, you might or might not receive payment at all. It depends on the selling value and prior liens in place already. If he surrenders the car in bankruptcy, he has turned over to the trustee a secured asset. It is no longer his concern. Plain and simple. He will have complied with the Bankruptcy Code. If there isn't enough money from the sale of vehicle at auction, you can't pursue him for the difference. The vehicle becomes estate property. If the trustee sells it right away and there are proceeds left after other liens (if any) get paid, then your lien gets paid whatever is left. If it is not the full amount, again, you can't pursue him. It's the same thing that occurs when people file bankruptcy and have a home with a first and second mortgage. If there isn't enough money left to pay the second lien, then their liability to pay it is released. The lien remains, but they are not legally responsible for the debt anymore.

If you do not put on lien on it, the debt is unsecured and you can challenge it at the 341 meeting. You may object but you need cause to do so. Unless there is any proof of fraud or wrongdoing, then his liability on that debt most likely would be discharged. You also have to keep in mind exemptions. The value of the vehicle may qualify for a total or partial exemption, so the selling value could even be less.

And on a footnote, re-affirmation statements are completely voluntary in bankruptcy. A filer does not have to sign one. Most attorneys (like myself) will advise filers not to sign one because it puts them back on the hook again for the debt. This doesn't mean that property has to be surrendered.

The old rule of bankruptcy is keep and pay. If you continue making payments as normal, then 90% of lenders will not foreclose or repossess. It's too costly. They still retain their rights and their liens and can do this if they want, but why would they if they're receiving payment. For most people, they will read on the legal pages that you have to surrender, redeem or reaffirm when secured property is in question. The fourth alternative, while not on the books, is "keep and pay." Over 80% of Chapter 7 filers "keep and pay" with no reaffirms, surrenders, or redemptions. Take care.

[Fr_Chuck]

The lendor does not have to accept the "keep and pay" which is why they often appear in court to challenge the bankrutpcy and to question the person filing if they are going to reaffirm. They may request the court to follow take the property.

And of course if one wanted to raise an issue of this debt being treated differently other debtors who are not continued to be paid, may use this to challenge the bankruptc if they wanted to.

So as the person with the lien, it is easy to protect yourself by merely appearing at the hearing and demanding that the court acts.

[cdad]

What's not being said here is that a mechanics lien is treated different from a loan and other secured debt. The mechanics lien will or should get paid even before payments are applied to a home mortgage. So its can go to giving up the car or paying for the repairs. Keep and pay is a reafirmation of the debt owed.

[Fr_Chuck]

Keep and pay is what I consider a "loop hole" in the bankruptcy court, where the lender fails to do what they should to protect their interest in the money owed. They basically hope they will keep getting paid, and don't go to the cost of forsing the court to make them affirm the debt or give up the property.

The lender who does not protect their rights, deserve what happens when they don't

[this8384]

We've stopped our "free financing" policy for obvious reasons, unless it's for repeat customers who have a great history with us.

The problem in this situation is that the party who owes the money was a personal friend; her daughter was filling in for me while I was on vacation over the summer. While I was gone, they fixed her truck and she made the usual promise of "I'll be in with some money." About a month later, she cut ties with me, blaming it on the type of person that I am.

The truck isn't worth much; there's no lien on it but it's got over 200K on it. But like I said, we're debating if we should file a mechanic's lien because we just found out that her house is in foreclosure; even making $500 on it would be better than getting screwed completely.

[this8384]

Now that I'm thinking about it, would we have any legal recourse against the daughter? She was 18 years old at the time of the repair; could we go after her for some form of embezzlement? As is, she and her mom "knew" they weren't going to pay for the vehicle but they charged the repair anyway? Just a thought...

[Iknowalotofstuff]

Here is a very simple way of looking at this question. Bankruptcy deals essentially with unsecured debt. By unsecured, I mean any debt that does not have security or the deficiency arising after the sale of security.

Work performed on a vehicle creates either a possessory lien or a non-possessory line. The difference being whether the repairer retains possession while the debt is being paid. The only part of this debt that is subject to a bankruptcy would be whatever remains owing after the disposition of the security.

In most bankruptcies, formal notice is provided to creditors of the proceeding. Creditors respond to this notice by filing some form of proof of their claim and whether it is secured or unsecured. The trustee or bankruptcy attorney will remind the secured creditors that their participation in the bankruptcy is for the part that exceeds the value of their security.

The bankruptcy statutes basically state that the rights of the secured party remain what they were if the bankruptcy statutes had not been enacted. Upon default, a secured party may take possession of their security by any manner permitted by law and any proceeds that exceed the balance due belong to the estate subject to any statutory exemptions.

The secured party is in control of what happens. The secured party may simply wish a speedy resolution, seizes the car, sells it for fair value and has the remainder as an unsecured debt in the bankruptcy. On the other hand, the secured party may enter into a reaffirmation agreement with the debtor to pay some or all or the debt irrespective of the bankruptcy proceeding thereby creating a post bankruptcy debt.

Reaffirmations often end up with the bankrupt paying more in principal and interest than the depreciating value of the security is worth.

In many jurisdictions, a possessory or non-possesory lien has priority over other liens such as the lien created by the financing of the vehicle's purchase or as part of a general security agreement.