This past week has been “Bike Week” in Daytona Beach, which is the next county over. It’s not unusual to see groups of weekend warriors out riding around Central Florida, but more so this time of year. One question I’ve learned to ask during any initial bankruptcy consult is what I call “The Toy Question:” Do you have any motorcycles, jet skis, boats, ATV’s, etc.? This question is important because the answer often is a reason for some people to pause and rethink the decision to file a Chapter 7 Bankruptcy.

Here’s why: Since it’s Bike Week, I am going to use a Harley as the “toy” in my discussion, but this applies to any motorized contraption that is not the debtor’s daily vehicle.

In a Chapter 7 Bankruptcy the debtor is declaring that they have no INCOME or ASSETS that can be used to pay to their creditors.

THE INCOME ISSUE: The Chapter 7 Trustee is going to examine the debtor’s income versus reasonable living expenses. “Reasonable Living Expenses” is defined as any expense necessary for the care and support of the debtor(s) and the debtor’s dependents. Typically a Harley payment (plus insurance, maintenance costs, etc) will not qualify as a reasonable living expense if the vehicle is not a daily driver.

If you did not have that payment and those costs, would there then be enough income left over that could be used to make a Chapter 13 Payment to pay at least something toward your other debt? Maybe. This is a question you need to identify and answer BEFORE filing a bankruptcy. Sometimes the client’s income isn’t enough to meet a budget of reasonable living expenses. If this is the case, then the bike probably needs to go back to the finance company since the debtor can’t afford the payment (and the aforementioned maintenance costs) and the debt will then be discharged in the bankruptcy… thus leaving more money to use to feed, clothe, house and transport the family.

THE ASSET ISSUE: If the Harley is paid off, it (or at least some of its value) may be taken in the bankruptcy to be used to pay at least something toward the debt. What?? How?! Why?!  I have heard more than once the exclamation “But that is the only nice thing I have!” This is about the time men’s heads start spinning!

Take a breath and let me explain. When you file a bankruptcy, they don’t shake you by your ankles, take every last nickel and leave you wearing a barrel under the highway. You’re allowed to keep some value in assets to use to “start fresh,” but there are limits. What those limits are depend on which state you call home and how long you’ve been there, and can be complex.

In Florida you are allowed to keep all qualified retirement account balances, all equity that is in your home (only 5 states in the US allow unlimited homestead exemption), $1,000 for each debtor in personal property, $1,000 for each debtor in vehicle equity. If you do not own your home, or if you are letting your home go back to the bank, add another $4,000 per debtor to be applied most anywhere its needed.

This list is not exhaustive, so be sure to take the time to ask about them all. The bottom line is there is not often room for a nice paid-off Harley in the pile of stuff you get to keep and still tell creditors to go jump in the lake. Knowing the value of the paid off asset is key. One of the best ways to get that number would be to have it dealer appraised. If it’s a Harley, then take it up to the closest Harley dealer and ask them what they think it would sell for today, preferably in writing. Once you know what it is worth today, then you can figure out how much of that value is subject to being taken in the bankruptcy. Often trustees will let a client pay that value in (you’re saving them the trouble and expense of taking, storing and selling it) and keep the toy. They’re only interested in the value, not necessarily the thing.

This is often a big pill I ask clients to swallow. The bible verse “The rich rule over the poor and the borrower is servant to the lender,” Proverbs 22:7, very much applies in this case. You don’t get the final say when you owe debt but you do get some say. Think of it this way… add up your credit card, signature loan, and any other unsecured balances… what is it? $20K? $45K? More? Ok… and what is it you’d have to pay in or give up if you did a Chapter 7 Bankruptcy and got forgiven of all that unsecured debt? $10K? Put your own numbers in, but the analysis will be the same.

If I came up to you and said “I’ll guarantee you that you’ll get $45K right now if you give me $10K.” How quickly would you find that $10K? That debt relief has significant value and I am here to suggest that sacrificing that Harley or boat or whatever kind of toy it is would be a blessing to your household (and likely your marriage) if it meant you could then be debt-free (or really really close). It’s ok. I or any other bankruptcy attorney will be sympathetic and gentle when helping you address letting go of your beloved friend, but remember that they made more and, if you just have got to have one, you will qualify again for a loan to buy an even nicer toy, probably in a year or less.