Buy a new car to qualify for Ch7?

[signal]

I ran the means test at NOLO www.legalconsumer.com

It said I had disposable income, my car payment currently is 450/mo. However, If I had a 750/mo car payment then I would no have any disposable income.

Wouldn't it make sense to go out and buy a new car, right about 750/mo, then I would fail the means test? I still have excellent credit, I am just out of rope, and my business has failed, but I am sure I could swing the loan. Not sure if this is a strategy however, and will talk to a lawyer about it. Any comments?

Signal

[StartingOver08]

There is a limitation on the amount you can spend on a car payment and still have it accepted by the trustee. I believe that limitation is $489/mth for a car payment. One of the others will jump in here to confirm or correct shortly.

You want to find expenses that you pay, but maybe have forgotten to list in your schedule - annual expenses usually get forgotten (tag registrations and renewals, lic renewals etc) Search this forum for 'expenses' and you will get quite a wide variety of expenses. You can pick up term insurance if you don't already have any...there are quite a few ideas to bring your expenses up so you can get your DMI down.

[tdawg]

I ran the means test at NOLO www.legalconsumer.com

It said I had disposable income, my car payment currently is 450/mo. However, If I had a 750/mo car payment then I would no have any disposable income.

Wouldn't it make sense to go out and buy a new car, right about 750/mo, then I would fail the means test? I still have excellent credit, I am just out of rope, and my business has failed, but I am sure I could swing the loan. Not sure if this is a strategy however, and will talk to a lawyer about it. Any comments?

Signal

If you intend to pay the car payment, then you should be fine. If they could prove that you knew you would be filing and not pay the car payment, then you could face scrutiny. I would think you might be a little safer from being scrutinized if you make sure you wait a few months to file after you buy the car. Remember though that they might not allow all of that payment on the schedule J. But from what I've read, you should be fine on the means test.

[signal]

According to the below, from www.legalconsumer.com, there is no limit on deductions for auto loans. perhaps I am reading this wrong, but thats what it sounds like to me, see below:


Subpart 5C: Deductions for Debt Payment

The means test places no limits on deductions for mortgages or car loans. All secured debts for a car or home can be deducted.
If you are claiming deductions for payments on property that you plan to surrender to the trustee during bankrupcty, note that many courts will not allow that deduction. Check with an attorney in your area to determine what courts allow in your area.
Some commentators suggest that more people will be able to file for Chapter 7 under the new law, because, under the old law, the "reasonableness" of such expenses was considered by the judge. See editorial by James P. Caher, Why the Means Test May Mean More Chapter 7 Filing (and Other Unintended Consequences of Bankruptcy Reform), BestCase Scenarios, Summer 2005, (newsletter for owners of BestCase bankruptcy software).

[StartingOver08]

Well, according to this link the allowed amount is $478/month http://books.google.com/books?id=Uhk...ruptcy&f=false BUT you may be right that you can use any amount in your payment. Take a look at this link below:

http://www.judicialview.com/Court-Cases/Bankruptcy/IRS-Manual-Not-Used-to-Determine-Bankruptcy-Standards/7/4094

[backtoschool]

Here is a case where a high income chapter 7 filer was dismissed for "totality of circumstances" for having too high a car payment. (amongst other things...)

http://www.bkforum.com/showthread.php?t=43840

A luxury car payment will be a red flag for the trustee.

[signal]

Interesting. I don't know that I guess luxury is subjective. A 40k car would go a long way to get me to pass the means test. I drive a VW GTI now, car costs $28k. I make over $100k/yr, not sure if taking on a car thats $12k more is excessive, but I realize thats up to the UST and it could be shaky grounds. There are alot of pickup trucks with extended cabs that cost more than $40k.

[backtoschool]

Interesting. I don't know that I guess luxury is subjective. A 40k car would go a long way to get me to pass the means test. I drive a VW GTI now, car costs $28k. I make over $100k/yr, not sure if taking on a car thats $12k more is excessive, but I realize thats up to the UST and it could be shaky grounds. There are alot of pickup trucks with extended cabs that cost more than $40k.

Taking on more debt before filing and especially after you have talked with a lawyer would be looked at very poorly by the US Trustee.

You are technically insolvent right now by definition (90 days before filing=insolvency) so taking on a higher car payment for no reason other than to get your expenses up will not go unnoticed by the US Trustee who has seen it all.

I think it would be a huge red flag, just my opinion.

[tdawg]

I believe the way it works is that they cannot object to any secured amount on the means test for a car payment, so it wouldn't matter if it was $2,000/month. But on the Schedule J, they can say, "Well, if you got a cheaper car with a payment of $478/month, then you could fund a Chapter 13, so that's what you're going to do."

Again, I'm thinking if you do this, it would be best to wait for a few months before filing. And I'm assuming you plan to reaffirm this debt. And if you haven't retained a lawyer, I don't see how there's an issue. You've just been exploring and learning about this stuff, that doesn't mean you're insolvent. This is all just my opinion though, so do what you're comfortable with. By the way, there are limits as to how a lawyer can advise you about taking on more debt, so keep that in mind if you consult with a bk lawyer.

[berrymom35]

This is not a car but we bought a washer and dryer with a monthly payment of $120 per month two days before we filed and put it on our schedules and it was not blinked at. A big car payment is a lot different though.

[signal]

Well its a 28k car, so its either a 550/mo payment for 60 mo or like 670/48 months. I wish I knew whether they would think a 28k volkwagen is an excessive car to drive.

[jribe]

No- a $750 car payment will be considered a luxury by the trustee. As others have stated - if you're basically under roughtly $500 it's allowable. But going out and almost doubling your car payment would not be acceptable from the trustee. Do you need two cars, one for a spouse? Then another car would be okay..

You'll need to find different allowable expenses..

I ran the means test at NOLO www.legalconsumer.com

It said I had disposable income, my car payment currently is 450/mo. However, If I had a 750/mo car payment then I would no have any disposable income.

Wouldn't it make sense to go out and buy a new car, right about 750/mo, then I would fail the means test? I still have excellent credit, I am just out of rope, and my business has failed, but I am sure I could swing the loan. Not sure if this is a strategy however, and will talk to a lawyer about it. Any comments?

Signal

[StartingOver08]

Well its a 28k car, so its either a 550/mo payment for 60 mo or like 670/48 months. I wish I knew whether they would think a 28k volkwagen is an excessive car to drive.

Isn't this a car you have already and your payments are already in place?
Or is this a car you are planning to finance shortly. From your first post, I thought it was one that you are currently driving. Based on the Trustee's here in the Southern District - they are accustomed to people coming into BK with very high dollar vehicles. IMHO I don't think the volkwagen will raise eyebrows. But if you buy another high dollar car now and file in three months, that may not fly as BTS has a good point about the "totality of circumstances". You probably will have interest from the UST just based on your details so far. Before you go out to buy a vehicle, check all of your expenses in detail now. Even before you meet with more attorney's - you need to get as much as you can out of the attorney interview. This vehicle issue would be one to run by all of the attorney's you interview.

[OhioFiler]

This is not a car but we bought a washer and dryer with a monthly payment of $120 per month two days before we filed and put it on our schedules and it was not blinked at. A big car payment is a lot different though.

This doesn't seem quite right to me. Was this debt discharged?

[backtoschool]

This doesn't seem quite right to me. Was this debt discharged?

Although I probably shouldn't comment on this post OhioFiler, since I have berrymom35 on my permanent ignore list, but I do think that appliances would be seen differently by the trustee than a luxury car.