Paid off HELOC how long do I need to wait?

[Kansas1960]

Since I was not planning BK I have for years been using my HELOC as a secondary checking account and ran lots of money, charges, cash advances through this since I could transfer to my checking account. I did this to try to save a few bucks on interest charges. When I got a refund, I would pay down my HELOC by that ammount then borrow it back When I needed to cover payments as my checking account needed injections. I would pay off one balance when the teaser rate expired with the HELOC and then get a new one . Over the past 1.5 years I have had the blance down to zero twice and once up to 17,000. I paid the last time down to zero in September. It is currently at a zero balance since September
My question is how long do I need to wait? I understand now this is considered inside payments since the HELOC is secured. I have read 1 year and also 2 years. My last payment was around 8,000.
My second question. I need a new car since my old one is in very poor condition. My plan is drive my car until it dies and too expensive to repair then use my HELOC to pay "cash" for a 5,000 or 6,000 car. If I did this how would the trustee treat this transaction.
Thanks so much.

[justbroke]

I do not believe that payments to any secured creditor are considered preferential payments. (I think you were talking about preferential payments not "insider" payments.)

For your other question... you could buy the new car with the HELOC prior to filing bankruptcy. However, and this is my pitiful opinion on this... you may end up creating an asset which is non-exempt and has no lien!

You see, paying "cash" means there's no lien on the vehicle. Your home is securing the HELOC, so the car would be owned free and clear. You'd need some exemption for the car, because the $5K-$8K would be exposed to the Trustee.

You would also need some distance in time between having purchased the vehicle (with the HELOC check) and filing. I'd wait 6 months, personally.

Notes: my response is based on a Chapter 7 bankruptcy. I didn't do any research to validate my post here.

[HHM]

How much did you pay down in Sept?

Justbroke, although this would not be considered a preferential payment, there are some cases that categorize the transaction as a type of insider payment, taking non-exempt cash assets and moving them into an exempt asset (home equity) by paying down a secured debt, the insider is the debtor. You will probably need to see an attorney in your area, some circuits hold that this type of move is ok, others don't.

I don't think you would need to wait 2 years, but it is possible you would need to wait a year depending on the size of the payment.

[justbroke]

Ooops.. I was so concentrated on the car... didn't think about the actual cash moving around.

[Help!]

I don't see a problem with the payment on the HELOC, but if you purchase vehicles with "cash" from the HELOC you can expect those to be liquidated - especially if you don't have the exemptions to cover them. Vehicles $2K and under tend to stay under the radar, but valued higher than that are targets.

Here's something to think about if it seems impossible to find a good car for $2K. We had $5K to spend on a vehicle, but didn't want to have a $5K asset laying around before our BK closed. We bought a vehicle for $1500, put $2500 worth of work into it (clutch, tires, windshield, brakes, rear window regulators, cosmetic TLC). We now have a $4K car we actually like, but on the DMV report it's a $1500 junker. If we had done this before we filed, we'd also have receipts for car repairs which would have been allowable expenses to our advantage on the means test.

Just a thought....

[Kansas1960]

I paid down 8,000 over a 3 week period and now owe nothing to my HELOC. It was moving unsecured debt to secured debt so that was my concern.