Question

mary borrows $20,000 from credit union to buy a new car. the car loan is for five years and the car is the security for the loan. three years after mary gets the car loan, she files for chapter 7 bankruptcy. the car has a fair market value of $10,000 but the car loan is for $7,000. in this chapter 7 bankruptcy general creditors get 10 cents on the dollar. as a creditor, how much does the credit union get in total in the bankruptcy process, assuming the trustee sells the car for $7,000?

Answer 1

In total, the credit union will receive $700 in the bankruptcy process, assuming the trustee sells the car for $7,000.

How do you determine the credit union in total?

The credit union will get a distribution of the assets of the bankruptcy estate at a rate of 10 cents on the dollar because it is regarded as a general creditor.

The car loan balance owes the credit union $20,000, but it is only being sold for $7,000 even though the vehicle has a fair market value of $10,000.

In other words, a distribution of $700, or 10 cents on the dollar, of the car's sale price of $7,000, will go to the credit union.

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