Daily Archives: January 2, 2015

Commercial Trucking Through Bankruptcy

Over the last several years I have had well over one hundred truck drivers as clients.  I have grown fond of these clients and have noticed many common issues and problems develop in their cases.  Today I want to go through the various issues a self employed truck driver might encounter before, during, and after filing for bankruptcy.

The majority of truckers have filed for Chapter 7 bankruptcy and have collectively discharged millions of dollars in unsecured debt.  Most of my readers are well aware of the benefits of bankruptcy so my focus is going to be on how to operate a truck driving business while in bankruptcy.  The most basic scenario involves a trucker who is a true W2 employee and gets paid via payroll on an hourly or by mileage scale.  In this case the trucker is just the driver and simply earns a wage.  In this scenario nothing special occurs before, during, or after the bankruptcy.  The next group of truckers do exactly the same work as the W2 payroll truckers but instead are considered self-employed truckers and receive a 1099 at the end of the year for their hours or mileage.  This group of truckers only needs to provide proof of license and insurance in order to operate during bankruptcy.

My next and more complicated group of truckers are self employed owner operators who own or are financing their trucks and trailers.  The bankruptcy code states that a debtor cannot operate a business while under Chapter 7 unless that business is either run by the trustee or is abandoned back to the debtor.  In this most common scenario, a skilled attorney will immediately contact the trustee upon filing of the bankruptcy, provide proof of insurance and license, and proceed to file a motion to compel abandonment to be heard on the first available court calendar.  Failure to do so can very often lead to the trustee shutting down the trucking business until the conclusion of the case which can be 90 to 120 days later.  Such a scenario would devastate anyone who derives their income from trucking.   Again, attorney Mark Shmorgon can not only file your bankruptcy in one, day but also file the appropriate motions with equal speed to ensure a smooth bankruptcy processes.

For those that own their trucks and trailers outright, the next issue is the value of the truck and trailer.  It is very important to correctly identify the make, year, model, mileage and condition of the commercial vehicles in questions.  As a business debtor in bankruptcy you are allowed to keep and exempt approximately $37,000.00 worth of assets assuming there is no equity in real property.  With that in mind, the value of the vehicle in question is very important to know in the beginning.  If the value of the truck and / or trailer appear to exceed this amount the trustee will want to have an auctioneer independently examine the vehicles, thus creating our first inconvenience.  If the auctioneer believes the value is higher than what was listed in the bankruptcy schedules and the amount cannot be exempted, the trustee will offer the debtor the opportunity to buy back the unexempt / unprotected equity.  If the debtor still disagrees with the value the trustee will then seize the vehicle in question and attempt to sell it.  If the trustee fails to sell it above the exempt value he will return the vehicle, if he succeeds he will pay you your claim exemption.  Either scenario is no good, since it leaves the trucker without a truck for many months.  However, if in advance, we know that value will be an issue it is smarter to file a Chapter 13 bankruptcy wherein none of your assets are taken, but instead you pay back the unexempt equity over five years and continue to operate your business without the fear of a shutdown or losing your core business assets.

Lastly, for the truckers who are financing their trucks there is a lot of benefit to be had under Chapter 13 Bankruptcy.  Under Chapter 13 bankruptcy the interest rate and principal of the truck and / or trailer can be modified to market value.  For example, I have had several truck drivers last year who came to me complaining that they lost so much time and money constantly repairing their old truck.  Likewise other truckers constantly fear the always changing and spotty enforcement of California Smog laws concerning their truck and reefer emissions.  In such scenarios I actually suggest that the trucker go out and purchase a new truck or trailer.  I get a lot of hesitation from trucker clients because they fear that the interest rate will be very high and they will not be able to afford the payments.  It is at that time that I remind my clients that as soon as we file for bankruptcy that typically high commercial interest rate loan of 10-20% will instantly be modified down to 4.5% over 60 months.  Once my clients realize that the amount of time and money they will save by no longer having to incur repair costs, upgrade anxiety, and down time, the majority actually make more money buying a new truck and filing for bankruptcy shortly thereafter.  There is a common misconception that purchasing a vehicle prior to filing bankruptcy is in some way illegal.  Rest assured there is nothing illegal in this transaction as the purchase is both necessary and the vehicle is still going to be repaid, just not at that high interest rate.

Another group of truck drivers have already purchased their trucks and / or trailers and they owe more on their truck then it is worth and again their interest rate is well above 4.5%.  In such a scenario for several clients, I was able to reduce the principal and interest rate on their truck and / or trailer payments which cut their monthly payments in half.  With a reduction on monthly payments they were finally able to live comfortable and enjoy many of the forgotten joys of life.

If you are truck driver and you are strongly considering purchasing a new truck or struggling with your existing truck payments, or struggling with your other debt obligations, don’t hesitate to contact Mark Shmorgon at 916-640-7599 for a free bankruptcy consultation or write me at shmorgonlaw@gmail.com.