Truck almost paid off

[amberk]

Looking to file chapter 7:

We have a vehicle (almost paid off), there are approx. 3 payments left of $600.00.
So we owe about $1800 on it.

The vehicle, when paid off, will still be worth 18k.

I will have approx. 18k of equity in the vehicle. I also have about 30k of back taxes (IRS...the past two years...self employment taxes...)

I want to sell the truck, pay the IRS as much as possible.

AFTER the sale, I want to put down approx. 2k (16k to the IRS) on a 'beater' vehicle and finance the rest of it for about $200/month (just a guess).

I spoke with the legal assistant today, and she said, 'Don't sell anything that is an asset before you file...it is very bad!'

We have not filed, but her recommendation didn't sound right to me?

Why can't we sell a vehicle, use the $$$ to pay back taxes?

The thing I DON'T want, is a vehicle that is paid off, file chapter 7 and THEN find out that the $$ that went toward the ownership of the vehicle cannot be included...then forcing us into a possible chapter 13. With one vehicle for six of us.

In other words,
If I don't 'owe anything left on my vehicle', that isn't good, right?

Was this lady wrong?

[salsa]

I hope you get some clarity, because I've gotten different advice from different attorneys. One says I can take the money and put in a ERISA account so it can't be touched. Another said, off the record. I could sell and use for things. For instance, we could use a new roof, siding, garage doors, tub/tile replaced, etc. I"m anxious to here others opinions.

[btbeme]

OK, I'll address the sale of an asset prior to filing, but the tax issue is beyond my scope. On the surface, your plan has merit, but others here may have a better foundation for their suggestions.

You can absolutely sell anything you own before you file for BK. There are some hard and fast rules to follow, unless you want to get into some seriously deep soup. To wit:

1. Make sure you get market value for the item sold.
2. It is always best if the transaction was an "arms-length" one to someone you do not know. If you sell to a friend or relative, see #1 above.
3. Document the value and how you arrived at that value. Err on the high side if you must, because the Trustee will.
4. Document the payment. Deposit the check into a regular bank account. Get a Bill of Sale. Seriously consider getting a Sales Agreement that states the terms, price, condition, etc of the sale. Get the Bill of Sale and any Sales Agreement notarized.
5. Use the proceeds from the sale for exempt purposes. These vary from district to district but usually include living expenses, food, provisions, etc. I believe payment of an IRS debt is an agreeable use of the funds but check this closely with a local, knowledgable attorney (not the paralegal). Realize that these proceeds can be considered INCOME, which may jigger up your Means Test, at least temporarily.
6. Be willing and able to completely and transparently explain each and every asset sale to the Trustee. Have at hand all documents, photos, bills of sale, proof of payment, and receipts for ALL transactions in and out of your account, as these funds will be closely scrutinized prior to and at your 341 hearing. You will have to list these on your filing if they are made within a certain timeframe.

There. Now, the reason that a lot of attorneys and paralegals say "don't" is that there is obviously a lot of room for error here...and certainly there is more work to do in tracking all that info. But, since it is YOUR butt on the line - not the paralegals, not the attorney - the effort made should be 100% yours. You get it right. You have the documentation. You provide it and explain when asked. If you did it right, and it passes the "smell test" with the Trustee, you should be fine.

I probably left a couple of details out, but there are a lot of posts herein that discuss the best ways to do steps 1-6 above. You can always ask for some better specifics. As always, your attorney (get a good one - you may have a couple of bumps in your filing it appears) should have the final say on what will and won't fly with your local Trustees.

[btbeme]

I hope you get some clarity, because I've gotten different advice from different attorneys. One says I can take the money and put in a ERISA account so it can't be touched. Another said, off the record. I could sell and use for things. For instance, we could use a new roof, siding, garage doors, tub/tile replaced, etc. I"m anxious to here others opinions.

Trustees vary, so the above "strategies" may or may not fly. Certainly, using funds for necessary housing expenses and repairs (not upgrades) would receive a much more favorable Trustee Score than would a one-time, first-time, ERISA or IRA or 401(k) deposit made simply to ditch the funds. Believe me, there are very, very few nooks and crannies where a properly motivated Trustee cannot reach, and most of the pathway they will use to get there involves the lower portion of your digestive tract.

BK planning has a lot of merit, and more than a few sinkholes. Be careful.

[amberk]

Thanks for the ideas. Something just didn't make sense to me with this assistant, and I'm glad others here also seem to think the same.