Purchasing a car a few weeks before you file Chp. 7

[kathy09]

We currently have a truck financed with Ally. We are around $10,000 upside in this loan. We would like to purchase a car with a lower payment, better gas mileage, etc. and just let the truck go back. Can this be done? If so would a new car be okay or would a used car look better to the trustee? I know it would be hard, if not impossible, to get a car if we wait until after bankruptcy.

[btbeme]

Neither situation looks particularly "good" to some Trustees, though it is certainly well within reason to do so. In order for this to fly - or fly better - with a Trustee, some general things to consider (ask your attorney what will and won't fly with your local Trustees):

- Make sure that you purchase within your means. Since it is unlikely that you have a large down payment, that will mean financing the vehicle. Be sure you can afford the payment. Really sure.

- Make sure you have made a payment or two before filing. This help to ensure that the loan paperwork is properly filed and the lien is "perfected" - meaning that the lien on the vehicle has been recorder on the title at the state level and the loan has been validated by the lending company.

- You might abandon the other vehicle prior to filing if you purchase another. Call the loan company and tell them you would like to surrender the vehicle and ask where you can drop it off. Get proof of the abandonment.

- Given that used cars are holding much higher values nowadays, getting a new vs a used probably isn't as important as not overspending, in the eyes of the Trustee. Got a family of 4? A Honda minivan would be OK; a new BMW SUV would probably get you in trouble.

[tripbuddy]

Definitely advise that you talk to your attorney. Mine told me to go ahead (within reason, of course). She also told me which big finance companies should be ok, and which shouldn't. Pretty much, the auto loan paperwork says that declaring BK is a default on the loan. Some companies will let you keep paying, others will repo. I bought quickly, then filed once the lien was perfected (about 2 weeks later). In the Bk, I said I was surrendering the old car, which I was able to keep driving through the BK process although I didn't. I never did reaffirm the new loan, and the company did nothing about it. They even send me monthly statements so I remember to pay!

The above poster is correct, though, your attorney should know what will fly with your areas trustees. My trustee just said "a little per-planning, huh? Smart."

[momofthree]

Make sure to keep the payment below the IRS standard of $496/mo and you should be A-okay.

[ffpmme]

I am thinking of doing the same thing, looking at get a focus. I am filling Pro Sea and I am concerned that I would be found in some violation of some BK law. I am just trying to make sure that I will have a good car at a lower payment and interest rate. Currently at 25% and getting robbed. I do not want to be in a hearing and be told that I have to give up the car. Then I can not get to work, and I am more screwed then before.

Any thoughts?

[tripbuddy]

I am thinking of doing the same thing, looking at get a focus. I am filling Pro Sea and I am concerned that I would be found in some violation of some BK law. I am just trying to make sure that I will have a good car at a lower payment and interest rate. Currently at 25% and getting robbed. I do not want to be in a hearing and be told that I have to give up the car. Then I can not get to work, and I am more screwed then before.

Any thoughts?

I think the issue is that some finance companies will let you retain and pay, while others might exercise their right to repossess JUST because you file bk. I tried to research, and my attorney said her clients have been left alone with Honda and Toyota Motor credit. Pretty sure she mentioned Ford Motor Credit as being good AFTER the BK, but could repo if you file bk. I went with Toyota. They left my car alone, I pay my payments. Definitely you need to know who is repoing and who isn't. You don't want your car taken away even though you made your payments!

[ffpmme]

Pretty sure she mentioned Ford Motor Credit as being good AFTER the BK, but could repo if you file bk. I

As in buying a care after the discharge?

[tripbuddy]

As in buying a care after the discharge?

Yes. I don't know how soon after, though. Atty's experience was just that they'd taken cars back when no payments were missed, but that her clients that bought cars after the bk found Ford more likely to lend than most others. Can't remember what she'd observed about GM. Since she was so confident in Toyota and Honda, I only looked at those. Ran back and forth, went with the one that gave the best offer by end of week (Toyota). Funny enough, nearly a WEEK afterward, Honda salesman called & offered a matching deal but of course it was too late. I didn't make a good down payment, I didn't want positive equity. After the BK was filed, I even talked to Toyota Credit on the phone, told them I was gonna pay, would they give notice if they decided to repo so I could remove car seats, etc. They laughed, and said they had no intention of taking it from me unless I missed payments.

My info is all from over a year ago. So ask around carefully, get anecdotal info on who won't take the car these days.

I don't know if you can base your purchase on someone else's experience with ANY finance company. And my attorney obviously knew our area trustees' views. I'd interviewed a different atty prior to hiring one, and he told me to absolutely NOT buy a car before filing. The atty I hired, who tld me to go ahead, said some attorneys want to keep the case as clean and conservative as possible, while she likes to know where the "line" is, and will allow her clients to carefully toe it.

[sandra123]

Usually, purchasing anything on credit prior to filing bankruptcy does not sit well with a bankruptcy trustee. Many times, the easiest credit to get after filing bankruptcy is that of an automobile loan. As long as the individual has a substantial down payment and is working, many creditors are willing to take a risk on an individual post bankruptcy. Creditors are opportunists and know that many people exiting bankruptcy are virtually debt-free. They will usually charge higher interest rates, but it is doable. Getting any new credit while planning on filing Chapter 7 is not a good idea.

[HHM]

You will probably need to reaffirm.

The other thing to watch out for is to make sure you wait at least 30 days from purchase to filing. Reason being, if you are going to finance, the lender needs to record their lien on title. If the lien is not recorded at time of of your BK filing or is done improperly (e.g. the lender waits too long), the trustee CAN and WILL take the car.

[kathy09]

Thanks for all the replays. We have an appointment with a lawyer this Friday and we will see what he says and go from there.