Keeping Cars That Are Paid For and Needed?

[andyx]

My wife and I are going to have to file Chapter 7. Banks have foreclosed on real estate on which we owed over $1M and one of them is seeking to collect a six figure deficiency judgment. We have very few assets because we [foolishly] used our IRAs and 401Ks in a failed attempt to reach settlements on the properties.

But we do own our two cars. The value of one could be talked down to about $2,500 but it might be hard to claim the other is worth less than $6,500. Losing either one of these would be a serious hardship as we live way out in the country up a long, steep, unpaved road (both vehicles are 4x4 because you cannot get to the house in the winter without 4 wheel drive).

My work as a self-employed marketing consultant takes me on the road for several days a month, which would leave my wife, whose health is not good, stranded on the hill if we only had one vehicle. (We ended up in this place because it was the only property we could afford to keep--there is no equity in the house but I can keep the mortgage current).

It almost seems like I would be better off with a car loan and very little equity in the car I am buying than own $7,000 worth of car free and clear. We are going to be filing under Florida or New York exemptions, attorney is not sure yet.

Any thoughts on best course of action would be much appreciated.

Andy

[keepmine]

You should be able to negoitate a buyout of the excess equity with the trustee.

[andyx]

You should be able to negoitate a buyout of the excess equity with the trustee.

I have heard of that but--and this may just be me--doesn't that mean I'm buying my car twice?

It seems to discourage paying cash for a car (which I did) and encourage financing a car.

A.

[backtoschool]

Your car exemptions allowed will depend on the district you live in and whether you also will have any wildcard exemption that you can apply to the cars.

If the value of the cars exceeds the exemptions you have then you will have to negotiate with the trustee to pay a certain amount to keep the car. Typically the amount you pay the trustee will be less than it would cost you to buy the car on the market. (but obviously more than not paying anything at all)

You are buying the car twice, but that is the way the system works. The trustee has a right to take the car and sell it and give you a cash amount equal to your exemption amount.

[andyx]

The trustee has a right to take the car and sell it and give you a cash amount equal to your exemption amount.

Thanks for the clarification. I'm not sure what my exemptions are going to be yet, but I'm wondering about trading in a car before bankruptcy. For example, if I traded in the used car--that I own free and clear--on a newer vehicle that I finance, could I reaffirm that financing and keep paying for the car?

[backtoschool]

Thanks for the clarification. I'm not sure what my exemptions are going to be yet, but I'm wondering about trading in a car before bankruptcy. For example, if I traded in the used car--that I own free and clear--on a newer vehicle that I finance, could I reaffirm that financing and keep paying for the car?

Yes, if the car payments are within irs guidelines for your district, (ie don't trade your clunker in for a top of the line Mercedes. ) and you have enough income such that the trustee will be convince that you can maintain the payments. Some credit unions and car financing companies don't reaffirm though. Reaffirmation is not guaranteed so ymmv, but most will reaffirm.

I traded in a paid for saab 93 for a hyundai 6 months before I filed for bankruptcy, because I had too much equity in the saab to completely cover. I have payments on the hyundai which is helping rebuild my credit, and I was able apply the equity of my saab towards something that would fit in my exemptions.