Questions before filing...

[cla5]

I just had my consult and most likely do not qualify for a ch. 7. So--it'll be Ch. 13 for me most likely.

A little background... My husband and I both work, make good money and after living on cc's for over 2 years when the economy tanked and trying to get back on track for the last year and a half, we just can't keep up with minimum payments after late fees and OTL fees get tacked on every month. The calls and stress is racking up....I have a couple questions before filing and since I don't know whether to pay the cc's this month or the attorney, I thought I'd start here.

#1 - I have a vacation planned for mid-September (free air and cheap hotel--quick getaway). How will this be looked at?

#2 - We need another car. Our second car has 225,000 miles and is 12 years old. We live in a suburban are and we both need a vehicle to get us to/from work. The only thing we can buy right now anyway is on those buy here, pay here lots. If I bought a car right now, how long before we could file without this being an issue?

Thanks for any advice.

[SMinGA]

#1 - probably not an issue. Charging a vacation on a credit card, however, would not be a good idea. (Which does not sound like what you have in mind.) Spending $ in general is not a problem even, just try to be smart about how you do.

#2 - would probably be a good idea to go into a ch. 13 with reliable transportation. My atty says to wait 90 days after a major purchase - but other attorneys may not think that is necessary. One concern I see with the BHPH - they are often NOT reliable. Be careful, try to think for the long term.

If you are certain that you are going to file - then start taking steps to prepare. Most people stop paying the credit cards once they are certain about filing.

[cla5]

Thanks for the response.

#1 -- nope...no charging vacations--not an option as we have no available credit. Free air from an earlier flight "bump" and hotel is cheap. Just planning on a few days of vacation spending.

#2 -- I'm going to check into a regular dealership to see if they will even consider lending to us. We've had a few years of on/off late pays since going through these tough times. I'm in a large metro area and after looking at our options, there are a few larger dealerships that offer on-site financing (which I think is similar to Buy Here, Pay Here places) with newer cars and offer warranties. There are a lot of side of the road places I will not go to. I'm aware that some of these places are not very good!

Thanks again.

[SMinGA]

More about the car, etc. leading up to a ch. 13.

The ch. 13 payment, simple version, is DMI. Say your income is net of $5,000 and expenses/bills are $4,000 then you'd have a plan payment of $1,000. Trustee fee is max of 10%, so in a 5 year plan you'd pay at least $900 x 60 = $54,000. That would cover any atty fee in the plan - and the rest to creditors.

But say you have $100/mo vehicle maintenance in those expenses due to having an old/worn out car - and decide to buy a newer car that is reliable and easier to maintain. Perhaps you finance a used car for $12,000. Your DMI goes up perhaps to $1,050. (Still have some maintenance even for a more reliable car, oil changes and then some things get worn out over time. Tires, brakes, etc.)

Now after the trustee fee, you pay $945 x 60 = $56,700 and the balance on the car loan at time of filing gets paid off in the plan.

~~~

Some districts handle it that way. The alternative is say on that used car you take on a payment of $350/mo & your maintenance expense decreases a little. So your plan payment would be ~$700 w/ a $350 car payment & $50/maintenance instead of $1000 w/ $100 maintenance.

[cla5]

I just want to make sure they wouldn't consider it frivolous and then the court throws it out because I made this large purchase before filing. This is my one big concern. I have to have reliable transportation and I'm worried about getting anything financed after filing (from the standpoint of the trustee and the lenders).

Thanks again!

[momofthree]

Keep the car payment below the IRS standards ($489) and you'll be fine. It's common practice to buy a brand new car before filing, which is why any car purchased within 910 days of filing has to be paid in full.

[cla5]

What do you mean that it has to be paid in full? You mean during the 5 year plan? I also have a truck already (purchased in 2005) which has another year at $645. Would I still be okay? I don't want to include that in the plan for 5 years. Would I have to? I am hoping to keep anything I buy under $400 (hopefully well under...).

Thanks for all your advice!

[SMinGA]

Vehicles bought more than 910 days before filing: if you owe more than its worth, your plan can 'cram down' the value so you just pay what its worth. Such as if your truck is valued at $5000 and you owe $8500, your plan could pay it off at $5000. *One key point, each district uses different methods for valuation. THey may use NADA retail, Kelley Blue Book trade in, etc. Your attorney should know how to value your vehicle.

Vehicles bought more recently, even if you're upside down, must be paid in full.

With the truck and 1 year left @ $645, one of 2 things could happen:

1) the balance gets paid off in the plan, so you no longer make $645/mo payment to the truck and your DMI goes up by that amount
2) you keep paying $645/mo and your plan payment goes up when its paid off.

Questions to consider and discuss with your atty: Do you think this vehicle will last 5 years? If not, you actually might want to consider replacing BOTH of your vehicles now with newer models.

What do you mean that it has to be paid in full? You mean during the 5 year plan? I also have a truck already (purchased in 2005) which has another year at $645. Would I still be okay? I don't want to include that in the plan for 5 years. Would I have to? I am hoping to keep anything I buy under $400 (hopefully well under...).

Thanks for all your advice!

[cla5]

Thank you both greatly. I think I have it now! I was wondering if we should replace our other vehicle too. It's a Cadillac Escalade with about 120,000 miles (2003) on it. I think it should last...but one never knows...

I love this site already!