Filing next week, need advice about car...

[Herewego1]

Our attorney doesn't seem to have a suggestion for what is the best method to protect our 2nd car so I was hoping to get a little help here. We have 1 truck that is valued at about $10,500 that we are using both of our exemptions on, (we are in Arizona) which leaves our 2nd car unprotected. The value is about $5600 and we are trying to figure out how to keep it.

One idea is to sell to my parents and use the money to pay living expenses. The only issue that I don't quite understand is if we could just sign the title over or if it would have to be registered and insured in their name. We would definitely still be using it and paying them back but I don't want to raise the suspicions of the trustee. Could we sell it to them and sign the title over, deposit the cash into the bank, pay it towards our mortgage, and then buy it back from them right after filing? They could sign the title back over and place a lein on it for the amount we owe. I want to do something legitimate, but also want to avoid unnecessary transferring of registration and insurance. We also really need to keep that car. It would be silly to lose it and have to buy something else.

Thanks for your replies!

[DeadManCrawling]

I am not certain about the possible consequences of this as an insider transfer, but if you are filing next week this will get some attention from the trustee.

My understanding is that if the amount they loaned you against the truck (or paid for it)was a reasonable amount, this might work. The key here is reasonable. That does not necessarily mean fair market value, but the money must be more than a few cursory dollars.

A MAJOR factor is that they could not simply give you the money and accept title. The lien has to be perfected, which means recorded properly to secure the vehicle against the loan. The procedures for doing this vary but will require paperwork recorded, generally, with the county.

We are considering a similar move, so I have looked into this a little bit (emphasis on LITTLE). The keys to avoiding allegation of fraud or an insider deal seem to be:

1. Was fair consideration received. That is, did you receive a reasonable amount of money for the vehicle.

2. Was it a legitimate transfer of title? If it is a loan that you are proposing, make damn sure it is perfected. Otherwise, they will find themselves ranked as another unecured creditor.

3. The idea of selling this asset so close to BK and you continuing to use it (or even have access to it) simply will not fly. It must be a real sale, or the trustee will file to avoid the transaction and you and your parents will both lose out.

4. Disposing of over 5k in nonexempt money in one week will almost certainly raise objections. Sorry, but it is true.

This type of transfer MAY work if it is planned and executed well in advance. Like over a year or two ahead of filing. A week before? I very much doubt it. And that will likely cause the trustee to look more closely at all aspects of your filing.

If you have the means to purchase this vehicle back from your parents after the BK, you may be better served by letting it go to the trustee and purchasing it back, either with your parents kind gift or your own money. That would probably raise less suspicion.

Again, just my thoughts, and you should ask your attorney for any advice, but to me, this would raise all sorts of trustee questions.

[lrprn]

One idea is to sell to my parents and use the money to pay living expenses.

As long as you sell the car to your parents for fair market value, that could work. However, you still end up with just one car in the end.

Unless you don't plan to file for at least a year, you absolutely must *NOT* just transfer the car title or just give the car to your parents. That sets up an insider preference and your trustee will definitely move to take the car back from your parents. And anyway, once again, you end up with only one car.

The bk law is pretty straightforward about what's ok to do with assets before and after filing and what's not ok. You can't sell the car to your parents before filing and then just buy it back right after filing. Your cash is at a minimum at filing, so what are you going to use? As far as the title goes, it belongs to whoever owns the car - you, your parents, or the bank.

It would be silly to lose it and have to buy something else.

I understand that you don't want to lose the car to your trustee. However, sometimes to shed large amonts of debt, you have to do things you really don't want to do and think are "silly".

You didn't share how much unsecured debt and/or other asset loans you are going to wipe out by filing Ch 7, but no matter how much it is, you have to think long-term and what it's going to take to achieve your overall financial goals by filing Ch 7.

As hard as it is to lose this one car, think of it as losing one car but shedding many, many thousands of dollars in debt in return.

Talk to your lawyer about selling the car to your parents for fair market value before you file and see what he/she says. If he/she thinks it's a go, then just use the second car until your bk case closes, then figure out how to best get the car back into your name at that time. Good luck!

[lovebirds]

Do you own both cars outright? You can buy the non-exempt amount back from the trustee. Can your family loan you the cash to pay the trustee?

[Herewego1]

I definitely get what your saying about discharging a lot of debt in the long run and the car being fairly insignificant when we look at the big picture. I am really just trying to be as smart as we can with our money and not go further into debt after we file by purchasing another car.

Our attorney said we could buy a car the day after we file if we needed to. So I guess it just makes sense to me that we could buy our own car back from my parents while they hold a lein on it and we make reasonable payments.

Here is a breakdown of what I was thinking in case it wasn't clear:

The car was appraised at $5700 by the auction company the court uses.
My parents would purchase it for the full appraisal price of $5700.
We would take the money and pay it to our mortgage, which we are about $6000 behind on.
After we file, we would take steps to set up a payment plan with my parents to buy the car back, just as if we were buying a car from anybody. My parents would be the lender and receive the payments. They certainly aren't "gifting" us anything.

I guess I don't understand how it makes more sense to sell the car, and then go to a dealership and buy a different one.

We are selling it at fair market value, and then buying it back at fair market value.

I am not saying you're wrong, I am just saying that some things are not making sense to me. I guess it doesn't always have to.

Our attorney has no problem with us selling and giving the money to our mortgage company. That shouldn't be a problem at all. It's just getting the car back that he doesn't know about.

[StartingOver08]

Did you actually say to the ATTORNEY that you were going to sell the car to a family member? Or did you just say you were going to sell the car? Big difference.

This is exactly the type of action the Trustee looks for when you provide the paperwork to the court. This WILL open up a large can of worms. The Trustee can, at a minimum, avoid the transfer and take the car. The BK law is not something to mess around with - don't do this. The consequences will hurt you and your BK filing.

Here is what the trustee looks for when determining if an act is a FRAUDLENT TRANSFER, notice transferring to an insider (your parents) is number one!

Fraudulent Transfer Acts:

Transfers made by a debtor are fraudulent, whether the creditor's claim arose before or after the transfer was made, if the debtor made the transfer with actual intent to hinder, delay, or defraud any creditor.

When determining actual intent, consideration may be given, among other factors, to whether you:

Transferred the asset to an insider;
Retained possession or control of the property transferred after the transfer;
Disclosed or concealed the transfer;
Were sued or threatened with suit before the transfer;
Transferred all of your substantial assets;
Absconded (departed secretly);
Removed or concealed assets;
Received value reasonably equivalent to the value of the asset transferred;
Were insolvent or became insolvent shortly after the transfer was made;
Transferred the asset shortly before or shortly after a substantial debt was incurred; and
Transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

[whipster1]

Yep, selling it to an insider is INVITING trouble. Have you considered buying it back from the trustee? It saves him the trouble of getting it sold, and you can probably work out payments with them.

[StartingOver08]

I don't think it is an issue that he is selling to his parents so much as he is retaining control of the asset and may or may not be selling for FMV. The combination of selling for less than FMV and selling to his parents AND retaining control of the asset is what might spark the fraudlent transfer issue enough to have the Trustee avoid the transfer (at a miniumum). It could create other issues in the case as well....

[OhioFiler]

I'm puzzled by the strategy of taking the $5,700 and paying it to the mortgage holder when you are $6,000 behind on your payments. Are you actually planning to keep the house? Will you be current with this loan at the time of filing?

Hold the car and buy it back from the trustee. He/she will probably sell it back to you for much less than $5,700.

[Herewego1]

It's so interesting to hear your comments but it makes me nervous.

Our attorney has ZERO reservations about selling the car to my parents since it is most definitely for fair market value. He said it is a solid deal and nothing to worry about. After talking to him agian, he recommended, that we register it in their name and that they also insure it. We will not take ownership back (or use it) until after discharge.

We most definitely are trying to keep our house. The money from the car will bring us current on our 1st mortgage, but we will still be behind a little on the second.

We will have to decide today what to do with the car. Buying it back from the Trustee is a viable option, and we'll have to give it more thought.

I just don't know if I should decide not to trust the attorney because of what I have read here on the forum. My thought is that he knows the laws for our state, has worked with the trustees hundreds of times, and he has a lot of experience. Should I quit trusting him because of the advice I have gotten here? I thought he was doing so well

[OhioFiler]

You hired him. You should listen to him.

[lrprn]

I just don't know if I should decide not to trust the attorney because of what I have read here on the forum. My thought is that he knows the laws for our state, has worked with the trustees hundreds of times, and he has a lot of experience. Should I quit trusting him because of the advice I have gotten here? I thought he was doing so well

Your lawyer is doing fine. You should not stop trusting him because of anything you read here. Our members are well-meaning, but none that have replied here are bk lawyers.

Go back and read the disclaimer on the forum home page -
"No advice given on our forums can be considered legal advice. We recommend you consult a lawyer if you want professional assurance that information given to you by other forum members, and your interpretation of it, is appropriate to your particular situation. Everything is strictly informational."

This disclaimer is there for a reason