Car totalled before Chapter 13

[Barnabus]

We are in the process of pre Chapter 13 planning. We purchased two cars back in May and stopped paying all of our unsecured bills. Last week my wife was in an accident and her car is totalled. The insurance company is paying off the balance on the car but now we need to buy her one. I haven't checked our credit scores recently but I imagine they are pretty low. So we can either try to find a lender who will give us a loan (with a high interest rate) or borrow money from my wife's 457 plan.

Here's a couple of questions I have:

Has anyone tried to buy a car right before a 13 with a low credit score and how did it go?
Has anyone borrowed from a 457 (or 401k) right before a 13 and does it have a negative impact on the 13?

Thanks in advance!

[LadyInTheRed]

Confirm it with your attorney, but a loan from your wife's 457 shouldn't be a problem, except that you may not be allowed to budget for both the loan payment and new contributions to the plan during your chap 13. It depends on the trustee. My budget included both a 401K loan repayment and contributions and there was no objection.

But, I think borrowing from a 457 should be your last resort. Leave the money there and let it build for retirement as intended. The interest rate on your car loan should be reduced to the Till rate in your Chap 13. Even if the rate does stay high, it shouldn't make a difference to you unless you are paying 0% to unsecured creditors. What doesn't go to the car loan goes to unsecured creditors.

[spidge]

I'm with Red. I found it very frustrating that my retirement fund was not what it could be. I do not have any experience borrowing while in your position.

[Barnabus]

Thanks for the advice. One other question, does the term of the car loan make a difference to the 13? Would we be better off getting a 60 month term? What would happen if we got a 72 month or 84 month loan?

[LadyInTheRed]

You could get a term longer than 60 months and make the payments directly during your Chap 13. What doesn't get paid during your BK would not be discharged and you'd be on the hook if you default later. But, I'd only do that if you can't afford to pay it off in 60 months. You might as well exit the Chap 13 with the car paid off. Actually, if you can't afford to pay the loan over 60 months, you should buy a less expensive car.