U.S. bankruptcy law allows borrowers to cancel their debts. However debts incurred less than 90 days prior to the filing of the bankruptcy that are more than $650 are considered luxury item and subject to adversarial proceedings by the creditor to prevent discharge. The key in making the determination is based on whether the debt is for luxury item. In certain circumstances even though a debt may look like a luxury item if the purchase was for the maintenance and support of the debtor, then the debt may still be discharged in bankruptcy.
With the proliferation of services such as Uber and Lyft many debtors try to be generate additional income by participating in the “gig economy“. These side gigs that debtor’s engage in are primarily for the maintenance and support of debtors. With that said, what happens then if you buy a brand new SUV to operate as an Uber driver only to find out things will not work out?
Such was the case for an Illinois debtor who after working for Uber with his older vehicle, decided to upgrade into a $40,000 SUV with the hope and expectation that this vehicle will generate income to pay of his debts. Mr. Oswaldo Rodriguez, a debtor in Chicago, decided at the suggestion of Uber to purchase a bigger vehicle that would fit luggage in the trunk for traveling passengers. He settled on a black 2015 Chevrolet Equinox for $39,332.16, agreeing to make monthly payments of $546.28 for six years. But things did not turn out the way he had expected and less than 30 days after the purchase, he filed bankruptcy without making any payments to GM, the finance company.
GM soon after repossessed the vehicle and sold it and filed an adversarial complaint against Mr. Rodriguez for the balance under the argument that the vehicle was a luxury item purchased less than 90 days prior to the bankruptcy filing. Judge Jacqueline Cox, in the Chicago bankruptcy court, agreed to erase the $9,786.61 debt that Mr. Rodriguez owed for the balance.
In her six page opinion, the judge wrote “He genuinely thought that he could earn enough money through Uber to finance the debt”, furthermore more, Judge Cox ultimately ruled against the lender pointing out in her opinion that the term “luxury goods” doesn’t include items that a bankrupt person needs for their “support or maintenance.”
Bankruptcy law is complicated and with the right facts, argument, and law, an experienced bankruptcy attorney can get you the fresh start even though at first glance may not look possible. But if you are thinking about going out and buying a Lamborghini to drive as an Uber driver for one month. And yes it has been done before. I would love to hear your story but no promises being made here what-so-ever.
