New car before filing?

[enginerd]

My wife and I have finally decided that enough is enough and stopped paying credit cards. We're only a few days past and have met with 2 lawyers. We're really hoping for a Chapter 7, but we seem to be in a strange position in terms of the means test. Using the online means test (nolo???) and my current expenses, I have a disposable income of $302. I only have one car payment - my other car is paid for and is 6 years old with 120k miles. If I were to purchase a new car at $400 / month range to replace the old one, my disposible income drops to -214. Does this make sense? Is it okay to do this since I won't be filing for a few months or more?

[zpbk13]

I can tell you that we did something similar and our attorney was on board with it. We thought we were going to be in a 5 year chapter 13 so it seemed best to pay that $400 into a car for me than to creditors. It turns out that the second car expense and a few others qualifies us for a chapter 7. We were able to purchase something before our credit tanked so our interest rate is very favorable.

[LimpDisc]

We are in the same boat with the means test. Our lawyer advised us to replace the car instead of paying into the chapter 13 five year plan. Our car was 7+ years old and over 100,000 miles. Made sense to replace it now while our credit was still good. We purchased the new car last month and will wait until early December to file chapter 7.

[hereforinfo]

The concept of taking on more debt to get rid of other debt doesn't seem right. But I guess the real question is: can you afford the payment? Why not buy a car with a $200-250 payment, which would be just enough to leave you under the chapter 13 threshold.

[enginerd]

I too am perplexed that taking on more debt will change my situation so drastically.

I only used the $400 car payment as an example. What scares me about a $200 payment would be that I would be cutting it pretty close in terms of the means test and qualifying for chapter 7. I'm trying to avoid a chapter 13 primarily because I have a huge 2nd mortgage that can't be stipped. I just had the appraisal done and the home is worth $20k more than I owe. Unfortunately, the 2nd mortgage is over 50k. If I don't go the chapter 7 route I'll end up with a huge 2nd mortgage after the 13 repayment is complete.

[LSUTiger32]

We did this, but not to qualify for the means test. We did it in order to be able to re-affirm a decent car with a reasonable payment. 1.9% APR didn't hurt either!

I would say go for it, as long as the means test is not showing you an underlying problem with bills. In my case, dumping $2,300 worth of mortgage payments on rentals was my problem and it's fixed! In other words, just make sure you can afford it and that you aren't going to get yourself into another problem down the line.

[LimpDisc]

Will you be borrowing money to pay for the bankruptcy costs? My lawyer suggested that if we were borrowing money ($1400) for the bankruptcy costs, we could use our paid off car as collateral. When borrowing the money from whomever, you'd write them a promissory note stating you would pay $50/month for the next 28 months. Take the note down to the DMV, fill out the forms and have them re-title the car with the person’s name that loaned you the money. That would enable you to get the entire second car deduction without buying another car, now that your paid off 2nd car is secured with that promissory note. The lawyer was quite clear to us that we shouldn't do this without actually borrowing money. Don't want to put yourself in a situation where you're lying to the court.

Were in Colorado, but I can't imagine this would be different anywhere else. Consult your attorney before doing this.

We didn't do it because we needed the new car, have the funds to pay our lawyer and didn't want none of our friends/relatives involved in our mess.

[hereforinfo]

I too am perplexed that taking on more debt will change my situation so drastically.

I only used the $400 car payment as an example. What scares me about a $200 payment would be that I would be cutting it pretty close in terms of the means test and qualifying for chapter 7. I'm trying to avoid a chapter 13 primarily because I have a huge 2nd mortgage that can't be stipped. I just had the appraisal done and the home is worth $20k more than I owe. Unfortunately, the 2nd mortgage is over 50k. If I don't go the chapter 7 route I'll end up with a huge 2nd mortgage after the 13 repayment is complete.

You'll still have that 2nd mortgage after the chapter 7 too.

[2manybills]

We surrendered our lease car just before we filed and got a new car. So glad we did. It wasn't a problem at all.

[Scott50]

I don't understand the logic here- you can't pay your existing bills but you are considering taking on additional debt?

[pcn]

Do it! 3 1/2 years into your plan, when your existing car dies, you will be thankful you followed these people's advice. Once in the plan you will have to get court approval for new debt, not to mention figure out how to make the payment out of any buffer you have built into the plan. By buying now that car payment (secured debt) comes out of the amount used to calculate your plan payment. It's almost a little like pre-tax dollars for the 401K. The taxes (plan payment) are figured after your living expenses are considered (means test). As someone else said, if you get "lucky" and get a 7 your credit may not be good enough to get the interest rate you qualify for today. Do what it takes to get your means test to calculate to your best advantage. Our lawyer recommended the same thing.

[OhioFiler]

We replaced an old car when we knew we'd be filing. It's done all the time.

[enginerd]

You'll still have that 2nd mortgage after the chapter 7 too.

Is this true? I'm getting conflicting info from many different sources. I'm planning on giving up the house.

[OhioFiler]

Is this true? I'm getting conflicting info from many different sources. I'm planning on giving up the house.

You won't have the mortgage after you let the house go to foreclosure post-Chapter 7.

[hereforinfo]

I didn't realize you were giving up the house. In that case you wouldn't have the mortgage after a 7.