Spending Inheritance before filing! Car Lease?

[backontrackOH]

My wife is soon to inherit some money from her father's estate. We have not filed yet, but will be soon after the holidays. We are in need of another car to replace our 1991 Ford Tempo that seems to be on it's last leg.

If we can find a dealership or finance company willing to lease us a car, could be buy down the lease payment with cash up front from her inheritance? We can't afford too much of a payment, and paying down the lease would not create equity in the car, just less of a payment per month. When we file, would there be a chance the car would be taken back by the dealership or finance company? Would this be what they call turning non-exempt property into exempt property? Any help is greatly appreciated!

[HHM]

Pre-paying a lease is tricky...(assuming you can even get one...leasing typically requires very good credit). The reason it is tricky is because with a lease you don't own the car and most leases are paid monthly and the leasing company is not entitled to book the pre-payment as revenue until the money comes due. As such, the money sits there like a "deposit", like a cash asset. Thus, if the trustee wanted to get creative, he could make an argument that the money is simply a non-exempt cash asset.

Assuming you can qualify for a lease, and you have enough money from inheritence, there are "single payment" leases.

But let's back-up...how much money are we talking about?

[backontrackOH]

We figured we could put around $6000 toward the lease payment to help reduce the monthly payments. We wouldn't have enough to do a single payment lease. I had no idea lease pre-payments worked that way. You always see BMW advertising on TV, offering a monthly payment of only $329 a month with $5699 down ;-) Is that what they are doing with this type of offer?

[coma]

Why not buy something decent for cash, if you can exempt it? Even if you an't exempt, you can buy the non-exempt portion from the trustee and make payments. Do you need the payment in your expenses to qualify for a CH7? Buying a BMW on the eve of BK may piss some trustees off also. You can put the 6K towards buying something that maybe only costs 15k.

[backontrackOH]

We are in Ohio and have only $700 (I think) exemption on one automobile. I don't understand why I would want to lay out the cash for a car, only to turn around and have to buy it again from the trustee? And, I didn't mean we were going to lease a Beamer! Oh no, we would be looking at the least expensive Honda, Toyota, Kia or something. Something small that gets great gas mileage.

[woohoogirl]

Buying a BMW on the eve of BK may piss some trustees off also. You can put the 6K towards buying something that maybe only costs 15k.

I don't think he meant getting a BMW...just was specutaling...I hope.

[coma]

I'm not picking at you...I just wanted to gain a better understanding. Why a lease?

[HHM]

I'm not picking at you...I just wanted to gain a better understanding. Why a lease?

I can see why they might need to lease...the OH automobile exemption is only $1,000

The lease "down payment" is ok. So, if you are going to lease a Honda Accord, and they require $2,500 due at lease signing...you can do that. But doing a lease, and then "prepaying" the monthly payments after the lease transaction is complete, is probably not ok. Keep in mind what that initial down payment is for, you are paying down the initial depreciation of the car for the lease company and paying the commission and profit for the dealership.

Thus, you are ok if you use the money, at the time you lease the car, as the lease down payment.

Generally speaking, if your credit is good enough to lease, (but if you have been driving around a 91 Ford Tempo all this time, somehow I doubt it), go ahead and see if you can purchase a "new car" and finance it. Even if you have to make a down payment (which you should do), any equity would get chewed up by the "off the lot" depreciation, then at least you have the possibility of preserving some value if you hold on to the car for 4-5 years.

[backontrackOH]

No Beamer here!! Plenty of other expenses to consider, like college for my senior in high school. Anyway, yes, I meant applying the extra cash as the lease down payment to decrease the monthly payment. I guess we could look at a purchase, especially if getting a lease is going to be that much harder due to our poor credit rating. Of course, we may just be out of luck. I just thought it would be a legitimate method of converting non-exempt cash into exempt property.

[HHM]

If you have poor credit, you can forget about leasing (especially from tier 1 dealers, i.e. the manufacturer franchises), and whatever you do, DO NOT lease a used car.

To answer your question, yes, you can use the cash in that fashion, but it's not like your protecting it, you are spending it, so you don't ever get it back (all you get is a car to use).

The decisions that go into car buying are a seperate animal. The "justification" for leasing is that...since the car is going to depreciate anyway, instead of buying the car, simply pay for that part of a cars life that you will actual use. However, the first 3 years is the MOST expensive part of that cars life. So, whether you buy or lease a new car, the acquisition cost (the cost you pay to actually get and keep the car) are very high.

The best way I have found to minimize acquisition cost is this.
1. Buy a 4-5 year old used car w/ lower than average mileage.
2. Find a really good deal on that used car
3. Pay cash.

In that scenario, you are buying a car after the bulk of the depreciation has accrued. Drive the car 2-3 years, and usually you can turn around and sell it for roughly 75% of what you paid for it originally (depending on the type of car). On the car I had prior to the one I have now, my NET acquisition cost amounted to $45 per month over 24 months. On my current car, my NET acquistion cost will probably be around $95 per month over 36 months. (NET acquisition is the [Purchase Price - Sale Price] / # Months owned)

(however, that strategy is not a pre BK strategy, but going foward, it is a sound financial strategy...granted, it assumes you have cash to pay for a car).

[chpxiii]

My question is, wouldn't the trustee want the inheritance?

[allavdj]

I guess I'm the only person wondering this, but could you use the inheritance to pay off some/all of the debt, then finance an inexpensive car?

[nazstar]

We were in a similar situation with the car. My husband's 2000 Dodge Neon was falling apart and we needed to replace it prior to filing. Since Florida only has a $1000 equity exemption for autos, our lawyer told us to go out, get a car loan, put NOTHING down on a used, reliable car with low milage. Nothing flashy or pricey. We got a used 2005 Honda Element. Our loan is a 72 month loan, for $350 a month. This kills 2 birds with one stone. By putting nothing down on a used car, we didn't run the risk of having over $1000 equity in it when we file AND the $350 payment per month helps us qualify for Chapter 7.

Not sure if this would work, but can you get a loan for a used car and take the inheritance and put it towards some non dischargable debt (like back taxes or student loans)?

[HHM]

My question is, wouldn't the trustee want the inheritance?

If they get the "cash in hand" before they file, as with any money, they can spend it, make it exempt (i.e. open an IRA) etc.

[HHM]

We were in a similar situation with the car. My husband's 2000 Dodge Neon was falling apart and we needed to replace it prior to filing. Since Florida only has a $1000 equity exemption for autos, our lawyer told us to go out, get a car loan, put NOTHING down on a used, reliable car with low milage. Nothing flashy or pricey. We got a used 2005 Honda Element. Our loan is a 72 month loan, for $350 a month. This kills 2 birds with one stone. By putting nothing down on a used car, we didn't run the risk of having over $1000 equity in it when we file AND the $350 payment per month helps us qualify for Chapter 7.

Exactly...although with this persons poor credit, putting "nothing" down might be tough, but that is exactly what you should try to do. But at 72 months, the pay off probably far exceeds the equity anyway, so even if you had to put some money down, you would probably be ok.