If a Chapter 7 bankruptcy debtor has a significant amount of non-exempt personal property over the exemption limits the debtor has to buy back from the Chapter 7 trustee the non-exempt property. Non-exempt property subject to buy back includes automobiles and other types of personal property such as cash, stocks and furniture. Most trustees give clients up to 12 months to purchase the non-exempt property in monthly installments without interest. Most Chapter 7 debtors do not have enough non-exempt cash to make a lump sum repurchase.
A few debtor’s have the ability to pay cash immediately to buy back non-exempt assets because they have money in exempt retirement funds or can get a loan from other family members. Cash purchasers deserve a discount, and most trustee will discount the purchase price for debtors able to pay all cash in 20 to 30 days. Trustees provide discounts up to 25 percent off the full value of non-exempt cars or other property. The discount is warranted because a quick sale results in less work for the trustee and a quicker return to the creditors. In other words, an immediate cash repurchase earns an 25% profit in one year. At that rate it pays to borrow the money from the Mafia* (*make-believe organization in the movies).
One of my clients this past week had a car worth $6,000 over the client’s exemption amount. When asked by the trustee if the client could pay cash, the client said he could without hesitation. Before the trustee could accept, I had to interrupt the conversation to demand a cash discount. The trustee agreed, and the client was thankful.
If you have the ability to repurchase non-exempt assets quickly for lump sum cash make sure you prepare in advance to request a reasonable discount in the repurchase amount.