Another Pre-filing question

[bxpete]

I've posted a couple previous questions over the past couple weeks, and I appreciate all the responses.

One more question - We're planning to file a 13 in a couple months, and I'm trying to decide what to do with our boat. I have a 23' fishing boat secured with a 24k loan at $185 per month. The boat's value is only about 18k right now due to the economy and nobody buying used boats.

Anyway, I can't decide if I should surrender (voluntary repo) the boat and then roll the deficiency into the 13, or just keep the boat and pay it off through the 13. I see the numbers being something like this:

If I turn it in, they will sell at an auction for probably around 10K and I get stuck with a 14k deficiency balance to pay in the 13. I'm looking at a 100% payback plan due to my high income, so I end up losing about 14k if turn it in before the 13.

If I keep it and pay it off in the plan, I'll probably have to pay the full 24k balance because I haven't had it long enough to do the cram-down (I've owned it for about 18 months now). So I'll pay 24k and end up with a boat worth maybe 10k at the end of the plan due to depreciation over the 5 year plan. So the end result if I keep it is that I still lose about 14k (pay 24k, and end up with a 10K boat that I could sell at the end of the plan). The only benefit here would be that I would still have the boat to use during the plan.

On a side note, I wonder which route the TRUSTEE would prefer to see. I'd assume he'd prefer to see me turn it in and only pay off the deficiency balance. This should also lower my 13 payments slightly since I'd only be paying the 14k deficiency instead of the full 24k payoff on the boat. I also think the trustee may frown on me keeping a 24k boat when filing bankruptcy.

I think I'm leaning towards turning it in before the 13, but please let me know if you agree/disagree for any reason.

Thanks again - this forum is invaluable!

[kornellred]

If you have a 401K, borrow from it and pay off the boat. The 401K loan payback amount is a legitimate allowable expense, and you are paying yourself back with interest. The trustee will in all probability require you to sell the boat and will confiscate the proceeds. This way, you will not be paying off any deficiency balance on a luxury item you no longer possess.

Then, a few years down the line when the Chapter 13 is discharged - borrow the money you paid back into the 401K and get another boat!

That's if you have a 401K with enough money in the account.

[oldrocker]

Did a lawyer offer you these options? I've not heard of anyone cramming down a boat. Did he tell you it would be payed in the plan? I pay on my boat outside my plan and wish my payment was as low as yours :-).

As far as keeping it; do you want to? Do you use it much? When we first went to our lawyer I fully expected that we would not be able to keep it. Quite frankly I was surprised to be told that we could keep it and file bk. We decided to keep it. The time that my wife and I spend on it fishing is very special to us and means a lot to us. We've not been able to use it this year as much as in the past but I've been busting my ass working all the time trying to save my business lately. Did we make the right decision to keep it? Only time will tell.

Keeping it though could possibly help in a 13, on the means test and schedule j it will work to lower your payback to unsecureds.

Good luck on whatever you decide...and if you're fishing, good luck there too.

[rrockinggramma]

I think the answer to your question is how badly do you want the boat? If you want it, then keep it and pay it off. The trustee will pay his interest on the boat and the lender will file a claim for principal only (lender cannot include interest only principal). So you may owe less on it than you think you do. If you don't want the boat, then give it back.