we own our car- filing Chapter 13...attny says to sell and buy another w/payment

[pcmbates]

I was so proud of the fact that we didn't have a car payment.
well we met w/the BK attorney today and he said our minivan is our biggest asset...work about 16K.
He advised us to sell it soon, get something else (can only put 2500 down) and get a new/other car/van...he said this will release the asset..so that we have no assets...and it will also decrease our disposable income?

this seems so strange to me....but we are very new into this...
do you all agree this is the way to go?

thanks so much.
this is my first time posting ...this site is very helpful.

Michelle

[newbie2]

Your attorney is correct in the fact that having a car payment will reduce your disposable income. However, I don't know the exemptions in your state -- how does he propose to deal with the rest of the equity in the vehicle ($13,500)?

[PhantomPain]

My attorney suggested the same thing. Buy a new car and don't worry about your transportation needs for the net 60 months. We felt a little "dirty" doing this at first but it makes total sense now. Bought a 2011 Civic and extended the warranty on it. Payment is $317 a month and pales in comparison to the $2600 a month or so of unsecured credit debt we were paying.

[momofthree]

I also agree with your attorney. The new car will serve to get you thru the next 5 years without any major mechanical repairs, as well as serve to lower your dmi. In other words, your payment will be the same, but you'll have a new car to show for it instead of your unsecured creditors getting all the money.

[pcmbates]

so what do you do with all the money you make from selling your car that has 16K in equity?

[cspa522]

We did the same thing. Traded in our aging Jeep Liberty that was probably going to need work done in the next 5 years for a 2009 Mazda 5 that hopefully doesn't need any work in the next 5 years (or at least nothing major). Did that a month before filing. We made one payment on it, then filed. Felt dirty about it too, but it was what was advised here and by our attorney.

[momofthree]

so what do you do with all the money you make from selling your car that has 16K in equity?

Do you have any home repairs, auto maintenance on other vehicles, or medical expenses (dental work, glasses, etc) that you've been putting off because you haven't had enough money? Prepay a year's worth of car insurance, buy a few hundred bucks worth of gas and/or grocery gift cards. I bet you could find at least $5k worth of valid expenses that you could put some of it towards. But in a chapter 13, you can also keep cash, it just becomes a non-exempt asset, thereby creating a minimum that needs to be paid into the plan during the term.

[ooCHAOSoo]

I was advised to do the exact same thing today. Well she told me that she couldn't actually tell me to buy a new car but in her own way suggested it. I have a 2004 Jeep liberty with 90,000 and need new tires, shocks, and body work. I only have 3 more payments on it. I was like you and so proud that I actually paid something off and was going to save $400/month. Now that I know it will be more DMI, it only makes sense to me. I wouldn't be able to afford all of the upkeep on a car that no longer had a warranty. My Jeep dealership is having a deal on Jeep Liberties where I'll get a nicer version for the exact same monthly payment I am paying now. So instead of filing at the end of March, I'll have to wait 90 days and file at the end of April.

[Mere]

Go for it!!! We did, that was the first advice we got from an attorney in a round about way Either pay them, or pay yourself...make sure your payment is not over the allowance, I think $489 a month. I made a little mistake with that, because our payment is $600 per month, due to crappy intrest rate (2011 Huyndai Sonata...Love it!!!), but I will cross that bridge when I come to it. I am filing at the end of this month, so we shall see. Good luck, and make sure you get something nice that you will like for the next 5 years!!!

[pcmbates]

I was advised to do the exact same thing today. Well she told me that she couldn't actually tell me to buy a new car but in her own way suggested it. I have a 2004 Jeep liberty with 90,000 and need new tires, shocks, and body work. I only have 3 more payments on it. I was like you and so proud that I actually paid something off and was going to save $400/month. Now that I know it will be more DMI, it only makes sense to me. I wouldn't be able to afford all of the upkeep on a car that no longer had a warranty. My Jeep dealership is having a deal on Jeep Liberties where I'll get a nicer version for the exact same monthly payment I am paying now. So instead of filing at the end of March, I'll have to wait 90 days and file at the end of April.

wait...what is the 90 day part?
Also...I was told to sell my car and only put $2500 down on a newer/or new car....but it can't have more equity than that...so how could someone trade in their older car? wouldn't it put more equity into the new one?
I just listed mine...but low blue book is $16K...I understand buying some groceries and home repairs, but can't fathom just kind of "blowing" the money...when what I really want to do is put it down on the newer car...but I can't, right?
ugh....

[momofthree]

You can keep non-exempt assets in a ch.13. For example, let's say you sell the van for $16k. You put $2500 down on a new car and find some needed expenses to eat up another $5000 (don't blow any money, just necessary expenses you've been putting off). You now have $8500 cash that MAY be non-exempt (depends on your state's exemptions, but we'll just pretend it's non-exempt for fun). If you have a 60-month term, you'd have to make a trustee payment of at least $142 a month in order to keep that $8500 in cash. Chances are, you're already looking at a payment well above that amount, so it will be a non-issue.

[pcmbates]

ok...so let me get this right.
they take your non-exempt assets...add them up...and you have to at LEAST pay the sum of them over the terms...correct?
then...
whatever your DMI is, that actually is what your payment will be...correct? and of course has to at least be greater than my asset amount? is that right?

so...if they are going to spread the amount of the cash I made off the car over the terms...why wouldn't I keep my car and spread the equity in the car over the terms, instead of selling it?

Michelle

[RunningMan]

I don't think that is quite correct. You have to pay at least that amount to non-secure creditors.

[momofthree]

ok...so let me get this right.
they take your non-exempt assets...add them up...and you have to at LEAST pay the sum of them over the terms...correct?
then...
whatever your DMI is, that actually is what your payment will be...correct? and of course has to at least be greater than my asset amount? is that right?

so...if they are going to spread the amount of the cash I made off the car over the terms...why wouldn't I keep my car and spread the equity in the car over the terms, instead of selling it?

Michelle

Runningman is correct, sorry for not clarifying. It has to go to the unsecured creditors. The reason you'd want to buy a new car rather than keeping your current vehicle as a non-exempt asset is the payment. I'll provide an example using random round numbers.

Let's pretend you have a dmi of $1000 without any car payments. You'd pay that $1000 a month and it would all go to your unsecured creditors (minus attny & trustee fees) -- approx. $60k. You'd also run a higher risk of your vehicle needing costly repairs during that 5 years.

If you buy a new car with a payment of $489 (IRS standard), your dmi is now $511 a month towards your unsecured creditors (again minus attny & trustee fees) -- approx $30k. You'd have a brand new car with very low risk of needing costly repairs, and when you exit your ch.13, you'd have a fairly new vehicle completely paid in full and it didn't cost you anything extra, it just changed the distribution of your dmi.

[pcmbates]

what do you mean "when you finish you would have a newish car paid in full"....do you mean the car terms end and is considered paid off when your BK is discharged? or so you mean it would end the same time as your BK is discharged if the car loan is taken out on a 60 month term...and your BK is also a 60 month term?

or do you mean if your BK is 36 months...but you sign a 60 month car loan....the car loan is considered paid off when the BK is discharged?

thanks for your help.
Michelle