Car payment: inside v. outside the plan

[bcvw]

So are you saying there is no benefit to clearing the title to my car in a matter of months rather than years?

[HHM]

In one sense it is paid off early.

But financially, the situation is no different.

If your net disposable income is $500 for chapter 13 purposes, and your car payment is $450, you would pay the trustee $950 per month in your chapter 13 plan, not just the $500. And guess what, when you pay off the car "in the plan", you keep paying the $950 to the trustee.

When you pay the car payment inside the plan, you turnover that part of your allowed expenses to the trustee.

[bcvw]

I guess I don't see your point..

In my case, my car payments ($450) are to go on for 57 more months - outside the plan. I slowly pay down the balance, never getting any equity until late in the life of the loan. If I also have $500 going to the BK plan, I have an outlay of $950 for at least 57 months anyway.

Why not put the entire $950 in the plan from day one and get the benefit of some accelerated payoff of the car? I could see why I wouldn't want to do it if I only had 30 payments to go on the car, but with the payment schedule being so close to the 60 month BK, I think it would almost be a wash to me in terms of total outlay.

I'll have to crunch the numbers to really figure it out.

[HHM]

I guess I don't see your point..

In my case, my car payments ($450) are to go on for 57 more months - outside the plan. I slowly pay down the balance, never getting any equity until late in the life of the loan. If I also have $500 going to the BK plan, I have an outlay of $950 for at least 57 months anyway.

Why not put the entire $950 in the plan from day one and get the benefit of some accelerated payoff of the car? I could see why I wouldn't want to do it if I only had 30 payments to go on the car, but with the payment schedule being so close to the 60 month BK, I think it would almost be a wash to me in terms of total outlay.

I'll have to crunch the numbers to really figure it out.

That is all I said, its a wash.

But, I see no reason to give the trustee easy money. Also, there are issues with timely payments made by the trustee. Many debtors have ended up with an administrative nightmare because the lenders default the debtors because the trustee may not make timely payments, especially at the beginning of the plan.

I don't see the accelerated payoff of the car as a benefit in any real sense (and I think that is trustee preference, most trustees I have seen simply make the regular car payment every month).

Your point of view seems to be "why not", when you should be asking, "why should I". You are unnecessarily conceding to the trustee additional fees without getting any tangible benefit or concession from the trustee.

[bcvw]

Yes, I am asking "why not." I'd really like to have a paid-off asset that I can sell or trade at some point that has a lot of equity. Thanks for pointing out the possible downside to the strategy.

I've been looking through our trustee's website for similar situations in our district and I see the secured car payments are made first by the trustee before unsecured payments are made.

Anyone else here have personal experience with this sort of thing?

[jwbbx]

Someone correct me if I'm wrong, but my understanding is that the Paid Off Asset (car) in this situation would be an asset of the Bankruptcy Estate and you would not be free to dispose of it in any way without the Trustee being involved.

Am I wrong in that?

[woeisme]

jwbbx, you are correct, bcvw cannot just sell the car once it is paid off, he needs permission from the bk trustee to do that if still in an active 13, regardless of whether the car is paid off or not.

[bcvw]

Geez... So I can't even convert the other 5 cars (or any tangible assets) I have that are paid for into cash to help out if my plan gets tight in the future (because of rising gas prices and inflation) without informing the trustee?

[woeisme]

I wouldn't say that you can't convert any tangible assets (although that is actually the letter of the law), but that you can't sell anything that your trustee knows about without permission. Cars are definitely in the area of "known" assets since you have to title them and there is a big old paper trail when you buy or sell them. Selling some household goods on e-bay or at a yard sale when you're cramped for $ is one thing, selling a car is another. Your trustee may very well let you sell the cars though, if you explain why you are selling them and why you need to keep the money rather than it going to your creditors (example I can think of are medical bills incurred in the 13, etc) so it's not like you're totally stuck with a car rusting out in your lawn for 5 years, just that you need to keep the trustee in the loop.