Selling joint asset (vehicle) before a separate/non-consumer ch.7 filing...

[Lalalink]

My husband will be filing Ch. 7 (separately -- not jointly with me) for a failed business (all non-consumer, business related debt) in the near future.

We own a 2003 vehicle with $10,000 equity. If we sell the vehicle and pay off my only credit card ($10,000 balance at 8.9%) and re-purchase a vehicle and finance it at 3.9%with little down payment, Will this cause him grief when he files for his non-consumer bk?

I am not filing bk... it just makes sense to have a 3.9% debt vs. an 8.9% debt... and since his credit will be killed after a bk, we will not have to worry about purchasing a car in the future with no credit... I have good credit, but no job... he is the breadwinner...

hope this makes sense...

any thoughts?

Thanks,
Lala

[despritfreya]

I do not practice in Florida so I am going to assume the following "facts"

1. Vehicle is held jointly therefore husband & wife have an undivided 1/2 interest in it and upon sale, each is entitled to 1/2 of the net proceeds.

2. Wife is solely responsible for the $10k credit card.

3. Vehicle is worth 10K in equity therefore, upon its sale, husband gets 5K and wife gets 5K.

You are proposing the following:

A. Sell vehicle for enough to pay off the existing lien plus $10K of equity.
B. Instead of splitting the proceeds 50/50, use all 10K to pay off wife's sole and separate debt.

If this is correct, is there not a transfer of $5k (husband's portion of the proceeds) to or for the benefit of the wife without consideration? This is therefore, a "fraudulent conveyance" that a Chapter 7 Trustee can recover from the non-filing spouse.

Sounds like you would be better off selling the vehicle, splitting the proceeds and then
living off of $.

Des.

[Lalalink]

You are proposing the following:

B. Instead of splitting the proceeds 50/50, use all 10K to pay off wife's sole and separate debt.

If this is correct, is there not a transfer of $5k (husband's portion of the proceeds) to or for the benefit of the wife without consideration? This is therefore, a "fraudulent conveyance" that a Chapter 7 Trustee can recover from the non-filing spouse.

Sounds like you would be better off selling the vehicle, splitting the proceeds and then
living off of $.

Des.

Facts are true as stated. And you have made it easier for me to see the money trail (thank you). But I'm not sure if the proposition is straightforward..

Although the card is my sole responsibility (I'm the only signer), my husband is an authorized user. Does it matter than the 10K cc debt was acquired by both of us while my husband was unemployed and only has living expenses on it (groceries, doctors, clothing)? We both received equal benefit from the card, but would a trustee ever see it that way?

From what I just posted, would it still be considered fraudulent conveyance... or could I instead propose that my husband uses his 5K from the proceeds of the sale of the vehicle to pay the ONLY consumer credit card in our marriage, albeit in my name only. In other words, can he make a preferential payment on a consumer debt vs. spreading the proceeds over his business cc debt?

Thank you so much for your thoughts...
Lala

[despritfreya]

Although the card is my sole responsibility my husband is an authorized user. Does it matter than the 10K cc debt was acquired by both of us while my husband was unemployed and only has living expenses on it? We both received equal benefit from the card, but would a trustee ever see it that way? From what I just posted, would it still be considered fraudulent conveyance... or could I instead propose that my husband uses his 5K from the proceeds of the sale of the vehicle to pay the ONLY consumer credit card in our marriage, albeit in my name only. In other words, can he make a preferential payment on a consumer debt vs. spreading the proceeds over his business cc debt?

Lala,

This is a very interest question. One that I simply am not sure about. As you say the use of the card benefitted both of you but, if there is a default, the credit card company would presumably only sue you. I suppose you could argue that you "loaned" your husband $$ via the use of the card and that he was simply, with his portion of the equity in the vehicle, paying back the loan. But if it was a loan you have moved the transaction from the "fraudulent conveyance" issue to a "preference" issue with a 1 year look back period. Did I make sense?

These type of issues typically are not present in community property states, hence the reason I do not have a clear answer. Maybe someone from a non-community property state can chime in. It might be best for you and your husband to run it by some attorney in your local area.

Des.

[Lalalink]

But if it was a loan you have moved the transaction from the "fraudulent conveyance" issue to a "preference" issue with a 1 year look back period. Did I make sense?

Yes, you make complete sense. I don't want to be the first one to try it in front of a trustee either, lol. We talked all night long about this and decided to just keep the car and not pay off my credit card. We have a place to live, the car is running fine and we do have a large 401(k). Altlhough we are not Suze Orman's idea of where we should be financially, we are at least not underwater.

Worst case for us now, is the car dies and we have to use 401(k) funds to purchase a used car. Until then, we will be saving the payments we've been throwing away at the business debt use that for paying into a car fund and savings.

I do hope if someone has gone through this or seen it will still chime in, but I didn't want you to think we were going to go for it. We decided to play it safe for us.

Des, thank you so much for your thoughts. I really appreciate it. This website has given us such valuable information over the past few months, and we are so thankful for your time.

Lala

[debee]

Des's original suggestion seems to be the wisest course of action.

Sell the car. Use 5K of the proceeds to pay down your cc debt. Buy a new, reliable car at a decent interest rate with only as much downpayment (from your husband's share of the proceeds) as can be exempted. Use the remaining 4K (or whatever amount) of your husband's proceeds to stock the pantry, fill the freezer, see the dentist, etc. Post-filing, you will be able to put a larger percentage of your income towards the cc debt because you will have taken care of so many expenses pre-filing.

It's almost as good as paying the debt off in one stroke. A little patience and you will still end up right where you want to be.