Interesting car situation before I file ch. 13 bk

[NeedOptions]

Here is my predicament:

1. Wife and I owe $220k in cc debt.
2. We are current in all loans (no missed payments in the past 12 years).
3. Minimum payment is $4500/month and we are tired of them as we spend most of our salary on the payments and our mortgage.
4. I will file for bk 13 as we cannot file for ch. 7.
5. Our salary is $145k combined.
6. Car#1 is an 2005 Acura MDX. We have 3 months left and it will be paid off. Payment is $775/month and it has 73k miles.
7. Car#2 is a 2010 Accord which was leased 4 months ago. I have 32 payments left.
8. Attorney suggested that we file for bk before the MDX is paid off as we can use that payment as part of our expenses.
9. Another option is to buy a new car and give up the leased car. That way I would own the car after 5 years and I wouldn't have to look for a car after the leased car was turned in.
10. What about selling the MDX and buying 2 new cars? That way we could take advantage of the full $489 expense credit x 2 which would lower our payments to the unsecured debt. If I sell the MDX, would I have to part with any of the money for our BK 13 filing?

Which option would you go with? Thanks.

[SMinGA]

If you buy new/newer cars - I'd just say to go for something reasonable. Transportation is not a luxury - but a $50k car purchase for example would not be a great idea.

If you turn in the lease, I imagine that will add to your unsecured debt load. You mentioned $220k in credit cards. Do you have any other unsecured debt? Such as IRS, medical, student loans? Are you upside on your house? The reason I ask is there is a max limit to unsecured for ch. 13. At $220k you're fine. I don't remember the exact #, but its somewhere around $350-360k I believe. If you have negative equity in your home (such as your home is worth $150k, your 1st is owed at $175k, and you have a 2nd of $100k) then that is more unsecured debt.

If you're close to the limit, turning in the lease could make it where you can't file ch. 13.

[justdeb]

If you buy new/newer cars - I'd just say to go for something reasonable. Transportation is not a luxury - but a $50k car purchase for example would not be a great idea.

If you turn in the lease, I imagine that will add to your unsecured debt load. You mentioned $220k in credit cards. Do you have any other unsecured debt? Such as IRS, medical, student loans? Are you upside on your house? The reason I ask is there is a max limit to unsecured for ch. 13. At $220k you're fine. I don't remember the exact #, but its somewhere around $350-360k I believe. If you have negative equity in your home (such as your home is worth $150k, your 1st is owed at $175k, and you have a 2nd of $100k) then that is more unsecured debt.

If you're close to the limit, turning in the lease could make it where you can't file ch. 13.

SMinGA is right ok, maybe its just me, but...shouldnt the attorney have advised him of all of this already?

If not, I'd find another attorney.... thats scary.

[SMinGA]

Maybe, maybe not... On a free first consult - some attorneys don't get too much into the specifics of the case. Only general stuff about filing, difference between 7 & 13, etc.

SMinGA is right ok, maybe its just me, but...shouldnt the attorney have advised him of all of this already?

If not, I'd find another attorney.... thats scary.

[NeedOptions]

If you buy new/newer cars - I'd just say to go for something reasonable. Transportation is not a luxury - but a $50k car purchase for example would not be a great idea.

If you turn in the lease, I imagine that will add to your unsecured debt load. You mentioned $220k in credit cards. Do you have any other unsecured debt? Such as IRS, medical, student loans? Are you upside on your house? The reason I ask is there is a max limit to unsecured for ch. 13. At $220k you're fine. I don't remember the exact #, but its somewhere around $350-360k I believe. If you have negative equity in your home (such as your home is worth $150k, your 1st is owed at $175k, and you have a 2nd of $100k) then that is more unsecured debt.

If you're close to the limit, turning in the lease could make it where you can't file ch. 13.

Yes, all the debt is unsecured cc debt. I have no medical bills or student loans. The house probably wont be involved as we are current on it and plan on staying current. I only have a 1st mortgage, however, we are $125k upside down on it.

[SMinGA]

Before deciding to turn in the lease (which would create more unsecured debt for the penalty on the lease turn in) discuss the ch. 13 unsecured debt maximum with your attorney.

Being upside down on the house, even though you plan to keep it, could possibly count in that maximum. If you have $221k credit cards + $125k underwater on the mortgage, plus interest/penalties on cards that will accrue once you stop paying them, you could be in jeopardy of surpassing the maximum if you turn in the lease.

If the negative equity in your home DOES count in the unsecured debt max, and you surpass it, you will NOT be able to file ch. 13.

Yes, all the debt is unsecured cc debt. I have no medical bills or student loans. The house probably wont be involved as we are current on it and plan on staying current. I only have a 1st mortgage, however, we are $125k upside down on it.

[NeedOptions]

That's a very good point, SMinGA. I will ask if the mortgage will be counted as unsecured debt, although I dont see why it would be as real estate should be secured. Thanks.

[NeedOptions]

Maybe, maybe not... On a free first consult - some attorneys don't get too much into the specifics of the case. Only general stuff about filing, difference between 7 & 13, etc.

That's correct as I can't decide on which lawyer to go through. I cant get any real answers until I decide on one.

[SMinGA]

It is secured by the value in the property. Which is why it would be very useful to find out for sure how your district handles the situation before making decisions that you cannot reverse.

There is another forum poster who recently had an attorney tell her she could not file either 7 or 13. Had too much income for a 7, and he was counting the negative equity as unsecured. By the atty's math, she was over the ch. 13 limit. Turned out he was using the wrong value for her home however, and her negative equity was not as high as the atty thought.

I would think this could be a question you could bring up in an initial consult. Just let the atty know you fear you may be close to the ch. 13 debt limit for unsecured, if the negative equity in your home IS counted as unsecured.

That's a very good point, SMinGA. I will ask if the mortgage will be counted as unsecured debt, although I dont see why it would be as real estate should be secured. Thanks.

[NoTomatoCan]

SMinGA - Excellent point.

Here in Michigan (and I thought many other places, but could be mistaken), the unsecured portion of a secured asset (like a house or vehicle) does count as unsecured debt for the purposes of the CH13 debt limits.

So the $160k that we are upside down in our home counts as unsecured debt. Big time bummer when you add in CCs and Student Loans.

I thought I remember reading that California is one of the places were it does NOT count against the unsecured debt limit. (Based on the home prices out there and how much many of them have dropped, a simple single family home could knock someone out of CH13 eligibility by itself!)

[justdeb]

SMinGA - Excellent point.

Here in Michigan (and I thought many other places, but could be mistaken), the unsecured portion of a secured asset (like a house or vehicle) does count as unsecured debt for the purposes of the CH13 debt limits.

So the $160k that we are upside down in our home counts as unsecured debt. Big time bummer when you add in CCs and Student Loans.

I thought I remember reading that California is one of the places were it does NOT count against the unsecured debt limit. (Based on the home prices out there and how much many of them have dropped, a simple single family home could knock someone out of CH13 eligibility by itself!)

thats how it counted for us as well...

[NeedOptions]

thats how it counted for us as well...

Deb, are you in CA? If I continue to pay on my mortgage, which I plan on doing, does it still count? In other words, I don't plan on putting the house into the bk plan. Can I do this?

[justdeb]

no, we're in VA - but we're paying our mortgage outside of our plan as well - however even though its outside of our BK, we still had to include it - its considered an "asset" in a sense. And...we're -$22K from value to 1st, which is letting us strip the 2nd ($78K).... it all counted however in the end.

You'll have to include it regardless from what I understand - even outside of your plan.

[NeedOptions]

Do cars count as part of the unsecured debt? Let's say I owe 220k in credit cards, I'm upside down 125k in mortgages and I buy 2 new cars 30k each (total 60k). Thus would my total unsecured debt be 220+125+60=405k? This would obviously push me over the limit. Thanks.

[SMinGA]

The cars would be like the house - secured by the value of the vehicle. So part of the loan may be unsecured, depending on balance @ filing compared to value.

Do cars count as part of the unsecured debt? Let's say I owe 220k in credit cards, I'm upside down 125k in mortgages and I buy 2 new cars 30k each (total 60k). Thus would my total unsecured debt be 220+125+60=405k? This would obviously push me over the limit. Thanks.