Cars and BK

[dave7250]

What is the name of your state? TN

I have a question concerning my vehicles and BK. At this point in my life I am Strongly considering a chapter 7 BK. I haven’t been late with any payments and my credit is really pretty good (685 score). However, I know in my mind I’m on a downhill slide. I have CC debt of approximately $55,000 and my annual salary is $40,500 a year. Over the past year, I have used my cards to make transfers from one to another for the sake of lower interest and taken cash advances to “get me through” a time or two. Sorry to bore everyone with this rambling but I wanted to give a quick overview of my story. Anyway, both vehicles are paid for. One is a 1996 Nissan PU with 130,700 miles and the other is a 1997 GMC Jimmy with 62,000 miles. I drive one car to work and my wife drives the other so we need two cars. (My wife filed BK 1 year ago). Now for my question. I think the BK trustee will let me keep my Nissan since it would fall within Tennessee’s wild card exemption but I believe he will force the sale of my GMC. Should I trade the GMC and finance another vehicle before I file BK? This would give me a Secured Loan I could reaffirm. Of course if I take this action, I will SURELY have to file because that additional payment will be the straw that breaks the camels back. What would I then do about the truck? It surely can’t last a whole lot longer. I drive it 100 a day. Any help or suggestions are appreciated.

[Elmo-1]

Trading in vehicles a few months before filing is done quite a bit. It's a lot smarter than trying to buy after filing. The trick is not to get too extravagant and not to file Bk too soon after buying. I've seen posts where both no-no's were violated and the court forced the vehicle to be returned.

Have you considered trading in both the pickup and the Jimmy before you file. Together you probably have $7-8k in equity and there's no reason to blow $4k in exemption on something that'll be a money-drain before your credit is out of the tank. An acceptable replacement for the Pkup is probably a low-mileage used vehicle in the $10k range and good enough to get you through Bk. The replacement for the Jimmy can be newer and better since your trade-in will be higher. Still, I wouldn't go out and get anything priced over $15k to replace the GMC to be safe.

Figure what payments you'll be able to afford comfortably without all the credit card bills. You'll probably have to wait 3-4 months after buying the cars before filing to be safe. You'll want to pay at least a month on your credit cards after buying the cars. But stop paying the cards after that, stop using the cards as well, wait 3 months then file Ch 7. Stay current on the cars so you can choose to reaffirm both loans. Use the wild card exemption on something else you want to keep.

[dave7250]

Originally the Jimmy was purchased with a CC. In hind sight I know this was the wrong thing to do. What if I took out a personal loan and put the Jimmy up as callateral. That would then make it a secured loan that I could reaffirm. Is this right? After a move like this, how long should I wait to file?

[Elmo-1]

I'd be concerned that the Trustee would trump your move. You still have to account for the cash from the loan. The money would have to be put into exempt assets, like house repairs or upgrades, another car, etc. to be totally safe. You could wait six months to file and say it was spent on necessities. Just don't give it to a relative or friend for safe keeping, or leave it hanging around in a checking or savings account when you file.

It just seems safer to do a trade-in. You have clear titles and a trade-in would have the same effect as a loan, just more pallatable to a Trustee. You'd still want to wait 3 months before filing to keep the seller and Trustee from voiding the contract(s).

If you did a trade-in, you'd need to try to keep the total equity within the exempt range for both vehicles. This means that trading in the Jimmy - say a $6k value - the value of the new car would have to be $2-3k less (at filing time) vs what you paid for it. Example: New car selling price $16k minus $6k trade in = $10k loan balance; The value at filing time should be in the neighborhood of $12-13k, giving you $2-3k equity. This would leave only $1-2k of equity for the 2nd vehicle.

This can get a little trickey since you still have to afford two new payments comming into your household. If you try to spend less to get lower payments, your equity would be greater and may take longer to reduce because of the because the trade-in value would be closer to the new car selling price. Check Kelley Blue Book values for selling your new cars to stay within the $4k allowed.