Dealerships Seek OK on Debt Payoff

The court-appointed trustee of Magic Ford and Magic Lincoln Mercury is seeking a judge’s approval to pay off debts from trade-in cars bought from customers shortly before the two dealerships entered bankruptcy proceedings in September.

Customers who turned over older cars as partial trade for new vehicles say their credit records have been hurt because the Magic dealerships failed to pay off existing car loans as agreed, according to court documents.

The federal bankruptcy court judge handling the case is expected today to approve payment of about $600,000 in liens on cars Magic accepted as trade-ins prior to the bankruptcy filing, said Leonard Shulman, bankruptcy attorney for the dealerships’ owner, Norman Gray.

“There’s no opposition to it,” said Shulman.

The judge is also expected to approve payments to the state Department of Motor Vehicles to cover about $60,000 worth of delinquent vehicle transfer fees, according to a copy of the motion.

Vito Scattaglia, area commander for the DMV’s local bureau of investigation, said that with penalties, Magic’s debt to the state now totals more than $90,000.

As a result of the payment delay, several hundred Magic customers may not have received title to their new cars, he said.

Court action is needed because the dealerships are limited to paying only certain debts, such as payroll, while it is in bankruptcy court.

Normally, Magic paid off customer debt on trade-in cars, which were later sold by the dealerships as used cars.

But in bankruptcy proceedings, payments of most debts, including the liens on trade-ins, are frozen until the court approves a reorganization plan.

As a result, some new car buyers have complained to the dealerships’ trustee that lenders are demanding payment for their old cars, according to court papers filed by attorneys for trustee R. Todd Neilson.

The exact number of customers affected was not stated. Neilson’s attorney could not be reached for comment.

Likewise, both dealerships normally collected DMV fees from customers and paid them to the state.

But according to Shulman, the bankruptcy triggered the closing of some accounts, and the transfer of funds to new accounts. While the accounts were in transition, “all these checks got caught,” he said.

Scattaglia, the DMV investigator, said new car sales after the September bankruptcy filing have not been affected.

The dealerships have remained open for business throughout the bankruptcy proceedings.

One of the largest Ford dealerships in California, Magic filed for bankruptcy after Ford Motor Credit Co., which financed the dealership’s inventory, tried to repossess assets of the business.

The dealerships are to be sold in a bankruptcy auction in coming weeks. Among the prospective buyers are car dealer Cal Worthington, an entity affiliated with Wayne Huizenga’s Republic Industries, and Bert Boeckmann of Galpin Motors.