Car Problem

[Vikash1986]

Hi there,

3 years back when everything was going alright I traded in my truck for a luxury car and the loan was taken out under my wife name. Fast forward to this year and we are behind on the payment for the car and all other bills due to the company that we worked for is now out of business. My wife is thinking to file for BK 7 which under NJ means test she qualifies.

But heres the problem, we just found out like that the title for the car is under my name with no lien holder listed. The dealership listed the wrong lien holder on the title. The dealership listed USAA on the title instead of Penfed. USAA send us the title since they have no interest in the vehicle. And just recently Penfed sent us a letter stating that my wife needs to be added on the title and Penfed needs to on there as well as lien holder and that I have to go the DMV and make the correction. Now we are about a 3 months behind and I don't want to do that because they will repo the vehicle.

Penfed threatens to unsecured the loan at a higher interest rates if we don't make the corrections. I spoke to an attorney who is a professor at my college "not the BK attorney" and he said not to do it. Would this become a problem for my wife during the Bk. Would it be safe to trade the car in and take something else I don't want to loose the down payment and all the months of payment and also do you guys see any problem for me to keep the car since the loan will become an unsecured loan thereby becoming dischargeable in the BK proceeding. Thanks for your responses.

[bcohen]

3 years back when everything was going alright I traded in my truck for a luxury car and the loan was taken out under my wife name...But heres the problem, we just found out like that the title for the car is under my name with no lien holder listed. The dealership listed the wrong lien holder on the title. The dealership listed USAA on the title instead of Penfed. USAA send us the title since they have no interest in the vehicle.

Because of this error, which has persisted for over 3 years, you legally own the vehicle free and clear. If your wife files for bankruptcy, she would list the car loan as an unsecured debt (which is what it is). The car itself is not in her name, so she would not even need to list it as an asset!

And just recently Penfed sent us a letter stating that my wife needs to be added on the title and Penfed needs to on there as well as lien holder and that I have to go the DMV and make the correction. Now we are about a 3 months behind and I don't want to do that because they will repo the vehicle.

Penfed threatens to unsecured the loan at a higher interest rates if we don't make the corrections...do you guys see any problem for me to keep the car since the loan will become an unsecured loan thereby becoming dischargeable in the BK proceeding.

Of course, Penfed will repossess the car if you're dumb enough to add them to the title as lienholder! The only thing stopping them now is the fact that they currently have no legal basis to do so. BTW, if your wife files for Chapter 7, the car loan won't "become an unsecured loan"--it already is an unsecured loan! I would recommend against trading in the car, not because you legally couldn't do it, but because trading in a car which you own free-and-clear toward another car which will presumably require taking out a loan is not a good idea, especially when you are considering bankruptcy.

[Vikash1986]

I agree that trading the car in makes no sense and you are exactly right that adding the lien holder on the loan will just give them the right to repo and sell it. But is there any legal way that Penfed can sue me or take me to court to get me to add them as a lien holder or block my wife BK 7. Because we are married don't we have to list both our assets and liabilities? thanks

[Drazil65]

I am presuming that you signed loan papers for Penfed? Have you looked at the loan papers regarding your responsibility where the listing of the lienholder is concerned (ie: in title, insurance etc)? I would check the loan docs to get a clear understanding of the intent because it seems like this could be easily rectified by Penfed by proving that the contract clearly states they are the lienholder. Just be clear on that so that there are no issues brought forward where it looks like you(wife) are trying to hide assets especially since they have notified you to change the title and called it to your attention.

The last thing you will want are issues called out or Penfed interfering in some way to hold up the chapter 7. BTW, looks like you learned lesson #1 already, life changes very quickly and buying luxury cars when things are good is probably not a great idea in the big scheme of things. Hopefully you are looking at much cheaper used models for when things get "tough" again, and they will as you can see.

[Vikash1986]

I am presuming that you signed loan papers for Penfed? Have you looked at the loan papers regarding your responsibility where the listing of the lienholder is concerned (ie: in title, insurance etc)?

I am not on the loan documents in any shape or form.i believed the dealership make the error and Penfed never realized it until recent. I am on the title, registration and car is under my insurance. I traded my truck in which had 1000 dollars in equity plus I put $5000 down. So i am a little concern with regards to the bk. my wife credit at the time was in the 700 and mine was in the six so we decided to finance with her credit and income only. The loan was 30k. I check and recheck but my name is no where on the loan.

[bcohen]

I agree that trading the car in makes no sense and you are exactly right that adding the lien holder on the loan will just give them the right to repo and sell it. But is there any legal way that Penfed can sue me or take me to court to get me to add them as a lien holder or block my wife BK 7. Because we are married don't we have to list both our assets and liabilities? thanks

No, there is nothing Penfed can due to you at this point, because in order to object to discharge of the debt, they would have to prove fraud on your part or your wife's part. An error made by a third-party (in this case an auto dealership) which you did not even discover until many years later is obviously not fraud, and the creditor would be unable to argue that it is fraud. I stand by my previous advice that you ignore Penfed's empty threats, and treat the loan as unsecured--which it is. They should have caught the error years ago, in which case they would have had a legal basis to demand a corrected title. After this much time has passed, they are out of luck unless you are dumb enough to voluntarily add them as lienholder.