Have a question about keeping a car in Ch 7 with a credit union

[beetlejuice]

Hi everyone. I live in FL and will be filing chapter 7 soon. No choice unfortunately. What I'm confused about is my situation with my credit union.
I have a car loan with the credit union as well as a visa credit card. I am stopping payments on the credit card to include in the BK, but am staying current on the car payments in hopes I can keep it since it's the only car my wife and I have.
I know you can in most cases reafirm the car, but what I'm worried about is once I stop paying the credit card they will close my account and want the car back regardless if I am current or not. Can they do that?
I called the credit union to close my checking/savings account and just keep the loan, but was told I have to have a savings account of a minimum of $500 or pay $5 a month if I don't keep $500 in it or keep checking and savings open and pay nothing per month in fees. They said I cant close my entire account and must have a savings since I have a loan.
I have moved to a new credit union in preparation so I assume I can just leave the checking/savings accounts open with the credit union and they will either leave it or close it when the payments are stopped on the credit card.
I asked a couple BK lawyers about keeping the car. One said I won't be able to keep it because I owe the credit union money on the credit card so they will close my account and want it back. Another says I will still be able to keep the car even though I have the credit card with them as long as I stay up to date with the car payments. Who is right and any insight on the situation?
I would hate to keep paying payments on the car if I'm going to end up losing it in the end anyways.

[LadyInTheRed]

What the credit union will do is hard to know. But, assuming there is a cross collateralization clause in your account agreements (there usually are with credit unions), then if you default on the credit card payment, they can repo the car even if you are current on the car payments. I could also see them letting you pay off the car loan before they repo. That would suck! They'll probably take that $500 too. So, if you decide to let the car go or have less than $10 months of car payments, you should withdraw the cash.

How much equity do you have in the car compared to the balance on the credit card? If there is not enough equity in the car to justify reaffirming the credit card debt and your credit is still decent, you may want to consider financing another car before you file.

[beetlejuice]

What the credit union will do is hard to know. But, assuming there is a cross collateralization clause in your account agreements (there usually are with credit unions), then if you default on the credit card payment, they can repo the car even if you are current on the car payments. I could also see them letting you pay off the car loan before they repo. That would suck! They'll probably take that $500 too. So, if you decide to let the car go or have less than $10 months of car payments, you should withdraw the cash.

How much equity do you have in the car compared to the balance on the credit card? If there is not enough equity in the car to justify reaffirming the credit card debt and your credit is still decent, you may want to consider financing another car before you file.

I thought about the cross collateral stuff. That was one of my concerns. I know they'd take the $500 if I had it in savings. As long as I keep $5 for the membership in the account I don't need anything in the checking or savings accounts so I'll just leave it at that. All other money I'm transferring over into the new credit union.
As far as equity in the car, I have negative. I owe $11,000 and the cars only worth about $7,500....$8,000 max.
The credit card only has $1,250 on it. I wish I could pay that off, wait a few months and then file so I don't have to worry about the car, but that isn't going to happen.
The car has over 100k on it so in reality if it goes I'm not really losing much, it's just a pain to have to get another car when the one I have has been very reliable and we are the only owners so it's been taking care of.

[LadyInTheRed]

You might want to look into redeeming the car. In Chap 7, you can pay the lender the current value of the car, the balance of the loan gets discharged and the lender must release its lien. There are lenders that specialize in making loans for Chap 7 redemptions, but the interest rate will be high. I think you have to have owned the car for a certain amount of time in order to redeem it in Chap 7.

Without redemption, it doesn't sound like it is worth keeping the car.

[bcohen]

Even ignoring the fact that your loan is with a credit union, and cross-collateralization could present a problem, you are way too "underwater" to justify reaffirming that loan! You would be better off to either buy a different car before filing (with the intention of surrendering the current one) or attempting to redeem it instead. Definitely do not reaffirm, and due to cross-collateralization, it probably doesn't make sense to keep paying on this car unless you are approved for a redemption loan.

[beetlejuice]

Even ignoring the fact that your loan is with a credit union, and cross-collateralization could present a problem, you are way too "underwater" to justify reaffirming that loan! You would be better off to either buy a different car before filing (with the intention of surrendering the current one) or attempting to redeem it instead. Definitely do not reaffirm, and due to cross-collateralization, it probably doesn't make sense to keep paying on this car unless you are approved for a redemption loan.

I don't have any money to go buy a new car so that's out. Isnt getting another car loan elsewhere a bad move before filing?
I won't be able to redeem it and buy it flat out unless it was dirt cheap so that's defiantly out of the question.
If I stop paying on the car now and plan on filing in October can they get a court order to repo the car prior to that? I know credit unions have good relationships with lawyers, but how quickly can they get things done?
I know one of the lawyers I talked to said once I file BK they can't take the car until it's finished and even then they won't get it for probably 3 months after that.
One said I should keep paying on the car until I file, but if the cross collateralization comes into play with the credit card I don't see how that would work. I'd go into pay the car and they'd say sorry and put it towards the credit card no?

[LadyInTheRed]

They don't have to sue you in order the repossess the car. Once you default on the car loan, they can come take it at any time if you haven't filed BK. I don't know if that is true if you default on the credit card. If you can't get the answer to that, the safest thing would be to keep both current until you file. How quickly they actually take the car after default before BK is anyone's guess, but I would guess that if you stop paying now, the car will be gone before October.

If you file BK and then stop paying, the earliest they can repossess is 45 days after your 341 meeting, but I lenders usually wait until after discharge. I have never heard of a lender repo'ing a car before discharge, but that doesn't mean it doesn't happen. It sounds like it hasn't happened to one of the lawyers.

People finance cars before filing BK all of the time. I have yet to hear of anybody having any problem. I bought one about 30 days before filing Chap 13 and the loan was paid off in my plan before unsecured creditors got a penny. It was not an issue. Many lawyers will not tell you it is okay to finance a car before filing BK because they don't think it is ethical to tell you to incur debt before filing BK. The question to ask is what would the consequences be of financing a car before filing Chap 7.

After your discharge, and maybe even between filing and discharge, you will get car loan offers in the mail. So, you will most likely be able to buy a car after your BK, even if not at a great rate.

As I said, there are lenders that specialize in loaning money to allow a BK debtor to redeem. Google "Chapter 7 redemption loan".

[beetlejuice]

They don't have to sue you in order the repossess the car. Once you default on the car loan, they can come take it at any time if you haven't filed BK. I don't know if that is true if you default on the credit card. If you can't get the answer to that, the safest thing would be to keep both current until you file. How quickly they actually take the car after default before BK is anyone's guess, but I would guess that if you stop paying now, the car will be gone before October.

If you file BK and then stop paying, the earliest they can repossess is 45 days after your 341 meeting, but I lenders usually wait until after discharge. I have never heard of a lender repo'ing a car before discharge, but that doesn't mean it doesn't happen. It sounds like it hasn't happened to one of the lawyers.

People finance cars before filing BK all of the time. I have yet to hear of anybody having any problem. I bought one about 30 days before filing Chap 13 and the loan was paid off in my plan before unsecured creditors got a penny. It was not an issue. Many lawyers will not tell you it is okay to finance a car before filing BK because they don't think it is ethical to tell you to incur debt before filing BK. The question to ask is what would the consequences be of financing a car before filing Chap 7.

After your discharge, and maybe even between filing and discharge, you will get car loan offers in the mail. So, you will most likely be able to buy a car after your BK, even if not at a great rate.

As I said, there are lenders that specialize in loaning money to allow a BK debtor to redeem. Google "Chapter 7 redemption loan".

Thanks for all of that information. Makes sense now why I was told to keep paying on the car until I file. I think I will keep paying the credit card minimum which is only $25 until I file as well as the car and just stop paying all of my other cards. I know that somewhat looks like I'm favoring one creditor over the others, but I'm afraid if I stop paying the credit card the credit union is going to put up a big stink with the car being involved when they lock me out of my account.
The way it's looking I am going to just let the car go after I file. Between the mileage on it and just making things easier it's making more sense that way. Plus as mentioned getting a car loan after Bk isn't hard. I know my fathers done it.

[LadyInTheRed]

Paying on underwater secured debt may or may not be a preference payment. Here's an article about that http://www.abladvisor.com/blogs/1644...-claims-almost.

Even if it is a preference, the danger would be that the trustee would take the payment back from the creditor to distribute to other creditors. The only effect on you is that your case would stay open longer while the trustee administers the asset. It would not delay your discharge.

[beetlejuice]

Good to know. Thank you!