Should I sell my truck before filing & buy used car with Cap One Blank Check?

[octoblonde]

As I've posted before, I'm worried about owning my 2004 Chevy Avalanche outright. I may or may not be able to exempt it with unused homestead exemption. I was thinking of selling the truck, using the proceeds to pay bills or maybe pre-pay my mortgage, then take the $4k that NY allows for vehicle exemption and use it as a down payment on a newer used vehicle. I applied online for Capital One Blank Check and was approved for $30k (I wouldn't spend that much) but the interest rates are anywhere from 11%-13%. If I went this route, my plan is to pay down the loan VERY quickly after my Ch.7 would be discharged. I'd use the money that I'd save from pre-paying the mortgage, etc. with the proceeds from selling the Avalanche.

I don't want to do anything foolish that I'll kick myself for later. Part of me thinks maybe I should keep the truck if somehow I can exempt it and then wait for my credit score to improve after my discharge. Would I get better rates then, possibly?

I don't know what to do. I certainly DO NOT want to lose a vehicle that I bought brand new, loaded and paid off on my own. It's a really nice truck and if I have to lose it, I'd rather have more to show than the $4k that the Trustee would give me.

Any input is greatly appreciated.

[keepmine]

Paying bills is one thing. Prepaying a mortgage is something else. I'd not do it unless your lawyer OK's it.

The “Forbidden Reason” For Pre-bankruptcy Spending
by Craig Andresen, Minnesota Bankruptcy Attorney · Posted in Exemptions In Bankruptcy,Featured

Every chapter 7 or chapter 13 bankruptcy filing involves a creditors meeting which occurs about one month after the case is filed. This meeting can unexpectedly become the perfect storm where, if enough of the wrong factors jell together, the debtor may blurt out the “forbidden reason” for spending down his or her bank accounts before the bankruptcy was filed.

This is where the debtor testifies, with the tape recorder capturing every word, sneeze or other sound, that he or she spent the money so the trustee wouldn’t be able to take it. Then, the room will turn silent while the bankruptcy trustee slowly opens the U.S. Code laying on the table. The trustee will turn the page to section 727(a)(2) of the bankruptcy code, which reads:

The court shall grant the debtor a discharge, unless … the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed … property of the debtor, within one year before the date of the filing of the petition….

This is the forbidden reason for spending down the bank accounts or other liquid cash prior to filing bankruptcy. If the reason was to shield the money from the trustee or a creditor, the trustee has an excellent argument that the debtor should not receive a discharge in the chapter 7, or that the debtor’s chapter 13 plan was filed in bad faith.

You might wonder whose fault it would be it such a disaster were to actually happen.

Fortunately, this terrible scenario need never happen, because all the bankruptcy lawyer has to do is to carefully explain section 727 to every bankruptcy client before the case is filed, and before any spend-downs occur.

The point here is not that once the debtor knows about the forbidden reason announced in section 727, the debtor will testify untruthfully about his or her motives for spending down the funds. Rather, the point is that the debtor will take especial care to testify truthfully about the reasons for the spend-down, and he or she will avoid citing the forbidden reason out of carelessness, without giving the true reasons.

For example, it ought to be obvious that the debtor bought groceries and clothing before the bankruptcy filing because her family really did need to eat, and they really did need some clothes to wear, and the debtor has been buying those things her whole life without any motive of defrauding creditors. Similarly, the debtor caught up on house payments just before the bankruptcy filing because the family really did live in the house, and without making those payments the mortgage company would eventually see them living in the streets.

The bankruptcy lawyer’s having explained the exemption laws to the debtor doesn’t alter the fact that the debtor had solid, sufficient reasons for spending the funds in the manner he or she did just before filing bankruptcy. And, when the debtor knows what section 727 says about the forbidden reason, the debtor certainly won’t be spending money before the bankruptcy filing in the manner described there.

[octoblonde]

I understand what you're saying, but I've read countless threads on this forum about it being ok to sell one's vehicle to get a newer, more reliable one. I thought as long as the money wasn't transferred to family or friends or spent frivolously, that it was ok to sell a car and spend the proceeds on necessary expenses. I also have student loans that are in forbearance and will be coming due again this month. I'm sure I could find appropriate ways to spend the money. When I finally hire an attorney who I have some faith in, I will ask them. The one I did consult with said it might be a good idea to buy a used vehicle and get rid of my truck since it's a 2004, 68k miles, has some problems and has been in an accident. Is this bad advice?

[GWBcasualty]

The one I did consult with said it might be a good idea to buy a used vehicle and get rid of my truck since it's a 2004, 68k miles, has some problems and has been in an accident. Is this bad advice?

It's very good advice.

I think keepmine point was of caution on how you will dispose of the money you get from the truck you sell.

There are many allowable ways to spend or, better yet, protect money, making extra-payments on your mortgage is probably not one of them.
Examples: Contributing to an IRA (within allowable IRS limits), buy necessities, do home repairs (or improvement but need to be called repairs), medical expenses, replace your appliances (because the old fridge was broken, right?), etc...

[octoblonde]

GWBCasualty (love your username!), thanks for clarifying things for me. As a matter of fact, yes, the fridge I have was here when I bought the house and I'd estimate that it's 20 years old. It sure could stand to be replaced.