Cross-Collateralization - Help!!

[poorpoorpoor]

Hello. First time poster here...

I am filing for BK-7 very soon. I have already spoken with an attorney and am in the process of getting him all the information for him to draw up the necessary documents. After reviewing some things on this forum, I am now concerned about cross-collateralization at my credit union. I was hoping to keep my car, but that now does not look possible. My debts are as followed:

Chase Bank - Credit Card
CitiBank - Credit Card
Credit Union - LOC ($11,000 owed), Credit Card ($5,800 owed), and a car loan ($12,000 owed).

My attorney advised me to stop paying on the credit cards - since I was filing for BK, he said it would be "throwing money away." He stated to keep paying on the car, but he doesn't know that it's with a credit union that holds other debts. I will bring this up to him when I forward all the info in the next week or so.

What can I/should I do? What are my options?
Is there any way I can keep my car? If not, when will they take it?

Urgh!

[keepmine]

If, there is a cross-collateralization agreement then I'd strongly suggest you start looking at lining up dependable transportation prior to filinhg.

[bcohen]

If there's a cross-collateralization agreement in place (and most credit unions have them) then I suggest you quit paying on the car, file for BK, and drive it payment-free through the bankrptcy. The automatic stay will prevent the creditor from repo'ing the car until after your discharge. You can then surrender it, or possibly obtain redemption financing through another lender, which will also have the effect of "cramming down" the value to the current blue book value, which is probably less than what you owe the credit union for the car loan.

In either case, don't become emotionally attached to the car. If it is going to cost more than what it is worth to keep, then you should let it go. It's not like you won't be able to finance another car after bankruptcy.

[Pjmax]

I don't know if this is possible, but maybe look at refinancing the car, or trading it in on another vehicle with a different financing source. I would, of course check with your attorney before trying this.

[poorpoorpoor]

Thanks for the responses. I'm in less of a panic now. If I lose my car, I lose my car. I would rather not lose it, but it's not the end of the world if I did. I'm glad to know that I'll have some time before I would lose my car as they must wait until after discharge to reposses it. That gives me some time to figure out what to do.

Initially, I was thinking of "selling" the car to my husband just to pay off the loan, but I didn't want to do anything that would raise a red-flag within weeks of filing for BK. Right? Probably not a good idea?

[bcohen]

No, don't attempt to "sell" the car to your husband. That will cause problems in your bankruptcy, and you will still lose the car, as well as your husband's money that was used to "pay" for the car. If you have sufficient equity to sell the car and pay off the loan, then you can sell it to a non-related party.

However, unless the equity is enough to net you $2000 or more (and you can exempt this money), you are probably better off to quit paying, file for BK, and drive the car payment-free for 3 to 4 months. Don't forget that the money which you are saving by not paying the car loan is your own--it does not belong to the bankruptcy estate--and you can save that money to put toward another car when this one is ultimately surrendered.

[kawh]

It's probably unnecessary to say that you should already have another checking account available to you to use, as your CU may cut off all online, telephone, and online statement access to you, leaving you without an effective checking account, as soon as you are more than one payment behind. And they might take whatever is in your savings and checking at that time, if it's before you file.

[LadyInTheRed]

No, don't attempt to "sell" the car to your husband. That will cause problems in your bankruptcy, and you will still lose the car, as well as your husband's money that was used to "pay" for the car. If you have sufficient equity to sell the car and pay off the loan, then you can sell it to a non-related party.

Actually, there is no problem selling the car to an insider if you sell it for fair market value, except for the fact that you will now have cash you have to spend or exempt. Yes, you'd have to answer some questions and should have documentation of the value. But, if you do that in this case, or sell the car to anybody, it could still be considered a way to hinder or defraud the creditor. (See Bankruptcy Code Section 548 re fraudulent transfers) So, check with your attorney before selling the car to anybody. Also, even if you sell the car and pay the car loan, the credit union may not release the lien on the car until after you pay the other debt.

However, unless the equity is enough to net you $2000 or more (and you can exempt this money), you are probably better off to quit paying, file for BK, and drive the car payment-free for 3 to 4 months. Don't forget that the money which you are saving by not paying the car loan is your own--it does not belong to the bankruptcy estate--and you can save that money to put toward another car when this one is ultimately surrendered.

I agree. Unless there is significant equity, drive the car for free for a while and then get a new one after you file. I don't think bcohen meant to say otherwise, but want to clarify, that cash you save on car payments before filing BK is part of the BK estate if you can't exempt it. Cash you save after you file is yours to keep.

[poorpoorpoor]

Got it. Thank you. My deposit accounts at this credit union are not my main accounts. I pretty much deposit the amount of the car payment and loc payment each month for automatic payments to be transferred. It allowed for a lower interest on the car loan. Should I include the deposit accounts in my BK? Right now the account is negative because the automatic LOC payment was pulled. It's about $200 or so in the hole, but I guess that could also be considered another debt and I just do not want to miss anything.

My regular checking account is with another bank and I've never had anything negative with it: no bounced checks or negative balance. I do not have any debt with this bank - not even a line of credit. It should be okay, right?

I'm going to confirm with the attny tomorrow about the car payments, but it looks like if I lose my car in another 3 or 4 months (or whenever the BK discharges/closes), I will take my husband's car (which he fully owns) and he'll get a new one (newer to him, anyway). He's kind of excited about it. Any red-flags there??

I admit, I'm a bit paranoid. I don't want to do anything wrong and I'll be questioning everything I (we) do/buy until this wraps up.

[MSbklawyer]

Chapter 13 may be more suitable for your situation. If you financed the car more than 910 days ago, you could 'cram down' the amount of debt on the car to the value of the car.

[ValleYum]

Just an FYI: Banks and credit unions can repossess your car 45 days after your 341 meeting if you have not reaffirmed, redeemed or surrendered the vehicle. This is not always done but you should be aware it is a possibility. Credit unions are acting on behalf of the membership so they seem like they 'hold a grudge' and may be more likely to come after your vehicle as soon as they legally can - particularly if they are local.

[poorpoorpoor]

Not local - I'm in VA and the CU is in WA state, but very good to know. Thank you.

[tobee43]

they will send someone to VA. we had a credit union with one of our cars, however, we surrendered it, a first for that credit union, they didn't even know what to do about it. we had been with them over 30 years and they had to call their atty and see what we had to do to surrendered it. it was explained at that time to me that even though they were based in NJ, they have had to retrieve autos all over the country!

oddly enough, even today that car shows on our credit report as an involuntary surrendered as opposed to repossession. not that that means a hill of beans.