Car with equity?

[Mulligan1331]

Sorry I’ve been looking on the thread trying to find this answer but I haven’t been able to.

Im about to pull the plug on ch 7. I owe 22k in credit cards. My car I owe 8k but it’s worth about 15-20k, I will not give up my car as it is last memories of my father and I together. I’m not understanding how exemptions work and my lawyer isn’t much help... thank you in advance!

[justbroke]

For Florida, it will be extremely difficult to protect $7-12K in equity in a motor vehicle. The only way to protect that vehicle would likely be to file a Chapter 13 and pay at least as much as that equity, over the course of the Chapter 13.

Florida has very stingy exemptions. If you own an $8 million home you would keep that. But if you own a $10K car with no loan, then it's likely that the car would subject to sale by the Trustee. The problem is that Florida only has a $1,000 exemption for a motor vehicle. If you don't own a home or use the "unlimited" homestead exemption, then you could apply get a $4,000 wildcard exemption. While you could apply that towards the car, that would leave all of your other property (clothing, furniture, computers, other personal property) in jeopardy.

I would have hoped that your attorney explained at least that much.

Do you own a home? Are you apply as married or just individually?

[despritfreya]

JB is spot on when suggesting that your attorney should be warning you of the risks when electing to file Chapter 7. The attorney should also be advising you as to how you can address those risks.

In all likelihood the Trustee will put the vehicle up for auction. If you are the high bidder then you can buy it back. If not, then it goes to whomever was the high bidder and you get paid the allowed exemption amount. If you participate in the bidding process you will get credit for the allowed exemption.

If you do not want to risk losing the vehicle then discuss with the attny alternatives to a Chapter 7.

Des.

[shipo]

Question to the group here; what if Mulligan1331 refinances his car for say, $1,000 less than its current value before he files for Chapter 7?

[justbroke]

shipo that is one of the strategies, but still, Mulligan1331 would need to find a way to spend down the $12K as it too would be mostly unprotected in Florida. Encumbering an asset in order to preserve it is a strategy that could be used to perhaps ward off creditors by using the proceeds to pay them.

Mulligan1331 has $22K in unsecured debt, but an asset worth $12K. In the best case, the debtor may be able to protect $5K of the equity, but that leaves only $1K for all other things. This would still, unfortunately, force a sale as at least $6K of the vehicle would be exposed.

[despritfreya]

Question to the group here; what if Mulligan1331 refinances his car for say, $1,000 less than its current value before he files for Chapter 7?

I rarely suggest this - mainly because it would be improper for me to suggest that a client incur debt. However, unless the loan is from a family member or friend, what happens if the debtor cannot afford the payments, which likely includes a very high interest rate? In addition, as JB points out, the debtor would have to spend down the funds before filing - I suppose the $$ can be used to pay the attny.

If one is unable to bid at the Chapter 7 auction, to me the better approach. . .

1) wait long enough for the equity to drop. Generally, a vehicle depreciates 1%/month; or

2) file a Chapter 13 with a 36 month Plan. A 36 month Chapter 13 may actually be cheaper than financing the non-exempt equity through some high interest refi or title loan. . . and you don't have cash that you have to account for.

Des.