Car Question - help

[HardTimes115]

Any help would be appreciated....

We are a month shy of being 3 years into our BK13. This has been a long road so far but we have been doing ok. Never missed or had a payment late. Even before we filed we were never late on one payment to any credit card, car payment, mortgage, etc. We had to get a car that would last throughout the BK so we leased something. I guess we were not thinking how hard it would be once the lease was up. So here we are and the lease is up. We also have a "junk" car that is not running as of this afternoon. The leasing company just sent us a "Notice of Electronic Filing". It says Motion for Relief of stay re: 2012 GMC Acadia. Motion for Turnover of Property. We don't know what to do. We planned on buying the car by taking a loan out from my husbands 401K. Is that the most sensible thing to do? We are over on the mileage and would owe 3K if we just turned it in. And we don't have that 3K..again we would have to take a loan out of 401K. We need a car. We both have to drive to our jobs. We called our lawyer and he was absolutely no help. He said either give the car back or go to a certain dealership and get something else (he said the rates will be high, of course) or take the loan out of our 401K. Do we get the loan from the 401K? Do we go to a dealership and try to get something for what our payment for the lease was? If we do buy the car, via 401K loan, there is no warranty on the car. We JUST put new tires on the car.....$1000. What if we buy it and something goes wrong and we have no way of paying for the repair. We have the option of the 401K but Ive always read that you should never touch your 401K. Do we go and try to lease or buy something else? I feel like the sky is falling...literally. So much stress. What do people do when something like this happens? Please help.

[justbroke]

It may be possible to borrow from your 401(k), but I don't know how much you need to purchase this car, how much is in your 401(k), and I don't know if you're "approaching" retirement age. All of those things are factors of whether borrowing from a 401(k) is okay.

Practically speaking, we're talking about a 2012 vehicle that is now 4 years old. You may want to consider purchasing a current model car (but a 2015, not a 2016) so you get the warranty and peace of mind. If you're able to lease again, then you could consider leasing. As for what works financially, there is no way to tell without running the numbers. There are 401(k) "loan impact" calculators available online from places link BankRate (http://www.bankrate.com/calculators/...alculator.aspx). I personally would try the calculator AND apply for both a lease and a regular car loan. If you are in a credit union (CU), check their rates as well.

Remember, even if you get a new lease on a newer car (2015), you still have to pay your overages to the current leaseholder of the Acadia.

I know it's difficult but you just need to take a breath for a moment, and then do the math. Borrowing from your future (taking the 401(k) loan) may be the best course since you need a vehicle to produce income. Whatever your decision, I think you'll be okay.

justbroke's research
First, there is a thread here on BKForum which talks about leases. Some of the leaseholders just file a regular post-petition claim as an unsecured creditor in the Chapter 13 bankruptcy. This means they are paid pro rata what the other unsecured creditors would receive. Nothing special here.

In the most extreme case, some cases have viewed these charges as to whether they are an "administrative" claim. It appears that at least one judge has ruled that was in New York. https://www.gpo.gov/fdsys/pkg/USCOUR...bk-72038-0.pdf . But another judge in Michigan (2004) didn't allow the claim. http://www.leagle.com/decision/2004601308BR293_1569/IN .

[LadyInTheRed]

I can't say what is best for you, but maybe I can give you some food for thought. When somebody ran into our parked car 4 years into my Chap 13 and totalled it, I took a loan on my 401k to purchase a car that was newer than what the insurance settlement would pay for. I'm paying 4% interest to myself, which is better than the rest of my 401k has done. But, my fresh start wasn't as fresh as it could have been when I was discharged. If I leave my job, I would have to pay off the loan or take a big tax hit. Fortunately, my job is as secure as any job can be and I am happy there.

I would never lease a car unless I owned a business and it made sense because of tax deductions.

[159515951]

My opinion: Never, ever, ever, touch your retirement accounts. It's too easy for something to go wrong with that, and it's not worth messing with your retirement funds.

If you're over on mileage and can't pay the difference, then the answer seems pretty apparent: you need to buy the car. I would go to the dealer as soon as possible, state that intention, and work with them on a loan. If you can come up with some money down (even $1k), that would be of help. You're correct that the rate will be high.

The only other option I can think of is to turn the car in and attempt to amend your plan to include the $3k overage, but I'm not sure that's possible -- your attorney would need to speak to that. If you are able to go that route, you can shop around and compare prices and rates for a new car. I purchased a car while in my 13, and even with that situation, I was able to cross-shop and use finance offers from different dealers to negotiate a better rate on the car I wanted. You'll likely need to file a Motion to Incur Debt, and you'll want to do that soon so it doesn't hold you up.

This post is reason #65465165168 why leasing sucks!

[BriOS]

I'd try to trade it in to see if you have any equity towards a much cheaper car. You do know you can trade in a leased vehicle if you have equity in it. Yeah your loan will have high interest, but it will be worth getting something you can keep if you need. Or you can just return it and get a $1000 beater with a heater like I did. Its a lot of pressure.

[159515951]

I'd try to trade it in to see if you have any equity towards a much cheaper car. You do know you can trade in a leased vehicle if you have equity in it. Yeah your loan will have high interest, but it will be worth getting something you can keep if you need. Or you can just return it and get a $1000 beater with a heater like I did. Its a lot of pressure.

1) You never have equity in a lease, unless you never drive it (very low miles); and 2) that's definitely not the case, because the OP stated they owe $3k in excess mileage.

Incidentally, I'm dismayed that lawyers don't advise Chapter 13 clients to REJECT their current car leases in the Chapter 13 Plan (i.e. surrender the car) and buy a car before filing instead. They know what's going to happen, and just let you deal with it instead of offering sound advice.

[BriOS]

1) You never have equity in a lease, unless you never drive it (very low miles); and 2) that's definitely not the case, because the OP stated they owe $3k in excess mileage.

Incidentally, I'm dismayed that lawyers don't advise Chapter 13 clients to REJECT their current car leases in the Chapter 13 Plan (i.e. surrender the car) and buy a car before filing instead. They know what's going to happen, and just let you deal with it instead of offering sound advice.

That is simply not true. I have leased many cars, and never turned one in. Granted I never went over the miles, but there is no need for you to just assume you are breaking even and hand back the keys. The trick is to go in a a month or two early, and have the car appraised. Shop around until you get what you need out of it. I usually see $1k-$2k equity. Then just roll that into the next lease. If you run over miles, then you shouldnt lease your next car plain and simple. Unless your driving habits are going to change. But lease equity is always a possibility. Remember the banks are essentially guessing on what your car will be worth at the end of the lease. Sure there are algorithms and whatnot that they use to get their figures, but the market can easily swing any way.

[159515951]

That is simply not true.

Then you're leasing Porches and driving them 1k miles/year, because it's true in almost all cases. The residual is typically inflated to help with lease numbers, and appraising and selling a car usually gets you a black book price. That usually is a $5k+ (negative) difference in my experience, but more power to you if you're able to make it work.

In most cases, if you have equity at the end of a lease, you didn't drive the car much. In other words, you prepaid depreciation that you never used, and then got part of it back later. Still a losing game.

[PatG]

I can't say what is best for you, but maybe I can give you some food for thought. When somebody ran into our parked car 4 years into my Chap 13 and totalled it, I took a loan on my 401k to purchase a car that was newer than what the insurance settlement would pay for. I'm paying 4% interest to myself, which is better than the rest of my 401k has done. But, my fresh start wasn't as fresh as it could have been when I was discharged. If I leave my job, I would have to pay off the loan or take a big tax hit. Fortunately, my job is as secure as any job can be and I am happy there.

I would never lease a car unless I owned a business and it made sense because of tax deductions.

LIR, did you have to get approval from the Trustee for the 401k loan?

[BriOS]

Then you're leasing Porches and driving them 1k miles/year, because it's true in almost all cases. The residual is typically inflated to help with lease numbers, and appraising and selling a car usually gets you a black book price. That usually is a $5k+ (negative) difference in my experience, but more power to you if you're able to make it work.

In most cases, if you have equity at the end of a lease, you didn't drive the car much. In other words, you prepaid depreciation that you never used, and then got part of it back later. Still a losing game.

It might seem like that on the outside, but the fact is you got to drive a nice car for a fraction of what it would have cost you to drive it if you bought it with financing.

[159515951]

It might seem like that on the outside, but the fact is you got to drive a nice car for a fraction of what it would have cost you to drive it if you bought it with financing.

It's not the "outside", it's financial reality. More people need to live there.

I don't care what you personally believe and spend your money on, but I want it made clear to anyone reading and considering that leasing is almost always a financially bad idea. 10 minutes on Google will tell this story over and over again.