New Chapter 13 -- disposable income question around a car lease?

[grimmel95]

Hi Folks,

I've been reading these forums for a while now and can't believe how much great information is provided here. You all do a wonderful job and helped me and my wife ask a lot more questions of our lawyer than we would previously.

On to my question now.

My wife and I filed chapter 13 back in Aug 2016 and our plan was confirmed in Dec 2016. My wife and I lease our two vehicles and her lease is up in October. She got a great deal from the dealership to trade in her car without tacking on the remaining lease payments. The dealership informed us that they have zero lenders that will work with us due to the active chapter 13 bankruptcy. We checked quite a few more dealerships and they all pretty much said the same thing. A lot of them have an internal creditor that they could try but the interest rate will be 19% and that's not something I'm will to do. Our lawyer up front said that we wouldn't have an issue getting a new car when our leases were up but we starting to see and hear differently. So we need to figure out a plan over the next 8 months when the lease is up on my wife's car.

So my question is this. When my wife's lease is up and it's time to turn the car in we were thinking that we would just go buy a used car with cash and not take on another payment. Will the trustee see the extra disposable income and adjust our plan to take that difference of money (the car payment) or will we be able to keep that and put into savings, etc? My lease is up in 18 months and we thought about doing the same thing as well with my vehicle and then wait to get new cars after our 5 yr plan is complete.

What are the chances the trustee will not take the extra disposable income?

Thanks for listening and helping out!

[justbroke]

So my question is this. When my wife's lease is up and it's time to turn the car in we were thinking that we would just go buy a used car with cash and not take on another payment. Will the trustee see the extra disposable income and adjust our plan to take that difference of money (the car payment) or will we be able to keep that and put into savings, etc? My lease is up in 18 months and we thought about doing the same thing as well with my vehicle and then wait to get new cars after our 5 yr plan is complete.

The Trustee will not care if you're saving. In fact, the disposable monthly income (DMI) calculation is just that... based on standards. If you have extra money left each month most "expect" you to save. It's actually quite important that a Chapter 13 debtor save during their Chapter 13. The Trustee "may" only want to know the source of the money (savings or loan). Many people in Chapter 13s use savings and even 401(k) loan proceeds to purchase a car in an active Chapter 13.

When shopping for a car while in an active bankruptcy, I would never shop through a dealership. They like to shotgun applications (send them to upwards of 10 different banks), without explanation. My friend just had one where she applied online to the manufacturer and the local dealer shotgunned the application. No fewer than 8 applications, with 4 of them being declined for "incomplete application"! But, she still got hit with the credit inquiries. Two of them declined for "insufficient credit history" although she has $35K in available credit across 4 credit cards and her credit history is 20 years old with average age of accounts over 10. That tells me that the dealerships are doing this blind. My personal opinion is that if you're rate shopping, use a credit union and tell them that you have permission (or will obtain permission) to incur debt in the active Chapter 13.

You may have misunderstood your attorney when s/he said that it would not be a problem to obtain a new car while in an active Chapter 13. They probably meant that the court would have no problem with you getting a new car in an active Chapter 13. As far as the rate, that's just something that is inevitable.

[grimmel95]

The Trustee will not care if you're saving. In fact, the disposable monthly income (DMI) calculation is just that... based on standards. If you have extra money left each month most "expect" you to save. It's actually quite important that a Chapter 13 debtor save during their Chapter 13. The Trustee "may" only want to know the source of the money (savings or loan). Many people in Chapter 13s use savings and even 401(k) loan proceeds to purchase a car in an active Chapter 13.

Thanks justbroke for responding so quickly. So if wife's lease is about $400/mo so come October when we turn the lease in we could use that $400 and put into savings and the trustee won't try to take that? What I'm getting at is our plan payment is high which doesn't leave a lot of room to save so my thought process was to turn the cars in when the leases are up and get some used cars and then use that money from not having car payments to put into savings. I was/am concerned that if we have another $800 - $1000 (money from not having car payments) in disposable income the trustee will come back and say that we should be paying more. Essentially not having car payments would save us about $1000/mo so I'm concerned the trustee will take that.

should I be concerned?

thanks

[Rabbit12]

Hi grimm,
Most trustee's will want your payment to go up to them when car lease is done. For trustee not to increase your plan payments, go to dealer get finance in your name don't worry about high rate because it will come out of your monthly payment to trustee. Contact your attorney and he/she will tell you want they need from dealer to give to trustee to get approval for car loan. Hope this help's

[justbroke]

Thanks justbroke for responding so quickly. So if wife's lease is about $400/mo so come October when we turn the lease in we could use that $400 and put into savings and the trustee won't try to take that?

No! That's an entirely different scenario. As Rabbit just wrote, the Trustee would want, if you're not replacing the car, the monthly payments that you were paying on the car. The Trustee would put that money into the unsecured pool for the unsecured creditors.

What I'm getting at is our plan payment is high which doesn't leave a lot of room to save so my thought process was to turn the cars in when the leases are up and get some used cars and then use that money from not having car payments to put into savings. I was/am concerned that if we have another $800 - $1000 (money from not having car payments) in disposable income the trustee will come back and say that we should be paying more. Essentially not having car payments would save us about $1000/mo so I'm concerned the trustee will take that.

You won't be able to "save" money in this manner (see my response above and Rabbit's response). You either have an "allowance" for a vehicle that you're actually paying on, or you don't have that allowance. Without the allowance, that money goes into your DMI calculation and would be used for the unsecured creditors.

Chapter 13s are a little precarious and that's why a qualified attorney can best address your specific plan needs and issues. Suffice it to say that you can replace the vehicle. As to whether the Trustee would balk if the payments, on the new vehicle, are higher than the current lease, is a fact-specific matter (and most likely they Trustee would be fit-to-be-tied).

I would strongly encourage you to shop your loan through a local community bank such as a credit union and let them know the parameters. A dealership is not the place to shop a loan while in bankruptcy. I would personally only use direct lenders.

[Rabbit12]

Hey Grimm,
I agree with justbroke that's excellent advice, good luck with everything.
I'm new to this site can someone let me know how to start a new thread or post a question.
Thank's

[justbroke]

Rabbit, if you want a new thread, you must be in a sub-Forum Area which is one level above a topic. Threads are called "topics". once in a sub-forum area, you can click "+ New Topic" near the upper left of the screen. Welcome and good luck.

[max2k10]

Grimme, I was faced with the same situation a few years back. I had 2 leases which I assumed in my 5 year plan. I had to replace 1 in 2013 which after going thru some issues, I was able to purchase a vehicle thru Enterprise Car Sales and financed thru First Investors Financial Services at 9.9%. My second lease vehicle, I had no choice but to replace it with a 401K loan. Just like you, I wanted to also purchase used vehicles and save the monthly payments but I was afraid the trustee would take that money.
So instead of purchasing cheap used cars that might break down and have mechanical issues, I instead decided to spend the money I was allowed on my replacements.

I wish I would have found this site before I filed my chapter 13. I would have financed my vehicles instead of leasing and had included them in my plan. That way, I would have not had to go thru the whole process of high interests and the headaches of finding the right dealer, right bank and the having to file for incurring new debt which by the way was not free. My attorney charged an additional $1000 to have it done which was added to my monthly payments.