Buying a car before filing Chapter 13

[Barnabus]

We are planning to file Chapter 13 in the coming months. Our car situation is as follows:

Car 1: 110,000 miles, owe 3400, will be paid off in a year, son drives it to and from school and family car
Car 2: 115,000 miles, owe 3000, will be paid off in a year, wife's commuter car
Car 3: 160,000 miles, paid for, my commuter car

I'm not sure if my wife's car and mine (Car 2 and 3) will make it through a 5 year plan. Can we trade in both my wife's and my car for newer cars? Or should we keep the cars and hope they make it through or deal with it in the 13 if they don't?

If we buy newer cars, we'd have 3 car payments going into the 13. Or we could pay off Car 1 and just have 2 car payments.

I will check with an attorney but just wanted to see if anyone has dealt with this kind of thing.

Thanks in advance!

[159515951]

Pay off car 1 and car 2, and then save the amount you were paying for each.

May 2013 -- All cars paid off
May 2014 -- Approx. $7,000 saved up, replace Car 3 if necessary.

[TheBajan]

Pay off car 1 and car 2, and then save the amount you were paying for each.

May 2013 -- All cars paid off
May 2014 -- Approx. $7,000 saved up, replace Car 3 if necessary.

A+ advice. I absolutely agree and couldn't say it any better!

[keepsmiling]

WRONG.
Unless you are in 100% payback, you may wind up contributing what you were paying for the car to your creditors once the car is paid off. Saving 7k? Fuggedaboudit.

PLUS you may have to pay more back to tt to cover the extra equity in the car. PLUS if your now-old cars die, you probably won't be able to buy a new one once you have filed.
Yep, it's bass ackward, but you may very well be better off all the way around buying 2 new cars.
Keep reading. This comes up weekly.

[159515951]

My experience in Chapter 13 is that the Trustee is fine with us saving money, especially for the purpose of avoiding future debt or program failure. I guess we got a good one.

[keepsmiling]

My experience in Chapter 13 is that the Trustee is fine with us saving money, especially for the purpose of avoiding future debt or program failure. I guess we got a good one.

What's your payback %? Do you have a paid off car loan?
Saving money is fine in a 13--- but usually not at the expense of your creditors.

[159515951]

Just realized that I was assuming the cars are being paid for outside of the plan, which would enable the savings. If they're in the plan, then agreed -- the payment amounts would be reallocated to other creditors.

[LadyInTheRed]

Just realized that I was assuming the cars are being paid for outside of the plan, which would enable the savings.

Not really. If the car payments are being paid directly to the creditor, the plan payment will take into account that the cars will be paid off in a year of the plan. You aren't going to be allowed an expense of $533 per month when that expense will exist for only the first year. Either the expense will be averaged over 60 months and be about $107 a month, or the plan payment will increase by $533 after the cars are paid off. If the expense is spread over 60 months, you would have an additional $107 that you can save each month after the cars are paid off and the first year will be really tough because you have to come up with the car payment at the front end of the plan when it was averaged over 60 months. Somebody in that situation may be better off including the car payment in the plan payments unless they have exempt cash savings to cover the car payments for the first year.

Financing newer cars before filing Chap 13 is very common. But, you need to make sure that you don't end up with a car payment so high that you don't have enough DMI to propose a feasible plan. Barnabus, consult with an attorney and get a good idea of what your plan will look like before making any new purchases.