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Repossessions: 14.2.8.4 Manufacturer “Supported” Residual Values

A special issue arises when a manufacturer “supports” an inflated residual value. In this case, inflating the residual value without manipulating rent payments allows the dealer to offer lower lease payments. When rent payments are not manipulated, the total payments can be lower because they need cover less depreciation between the initial capitalized cost and the (inflated) residual value. The manufacturer protects the dealer with a cash subsidy, as the vehicle at lease termination will be worth less than the inflated residual value.

Repossessions: 14.2.8.5.3 Sale price, if used, should be reasonable

The lessor owns the vehicle and can sell the vehicle as it chooses, either at wholesale or retail value.192 But the question is how it uses this price in computing an early termination charge. At a minimum, the assumptions underlying the realized value should be used to establish the residual value as well. The lessor should be comparing apples with apples as much as possible.

Repossessions: 14.2.8.6 Approaches to Avoiding a Sale to Determine Realized Value

One way to protect against inadequate realized values is for the consumer to request, in writing, that the car be appraised by an independent appraiser, and to suggest the name of such an appraiser. Regulation M requires that the consumer be told of the right to such an appraisal.201 The appraisal is performed at the lessee’s expense, by an independent appraiser agreed to by the lessor and lessee. The appraisal is final and binding on the parties.202

Repossessions: 14.2.8.9 When Formula Fails to Provide Credit for Realized Value

A lessee’s early termination liability formula is clearly unreasonable when the formula charges the consumer for the vehicle’s residual value or the adjusted lease balance, but fails to provide a credit for the vehicle’s realized value.205 This result applies even when the lessor has a practice of crediting the consumer for that value—if the formula does not contain a credit for the realized value, then the formula is unreasonable, which is both a substantive CLA violation and a CLA disclosure violation.

Repossessions: 14.2.9.1 Capitalized Cost Manipulation

Just as lease payments can remain constant even with different residual values (by manipulating the rent charge),207 two leases with identical payments and residual values can have different adjusted capitalized costs. The lease with the higher adjusted capitalized cost will have higher expected depreciation, but can offset this by lowering the rent charge.

Consumer Bankruptcy Law and Practice: § 326. Limitation on compensation of trustee

(a) In a case under chapter 7 or 11, other than a case under subchapter V of chapter 11, the court may allow reasonable compensation under section 330 of this title of the trustee for the trustee’s services, payable after the trustee renders such services, not to exceed 25 percent on the first $5,000 or less, 10 percent on any amount in excess of $5,000 but not in excess of $50,000, 5 percent on any amount in excess of $50,000 but not in excess of $1,000,000, and reasonable compensation not to exceed 3 percent of such moneys in excess of $1,000,000, up

Consumer Bankruptcy Law and Practice: § 327. Employment of professional persons

(a) Except as otherwise provided in this section, the trustee, with the court’s approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee’s duties under this title.

Consumer Bankruptcy Law and Practice: § 328. Limitation on compensation of professional persons

(a) The trustee, or a committee appointed under section 1102 of this title, with the court’s approval, may employ or authorize the employment of a professional person under section 327 or 1103 of this title, as the case may be, on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, on a fixed or percentage fee basis, or on a contingent fee basis.

Consumer Bankruptcy Law and Practice: § 329. Debtor’s transactions with attorneys

(a) Any attorney representing a debtor in a case under this title, or in connection with such a case, whether or not such attorney applies for compensation under this title, shall file with the court a statement of the compensation paid or agreed to be paid, if such payment or agreement was made after one year before the date of the filing of the petition, for services rendered or to be rendered in contemplation of or in connection with the case by such attorney, and the source of such compensation.

Consumer Bankruptcy Law and Practice: § 343. Examination of the debtor

The debtor shall appear and submit to examination under oath at the meeting of creditors under section 341(a) of this title. Creditors, any indenture trustee, any trustee or examiner in the case, or the United States trustee may examine the debtor. The United States trustee may administer the oath required under this section.

[Pub. L. No. 98-353, § 436, 98 Stat. 370 (1984); Pub. L. No. 99-554, § 213, 100 Stat. 3099 (1986).]

Consumer Bankruptcy Law and Practice: § 345. Money of estates

(a) A trustee in a case under this title may make such deposit or investment of the money of the estate for which such trustee serves as will yield the maximum reasonable net return on such money, taking into account the safety of such deposit or investment.

Consumer Bankruptcy Law and Practice: § 346. Special provisions related to the treatment of State and local taxes

(a) Whenever the Internal Revenue Code of 1986 provides that a separate taxable estate or entity is created in a case concerning a debtor under this title, and the income, gain, loss, deductions, and credits of such estate shall be taxed to or claimed by the estate, a separate taxable estate is also created for purposes of any State and local law imposing a tax on or measured by income and such income, gain, loss, deductions, and credits shall be taxed to or claimed by the estate and may not be taxed to or claimed by the debtor.

Consumer Bankruptcy Law and Practice: § 347. Unclaimed property

(a) Ninety days after the final distribution under section 726, 1191, 1226, or 1326 of this title in a case under chapter 7, subchapter V of chapter 11, 12, or 13 of this title, as the case may be, the trustee shall stop payment on any check remaining unpaid, and any remaining property of the estate shall be paid into the court and disposed of under chapter 129 of title 28.

Consumer Bankruptcy Law and Practice: § 348. Effect of conversion

(a) Conversion of a case from a case under one chapter of this title to a case under another chapter of this title constitutes an order for relief under the chapter to which the case is converted, but, except as provided in subsections (b) and (c) of this section, does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief.

Consumer Bankruptcy Law and Practice: § 349. Effect of dismissal

(a) Unless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dischargeable in the case dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(g) of this title.

Consumer Bankruptcy Law and Practice: § 350. Closing and reopening cases

(a) After an estate is fully administered and the court has discharged the trustee, the court shall close the case.

(b) A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.

[Pub. L. No. 98-353, § 439, 98 Stat. 370 (1984).]

Consumer Bankruptcy Law and Practice: § 351. Disposal of patient records

If a health care business commences a case under chapter 7, 9, or 11, and the trustee does not have a sufficient amount of funds to pay for the storage of patient records in the manner required under applicable Federal or State law, the following requirements shall apply:

(1) The trustee shall—

Consumer Bankruptcy Law and Practice: § 361. Adequate protection

When adequate protection is required under section 362, 363, or 364 of this title of an interest of an entity in property, such adequate protection may be provided by—

(1) requiring the trustee to make a cash payment or periodic cash payments to such entity, to the extent that the stay under section 362 of this title, use, sale, or lease under section 363 of this title, or any grant of a lien under section 364 of this title results in a decrease in the value of such entity’s interest in such property;

Consumer Bankruptcy Law and Practice: Section 362(a)

(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay, applicable to all entities, of—

Consumer Bankruptcy Law and Practice: Section 362(b)

(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay—

(1) under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor;

(2) under subsection (a)—