Selling a car before filing...

[delphinus317]

Quick background: I am married, my husband is in jail until November 2011, I have a PFA against him until February 2012. I've decided to divorce my husband. I retained a bankruptcy lawyer last week (stopped paying all debt August 1st), I plan to file individually since all the debt is in my name only. All my assets/income qualify me for Chapter 7. The only joint asset we have is a paid off car (bought during the marriage). He expects to be driving that car when he gets out of jail, but it's in my name & I'm paying the insurance, maintenance, etc. I want to sell the car before he gets out, split the proceeds between us (so he can buy another car in his own name when get gets out) & use my half to pay the reminder of the fee to my bankruptcy attorney & retain a divorce attorney. My bankruptcy attorney is going to call me back this afternoon, but I'm going nuts waiting and wondering if anyone could help distract me with hypothetical solutions to this dilemma.

Can I sell the car before November & still file in November/December? Will selling the car push a filing timeline back any? I guess it gets sticky since we'd split the proceeds, would that look like a gift to him, since the car is in my name only? I don't want to do anything that might compromise or complicate things with the bankruptcy. But I need to free myself from this marriage and all ties that bind me to it. I appreciate any help!! Thanks!

[btbeme]

It is perfectly fine to sell an asset before filing SO LONG AS you receive fair market value for the item AND the proceeds are properly spent on exempt items up to your state's statutory limits. These may be food, provisions, basic necessities, attorney fees, etc. Not sure how you would be allowed to split the proceeds - I'll let the attorney handle that. As far as a delay - the only delay I could see is that you want to spend down the proceeds before filing so you are at or under your state's allowable cash on hand.

But, the general rule is that selling assets prior is OK - make sure that you get fair market value for the item and spend the $$$ appropriately. And, document EVERYTHING down to the last nickel. Get several valuations on the car (Kelly Blue Book, Edmunds.com, maybe the local CarMax store)based on the advice your attorney can give you regarding what the Trustees in your area expect to see. Sell it and make sure the purchaser changes the title on the vehicle. Deposit the buyer's check or cash - the FULL amount - into your bank account, keeping a copy of it. Get a notarized bill of sale that includes the amount paid and the vehicle VIN number. Track every cent you spend. Put it all together, because you will absolutely have to disclose the sale and the Trustee will have to dig in to see how the transaction was made and how it was spent.

This area of BK is riddled with fraud, as you can well imagine. It is probably the single most popular place for a Trustee to dig. So long as what you do is transparent and documented you would be OK. Your atty can advise on the splitting, if it is allowable. But, even if there is a process by which it is allowable, you might consider keeping all the cash and paying him with money saved later as you will no longer have certain bills. That is much less complicated, I would think, and less likely to draw serious Trustee scrutiny.

Just an FYI - a local, well-respected BK attorney here will not take any cases where there is a divorce in process. His rule. I'm not sure why, except that a divorce may have some extra BK twists and turns or vice-versa. Check w/ your attorney about any additional pitfalls of doing both at once.

[delphinus317]

Thank you so much for the detailed information!

I can understand a BK attorney not wanting to deal with complications of divorce, it's messy. Although our divorce will be pretty straight forward (I owned all major assets before the marriage), this car is the only asset purchased during the marriage, thus making it joint property. I was going to wait until the BK was finalized, but he is going to need a car when he gets out & of course wants to drive this one. I am very uneasy about him having any property that I am responsible for, and I'm afraid I've backed myself into a financial corner by retaining the BK attorney before the divorce attorney. The divorce will be cake, the BK straight forward... Put the two together... Yeah, messy.

I can wait to file divorce until the BK is filed or finalized, whichever works best. I'm just afraid when he gets out, he won't leave me alone because frankly, I don't want to give him the car. I'd rather sell it, give him his half & cut that tie before it's an issue. But, I want to make sure I don't do anything (even with adhering to full disclosure) to jeopardize my position in either the BK or divorce.

I appreciate your tips for actually selling it (notarized bill of sale, tracking spending). I can see how this would complicate the BK though. I don't like complicated, I like things clean & easy. I'm just trying to figure out the best course of action to make it so. Does it matter that this auto would be included in exempt assets vs. non-exempt assets? It would definitely be covered in the exemptions. Does that make a difference?

[delphinus317]

One more question... Can cash be included in wild-card/extra homestead exemptions?

[btbeme]

If it fits under exempt assets, yes, it is less likely to draw attention than selling would. Not that drawing attention is bad, necessarily, as long as you have all your ducks in a row - but I am a big advocate of being innocuous and boring. If you can't be boring, be thorough. You can always sell the car post-discharge. Note that the car is property of the BK estate until your case is discharged, and any attempt to sell anything during BK will get the Trustee sideways for sure. So, when you file, it will be at least 90-120 days before you could sell it. Weigh that against the necessity for proper documentation if you choose to sell before filing.

As for wildcard - ask your attorney, because cash is treated differently in different jurisdictions. Some will allow it under an exemptions, others are very specific about not allowing it.

[delphinus317]

Thank you so much for your responses! You've definitely helped me streamline my questions for my attorney. Sometimes the biggest obstacle to any solution is not knowing the right questions to ask. I wish I would've thought out better questions pertaining to the car before retaining him, but it'll be ok, either way. Since the car will be part of the BK estate once I file (if I don't sell it), I can use that to keep it garaged until the discharge. I don't trust him with it, especially not while I'm responsible for it. Thank you!

[LadyInTheRed]

It looks like you can use Federal exemptions in Pennsylvania. So, you can use the $1,150 wildcard exemption and up to $10,825 of unused homestead exemption to cover any property, which would include cash.

I don't know your state's property laws, but if the car is considered marital property even though it is titled in your name, giving your husband half the proceeds of sale would not be a gift.

ETA: I disagree that it adds a lot complication to your BK if you sell the car before filing. As long as you keep the documentation that anybody should keep when they sell a car and you don't sell it to an insider (e.g. a family member), you will be fine. Giving a few extra documents to the trustee is not a huge complication.

[delphinus317]

Thank you. My BK looks straight forward & boring now. I guess I'm getting a little jittery about this whole car/divorce thing, so I see anything that changes my current (good) position, as a complication.

The car is worth about $9,500 (kbb), which I was planning to include in the unused homestead exemption (My house only has about $10,000 equity). If I sell it, submit all the appropriate paperwork for full disclosure, and can include the cash in the exemption instead, that is my optimal solution. It'll allow me to get rid of the tie to him and once the discharge is complete, I can just give him his half as part of the divorce. This is all a result of me trying to keep things civil between us... I could just keep the car, not worry about him & let him hire a lawyer to get it from me. He left me with thousands of dollars of needed repair to my house (unfinished remodeling), and he cost a fortune during the marriage (high maintenance on low income), thus leading me to where I'm at today. Marrying him was not a smart move on my part, but I'm learning from my mistakes. Typing all this out has me rethinking the whole civil thing. Haha.

Thank you!!

[LadyInTheRed]

Keeping it civil is a good plan. Fighting will just sap more energy out of you and won't be satisfying in the end. You are right to focus on moving forward.

The other advantage to selling the car is you could retain your divorce attorney before filing BK and have more exemption available in case you need that cushion. It may be a good idea to consult with a divorce attorney before you file the BK. Your BK attorney should be able to tell you what documentation the trustee will ask for regarding the sale. But, if you want to make it as simple as possible to limit jitters, it sounds like there are enough exemptions avaiable to cover the car if you decide to sell it after your BK is closed.

[delphinus317]

Keeping it civil is a good plan. Fighting will just sap more energy out of you and won't be satisfying in the end. You are right to focus on moving forward.

The other advantage to selling the car is you could retain your divorce attorney before filing BK and have more exemption available in case you need that cushion. It may be a good idea to consult with a divorce attorney before you file the BK. Your BK attorney should be able to tell you what documentation the trustee will ask for regarding the sale. But, if you want to make it as simple as possible to limit jitters, it sounds like there are enough exemptions avaiable to cover the car if you decide to sell it after your BK is closed.

Oh, I'll keep it civil. It's just, when I look around at what it's going to take to clean up this mess and I realize that I have to clean it up alone, it irks me... alot! But, at this point, it's only about cutting my losses & the best way to do that is with civility.

I spoke with a divorce attorney back when he was first locked up (I made the appointment the week before he screwed up). At that time, divorce was already on my mind, but then my whole world was thrown into a tornado, so I was unclear about which direction to go. Now that the dust has settled, the decision to file BK was simple... I have no choice. The decision to actually file for divorce was made final this morning. So, I'm waiting for a call back from the attorney that I spoke with earlier to ask about the divorce-side to selling the car & what her retainer will be. And, I'll talk to my BK lawyer this afternoon. Hopefully, by the end of the day, I'll have a clear plan to get me through this relatively unscathed.

This too shall pass....

[delphinus317]

Update:

Divorce attorney says sell the car, keep the cash. No surprise there. Haha

BK attorney said go ahead, sell the car claim the cash as assets (whatever is left at the time of filing) - It'll be included under wild card/unused homestead exemptions. I forgot to ask about splitting the proceeds with my soon-to-be ex, but I can worry about that later. If I need to wait until discharge or even in finalization of the divorce (as leverage if he gives me a hard time), so be it. Right now, my first priority is selling the car & eliminating it from the equation. Thank you so much for all of your help!! Huge relief!