Do Not Assume It Is Advisable to Surrender Recreational Items Before or During Bankruptcy
In addition to the potential pleasure that might be enjoyed as a result of owning and utilizing certain recreational items (e.g. boat, camper, motorcycle, ATV, etc), there may also be a financial/legal benefit in a bankruptcy case. The reason is that the contractual payments due on secured claims due in the 60 months after the filing of the bankruptcy are deductible on the Means Test used in many bankruptcy cases. The Means Test is a screening mechanism which determines if a chapter 7 debtor whose debts are primarily consumer in nature is presumptively abusing chapter 7 and also establishes the presumptive amount of repayment to general unsecured creditors in chapter 13. Although the future payments on secured claims in the 60 months after the bankruptcy filing are deductible on the Means Test, payments required to cure past due amounts can only be deducted if the claim is secured by a primary residence, motor vehicle or property necessary for the support of the debtor or their dependants. If a debtor surrenders secured property then a Means Test deduction will almost certainly not be allowed in the Eastern District of North Carolina. As a result, in a chapter 7 case the retention and payment on a claim secured by a recreational item may be helpful in avoiding a presumption of abuse. In a chapter 13 the retention and payment on a secured claim, either direct or through the plan, may reduce disposable monthly income and result in the debtor with an asset that has some amount of value. Every case is different and should be evaluated by a qualified attorney. There are many instances where a recreational item should be surrendered.