Diminished value or loss of value propery damage claims

I just settled a property damage claim for a married couple who pursed a property damage claim for a car accident but not a personal injury claim. No other lawyer would take it because these claims are so small compared to personal injury claims. Normally, I would decline the case too, but the case was referred to me by a colleague, so I agreed to accommodate them.
The clietns pursued it for nearly two years, without getting paid, and came in just before the two year statute of limitations was about to expire!
One reason they didn’t have any luck is that they made a claim for “diminished value.” The term “diminished value “has a very special meaning in the insurance industry, and diminished value claims, if handled improperly, fail pretty often. However, a claim for loss of property value due to another person’s negligence, when handled properly, is fairly routine. When I handle car accident cases, for example, I’ll put in property damage claims too.
The mistake they made was reading on line about diminished value cases, and presenting their claim as a diminished value case. Once they did that, they hit a stone wall.
Diminished value claims are claims not to get the car fixed (or any other property for that matter) but for the difference between the pre-accident value, and the post-repair value. In this case, they had a new SUV with 9,000 miles on it, that was struck by a careless driver. Their insurance carrier paid for repairs, but even after the repairs were made, the car had lost a lot of value. Why? Because it has been in a serious accident, and that must be reported in the car’s history. When the client went into his dealer to check on the trade in value after the accident, he found out that the trade in value was far less than it would have been had the accident never happened. One estimate was $12,000 is lost value, just as a result of the accident. Some car related websites such as carfax, autotrader, Kelly Blue book etc., have calculators that will permit you to put in data so you can see for yourself how much value your car has lost from an accident. Most people think when the car comes out of the shop and the bill is paid, they got all they are entitled to. When the lease is up, or they try to trade in their car, they get a shock. Unfortunately, this often happens after the two year statue of limitations expires and they’re out of luck.
Diminished value or loss of value claims are severely limited when they are made against your own insurer, because the insurance policy has limitation on what is covered and how much has to be paid. However, a claim against another negligent party is a claim based on tort law, and not an insurance policy.
Contact me through my website if you have questions about this. I only represent clients in Pennsylvania, so this is not intended as legal advice.

Michael Vick Bankruptcy

Michael Vick was in the news today, but not for dog fighting or football. It was for his bankruptcy case.
People may wonder why a highly paid professional athlete who was once the highest paid athlete in the NFL would need to file a bankruptcy case. As the old saying goes, people who earn a lot spend a lot. But, though the headline said that the judge handed Vick a victory, it is not clear that it was anymore of a victory than an ordinary debtor would get.
Vick reportedly owed more than $20 million in debts, and had 9 million in assets he had to sell as part of this plan. He also had to commit most of his earnings to the repayment plan during it’s term. He is guaranteed 5 million dollars per year as an Eagle, and is limited to $300,000 living expenses, meaning that in addition to the sale of assets, which will bring an unknown amount of money, he’ll give up 94% of his guaranteed earnings. The plan is 6 years long, with no payments during the first year. That is slightly better than the standard for chapter 13 plans which are limited to a total of 5 years. But if he sells the assets in the first year, and pays roughly $4,700,000.00 for the next 5 years after that, he’ll pay a total of $23,500,000.00 in salary payments, plus the sale of assets in the first year. The additional amount may represent interest. That’s more than 100% of his debts which is very unusual in a typical chapter 13 case.
Of course, he didn’t file a chapter 13 case. He made too much money. $20 million in debts far exceeds the limits for a chapter 13 case, so he filed a personal chapter 11 case. That explains the 6 year payout with no payments in the first year. But for him to potentially pay more than 100% of the debts is no victory. Most Chapter 13 debtors pay far less than that.

Three-year descent of real estate prices at an end

The New York Times reported on Wednesday that the 3 year decent in home prices appears at an end. The Philadelphia Inquirer reported pretty much the same story that day. Today it was reported that foreclosures are on the rise in areas that were previously unaffected by the housing industry decline, and that this is due to declining employment, rather than trouble loans. This all has implications for people considering bankruptcy to protect their homes.
There are two basic economic tests to protect your house in a bankruptcy case. The first is household income. If your income is above a threshold, called the means test, then you must file a chapter 13 bankruptcy. The second is non-exempt equity. If your equity in your house is above the limit you are allowed to protect from your creditors, called the real property exemption, you have to file a chapter 13 plan. There are other considerations, but these are the two economic thresholds. Stated differently, if either your household income or non-exempt equity is too high, you must file a chapter 13 case. If you pass both tests, meaning that neither exceeds the limits, then you can file a chapter 7, which is cheaper, quicker and in many ways simpler and easier for the debtor. (You can still keep your home if you're up to date).
So, if we’re at the bottom of the decline in housing price decline, that means that your equity is at a low point. If you house was worth $250,000 3 years ago and you had a $175,000 mortgage, you had $75,000 in equity. The federal exemptions allow a married couple to protect $40,400.00 in equity, so three years ago you had $34,600 in excess (non-exempt) equity, meaning a couple would have to file a chapter 13 case to protect the home. Now, if the housing market has declined 25%, the home is worth $187,500. With the same $175,000 mortgage (give or take a little due to 3 years worth of payments) the equity is $12,500, well within the Federal limits, so the couple can file a chapter 7 case, provided their income is also below the means test threshold. Similarly, if the household income has declined due to downsizing, layoffs, and a cutback in overtime or other reasons, the couple who once exceeded the income means test may now be able to file a chapter 7, provided their non-exempt equity is below the exemption limit.
Bankruptcy is never a first option, but for some people facing a difficult time, now might be the ideal time to get their finances in order. If they wait until things turn around, and their income and equity increases, they could actually forego an option if forced later to file a bankruptcy case.