Downpayment with credit card(s)

[magyar123]

One of my neighbors asked me a question that I did not know how to answer, so maybe someone can.
He wants to buy a new car costing $20,000.
He wants to make a $5000 downpayment by charging $2500 on one credit card, and $2500 on another credit card.
And finance the balance - $15,000.

In October - 8 months from now he wants to file bankruptcy, but attempt to reaffirm the loan with the lender.
Would the two credit card companies have an interest in the car and attempt to challenge the dischargeabiility of the card balances?

[jessegirl]

That sounds like fraud to me. You are not suppose to charge things with the intent of filing bankruptcy.

[magyar123]

That sounds like fraud to me. You are not suppose to charge things with the intent of filing bankruptcy.

Would it really considered fraud - 8 months from now? I thought the presumption of abuse/fraud is limited to 6 months or less.

[keepmine]

It's fraud because, he intends to file for bk before he even does this deal.
The cc's won't have a security interest since it's unsecured debt.

[debtmonster]

Yep... that's fraud. I financed many cars and had many repo's and what not, but I was always up front and honest on my credit application. Whenever it asked for income, I always put in my current income at the time.

People have no business buying $20,000 dollar cars if they have to charge all of those down payments like that. This sounds like a person in their early 20's doing something so irresponsible.

[JRScott]

I agree if the trustee gets wind of such a deal it will be seen as fraud I'm pretty sure. I would not recommend them doing this.

[southernbelle]

It sounds like fraud to me. Entering into a deal like that with the intent of filing BK (even though it's more than 6 months away) is still fraud. Not to mention the fact that this type of behavor is helping to cause the innocent to suffer. See the attached link: http://www.bkforum.com/showthread.php?t=34073

If your neighbor has the misfortune of getting a tough Trustee like I have, he/she will wish they would have left that $20k car on the lot. Tell them they should look into buying they can buy outright and stay away from the cc's.

[debtmonster]

If the person got laid off with no fault of their own and had no plans of filing bankruptcy, then it would be okay. But this is a planned scam. Not good.

[Dst1]

If the person got laid off with no fault of their own and had no plans of filing bankruptcy, then it would be okay. But this is a planned scam. Not good.

Exactly. This is the key, planning.

Of course, just because its been admitted on this board don't mean it's legally fraud; that has to be proved in court. But from an ethical POV, it's fraud.

[Dst1]

Would it really considered fraud - 8 months from now? I thought the presumption of abuse/fraud is limited to 6 months or less.

No, that's not true. The legal presumption of abuse is only three months (90 days). But if the Trustee suspects fraud, they can look back as far as four years.

After six months, it's less likely the creditor will object; but they still can. I suspect that for 2.5K, that the creditors are not likely to object after eight months, particularity if he has been making the minimum payments.

[ansky0007]

Also, Car dealers are not supposed to accept more than $1000k on a credit card for a deposit. When I bought my last new car and wanted to put $5k down the dealer only would accept $500 on my credit card and I had to pay the balance by check.

[debtmonster]

Also, Car dealers are not supposed to accept more than $1000k on a credit card for a deposit. When I bought my last new car and wanted to put $5k down the dealer only would accept $500 on my credit card and I had to pay the balance by check.

That would eat $150 out of their profits for you to put $5,000 on a credit card.

[rjl0206]

I used a debit card for a $3k down, lawyer ok'd it since it was a debit, and yes will be filing around june. Lawyer also told me flat out that since I now have an intention/plan of filing bk I SHOULD NOT use any cc's etc any longer. Doing so would be regrettable as he put it, BUT!! as long as I have paid minimums for 3 months from the las tcharge he also said screw them and dont pay back a dime from here on, so yes, all that cash I was forking over monthby month helps alot....

Ray

[ansky0007]

Yes, Debit cards are different.

[debtmonster]

One one of our cars we made one payment since the last charge, but the cards have not been used. We defaulted on everything. The lawyer told me flat out to stop payments on EVERYTHING, so I did.