Judge Cancels Loan Debt for Illinois Man Who Upgraded Cars for Uber

A federal judge has determined that an Illinois insurance salesman who became an Uber driver to avoid bankruptcy can get out of repaying a nearly $10,000 auto loan debt after his plan failed.

With her signature, Judge Jacqueline Cox agreed to erase the $9,786.61 debt that Oswaldo Rodriguez owes to auto lender GM Financial for the new Chevrolet SUV he bought in October 2014—an upgrade from a smaller 2008 Lexus. The vehicle, which cost nearly $40,000, was repossessed in the aftermath.

“He genuinely thought that he could earn enough money through Uber to finance the debt,” Judge Cox said in a six-page opinion filed earlier this month in U.S. Bankruptcy Court in Chicago.

At Uber’s suggestion, Mr. Rodriguez shopped for a bigger vehicle that would fit luggage in the trunk for traveling passengers, Judge Cox wrote after hearing his testimony. He settled on a black 2015 Chevrolet Equinox for $39,332.16, agreeing to make monthly payments of $546.28 for six years to the General Motors lending subsidiary.

Mr. Rodriguez filed for bankruptcy less than a month after the purchase and before he made his first payment, according to court papers.

An Uber spokeswoman, asked for comment, made it clear that Mr. Rodriguez borrowed money through an auto lender that is unaffiliated with Uber’s own lending program.

“This driver appears to have obtained a loan on his own,” the Uber representative said in an email. “Drivers are of course free to use an existing qualified vehicle, or get a car loan on their own, as this driver did, but it’s up to drivers to choose what works best for them.”

The ruling comes after Uber has become one of the most visible companies behind the emerging “gig economy,” where a growing number of Americans are making money via digital platforms like Uber, Etsy , TaskRabbit and Airbnb.

But while nearly 1% of U.S. adults earned income that way during September 2015, a recent study of bank transactions from the JPMorgan Chase Institute found that the work only supplemented—not replaced—a full-time job. The average monthly income for someone who provided labor via one of the platforms was $533, representing a third of that person’s total income, the study found.

Illinois bankruptcy lawyer Dustin B. Allen, who represented Mr. Rodriguez in the lawsuit, said he often meets people who say they can avoid bankruptcy by taking on side jobs.

“They hang their hat on that additional Uber income, but it doesn’t always pan out the way they want it to,” he told Bankruptcy Beat.

Judge Cox’s ruling came after GM Financial took back Mr. Rodriguez’s SUV and resold it. The resale price was less than what Mr. Rodriguez paid, and the lender sued him over the difference.

U.S. bankruptcy law allows borrowers to cancel some of their debts, but lawyers for GM Financial argued that the fine print doesn’t allow a borrower to cancel a debt of more than $650 that came from buying a luxury item or service less than 90 days before the filing.

Judge Cox ultimately ruled against the lender, however, pointing out in her opinion that the term “luxury goods” doesn’t include items that a bankrupt person needs for their “support or maintenance.”

-Eric Morath contributed to this article.

Write to Katy Stech at [email protected]. Follow her on Twitter at @KatyStech