What if a car is paid off during a 13? Trustee takes extra money?

[seanp951]

If I start a chapter 13 and have two vehicles that wil be paid off about half way through my plan,what happens when they get paid off?

I'd have about $1000 extra per month...would trustee see that and take it to pay to creditors?

I'm wondering if I'm better off to buy newer cars and have 60 month repayment terms so that when I get into the 13, my car payments stay in effect the whole time...

What do you all think?

[CCB35]

Sean ,yes they would take the $1000 and put it towards your other creditors .If you are at a 100 percent payback,then it may help you get out a little earlier

[seanp951]

So if I'm in a 100% payback it would get me done sooner? Ok.

...but from the meeting I did have with an attorney, I don't think I'd be in a 100% payback. I have about 75-80k in credit card debt, and an 80k second mortgage that will be stripped. The projected repayment plan was something like I'd pay a total of 60k back over 5 years...

So if my cars were paid off mid way through the plan, then that 1000 I free up once the cars were paid off would be taken and go to pay creditors.

I know it might seem selfish, but if I want to maximize what goes into my pocket/estate and minimize the amount inhale to payback, would I be smarted to replace my cars with newer ones and take out 5-6 year loans...then file when I have 5 years to pay remaining. Then when I start my plan, all the money that goes to my cars will be in effect during the plan and won't goto creditors..I'd have a newer more reliable car during my plan as well....

I don't see any benefit to being responsible in these BK rules....the system encourages irresponsibility...

Is it common to do that...get into a newer car with a longer repayment period and maximize the auto expense to avoid that money going to a creditor?

[catleg]

Yes it would be advisable to get "new to you" used cars with >5 years financing.
Alternatively, if your current vehicle payments are greater than the "car ownership allowance" that you are allowed to take, it is better to push the cars into the trustee payment plan, he will then reamortize the amount due over the length of the plan allowing you to pay them off over greater time(and probably at a lower interest rate).

[CCB35]

You also have to get trustee approval for a loan on a car or anything else for that matter while in bk.If they go for it ,you can get a newer car .If not i am afraid that $1000 will go towards paying back your creditors-unsecured and other wise and if you arent at a 100%payback ,that means the other creditor will share in that money until your 5 years are up.

[TShoot]

Mine wonderful trustee already included increased payments in my plan as the vehicles are due to be paid off. That was one of her first questions. God bless her.

[junquemayle]

In my case, the Trustee took the secured amount due for the car and spread the payment out over 5 years. In other words, even though the payments on one of my cars would have paid off the car after the 2nd year of BK, the entire amount was spread over 60 payments. So, instead of a $350/mo payment for 30 months, the Trustee is making $190 payments for 60 months. All secured loans that come due within the repayment term will get paid off one way or another. So, it really is in your best interest to get the most reliable car you can before going into CH13. In my district, the Judge "frowns" upon car payments that are above $249. So he frowned a little. As it stands, I bought one newer car, but I kept the total amount around $18k (my payment was also about $350/mo). I kept the other car, but if I had it to do over again, I would get a better 2nd car, too. Instead of a 2007 minivan with 50k miles, I could have gotten a 2009 minivan with 20k miles. Since the secured creditors are getting paid anyway, why not have a better car that will last the whole 5 years?

[Nanzee]

Just wanted to chime in that we paid off a car last year and did not have to add that to our trustee payments. I checked with my attorney back then and he advised me the only thing we have to turn over are tax refunds. So we have had an extra $375 a month for about a year now.

[TShoot]

You must have a faily lenient trustee. When I tried to explain to the trustee that our vehicles would have over 180K miles on them with two years left and we would probably need to replace them, she was kind enough to let us keep an extra $100 month for repairs.

[seanp951]

Thanks for this info. I'll have to ask this to a local attorney that does 13s.

Our cars are by no means "old". One suv is a 2007 with 60k miles, the other is a 2006 sedan with 50k miles. The payment on the suv is 550/mo, the sedan is about 400/mo. I believe the combined total is about what the limit is for two cars here in so cal. I think I was told I could deduct around 1000 for car payments if I had two cars.

BUT, each car will be paid off, under the current loans, in about 3 years. So for the last two years of my plan there would be an extra 1000/mo the trustee could take. If they just spread my car loan payment out over time, it's the same thing...I'd pay less per month...but the trustee takes more per month over the entire 5 years.

Is there any benefit to me, the person in a ch 13 BK plan, to NOT buy newer cars and just keep the oldr ones through the plan? It would seem I'm better to maximize my own expenses within the limits the court allows, as anything extra gets taken.

My cars are nice...and there isn't anything wrong with them....if I wasn't filing BK, I'd keep them, but if I ow that I'd have to buy a newer one now, or wait 7 years, I'd get newer ones now when I can probably still qualify for a car loan.

Does a trustee get upset, or have any power to deny my BK filing if 6 months before I filed I bought two newer cars?

My suv, for example, has 60k miles. I owe about 20k on it. It's probably worth about 25k. I could buy a newer version of the same vehicle for 30-35k.....and spread payments out 60-72 months. Then, when I start BK, there is no issue with a trustee taking more of my money to pay off debt...I'd essentially be able to have a newer nicer car during the plan, and keep more money inside my pocket rather than having it go to creditors, and when I am done with my plan, I'd have a newer car worth more money with lower miles...

My worry is that if I buy a car or cars now, then file in 6-12 months...does a trustee flip out and have some way to take the cars, force us to get cheaper cars, or somehow penalize me for doing this? Or is this what smart people do?

Thanks!

[TShoot]

I would think you would be okay getting newer vehicles 6 months or so prior to filing for a Chapter 13. If you payment doesn't inrease significantly from what you have now. My payments for the car loans are made outside of my plan. I wish I had done something like that but my credit was already in the toilet from missing 3 house payments and they started the foreclosure proceedings. As a matter of fact, I didn't even THINK of filing for bankruptcy until I was need deep into it and they were going to foreclose on the house - more of a pride thing and thinking I was a failure for not protecting my family better. Talk it over with an attorney, but the more you can do to minimize expenses while you are in Chapt. 13 the better IMHO. My wife's SUV just needed a $650 repair.

[witeout]

Our vehicle would have been paid off during the plan but now it's all rolled in together with our other payments. The only time we had something that will be paid off, and trustee added it in later, was our 401K loan.
I believe this is called a step up from reading here

[lrprn]

Our lawyer totalled what was left on our car loans then divided by 60 and stretched our vehicle payments out as if they would be paid the full five years of our plan. That was the figure he entered into our Means Test and Schedules just to avoid the situation you describe.

Keep in mind that whether the cars pay off earlier in the plan or not, unless you are in a 100% payback plan, in the end your non-secured creditors will receive the same payback %. The only difference is once non-secureds start being paid, will the non-secureds get a consistent amount each month up until the end of your plan, or will they get a lower amount while the cars are being paid off then a higher amount during the last part of your plan when your trustee gives them the extra dollars after your cars are paid off. Six of one, half dozen of the other.

[kornellred]

Secured loans ending within the Chapter 13 plan payment duration will have (or at least should have) been dealt with in the planning stages - it should be blatantly obvious to attorney, trustee, and bk court judge. What to do about it, also, should be stipulated in the Chapter 13 plan confirmation document.

I don't see how it would be permissible to rely upon the debtor to inform the trustee that a car loan is paid off. If there are such questions, then there has been a procedural failure that is darn near inexscusable.

[seanp951]

Our lawyer totalled what was left on our car loans then divided by 60 and stretched our vehicle payments out as if they would be paid the full five years of our plan. That was the figure he entered into our Means Test and Schedules just to avoid the situation you describe.

Keep in mind that whether the cars pay off earlier in the plan or not, unless you are in a 100% payback plan, in the end your non-secured creditors will receive the same payback %. The only difference is once non-secureds start being paid, will the non-secureds get a consistent amount each month up until the end of your plan, or will they get a lower amount while the cars are being paid off then a higher amount during the last part of your plan when your trustee gives them the extra dollars after your cars are paid off. Six of one, half dozen of the other.

I get that.... use one of my cars as an example. My payment is about $450/month. I have about 36 months left to pay. If I just leave that car as is.. then file 13... they will take the 36 months of remaining payments..and likely spread it out over the next 60 months. so my car payment would go down.. but that just means the trustee can take more money per month to give to the credit card pepole... so to ME.. I will pay $450 x 36... one way or the other. BUT.. if I were to go out and buy a slightly newer car, that costs slightly more, is slightly newer, longer warranty... and now I had a payment of $450/month for the next 60 months... then there is nothing for the trustee to spread out... and rather than have 24 months of "extra" money to give the Creidt card people.. I'd be paying throughout my plan for a car for ME... so when the plan is done, I'd end up with more $/equity in the vehile I have...

it may be self centered and crappy to get a newer car before you file... but it works out better for me.. I'll do it. i just don't want to buy a new car then file BK and find out that doing so is somehow illegal, or I will get in trouble, or the trustee would somehow reject what I did,, take the car, and I'd wind up with no transportation, ,etc.

i don't want to cheat..but if I can strategically do things to put myself in the best position - and do so legally - why not?