Question Buying a new car before an upcoming bankcruptcy

[zeeshanb]

I apologize if this question had been asked before.

I started a small business in another state with my sister. Now it seems that the business will be foreclosed and we would have to file for business BK. However, the bank will not be able to get all their money from the sale of the business, so they are going to come after me. So I may have to file for a personal bk(ch 7 or 13). It is atleast 6 months before I may have to file for this.

I had been leasing a BMW car for the last 3 years, which I just returned. Since I needed a another car, I decided to buy/lease the similar new car again, I have already ordered it and will be getting it an another few weeks. The car is cost around 55k(the msrp is even higher as I am getting a really good deal!).

Is it a good idea to buy an expensive car at this time? Will the creditor or the court turn this against me?
Is it better to lease or buy? If I buy, I am getting a very good interested rate as I have a very good credit score right now.

btw, I have a job and I can easily afford this kind of car. My only confusion is because of the possible upcoming bk.

Thanks in advance

[Mensa1]

btw, I have a job and I can easily afford this kind of car. My only confusion is because of the possible upcoming bk.

Thanks in advance

If you can easily afford the 55K car, then you may have some difficulty with the means test in order to qual for Ch 7. Bk courts aren't thrilled with purchase of luxury items prior to filing Bk. But I guess since the auto is ordered and committed to, the question is asked a bit late, so you will have to deal with the fallout of that decision when it comes time to file.

[Jackdog]

I would think being able to afford to buy/lease a 55k car may be an issue with chapter 7. I don't know though. I don't know how a trustee would view a Chapter 7 case driving a 6 month-1 year old BMW.

[momofthree]

They allow a payment of up to $489/mo. If your payment is above that amount, you can count on them objecting to it.

[zeeshanb]

They allow a payment of up to $489/mo. If your payment is above that amount, you can count on them objecting to it.

Is this state specific or federal limit? Does it make sense to bring the payment down to this by putting down payment? Or I could lease it too.

btw, I live in California

[Mensa1]

You also mentioned filing for biz Bk. I assume that you have a corp or LLC, when you describe the biz filing Bk, but rarely is this required to liquidate an entity. What is more practical is to allow the entity to stagnate and it will continue to owe the debt; period.

Yes, they will come after you personally because of pers guarantees. That is when you may need to seek protection, either 7 or 13. OR, since you have some means outside that of a typical wage earner you could attempt to settle the debt outside of Bk. This course may yield some advantages depending on how good of negotiator you are and this can be done w/o filing a bk. Every situation is different and some have a shot at setllement and others don't, so more detailed info would be necessary to evaluate if this might make any sense.

[momofthree]

Is this state specific or federal limit? Does it make sense to bring the payment down to this by putting down payment? Or I could lease it too.

btw, I live in California

This is per IRS standards.

You can put a larger down payment down, but only if you have the exemptions to cover it. Although, they may then question where you got the money for a large down payment when you are claiming that you can't afford to pay your debts....

[zeeshanb]

You also mentioned filing for biz Bk. I assume that you have a corp or LLC, when you describe the biz filing Bk, but rarely is this required to liquidate an entity. What is more practical is to allow the entity to stagnate and it will continue to owe the debt; period.
.

Its an LLC and the SBA guaranteed biz loan. The bank is going to get their 80% from state and the for the rest of from me. They are not really interested in making any deals with us since the biz is worth less then the 80% of the loan amount.

The business lawyer handling this case has suggested that I might qualify for the Ch 7, if and when the bank comes after me to get the balance. My concern is, will they hold it against me that I am driving an expensive car while filling for ch 7 or 11?

[SMinGA]

Large downpayment can lower the monthly payment. But then you will have alot of equity in the car and would probably lose it in a personal bankruptcy. (Unless you could afford to pay the trustee the value of the non-exempt equity. Such as if you have $20k equity, $3.5k state vehicle exemption then you'd need to pay $16.5k to keep the car. Plus your regular monthly payment to the car itself... If not the trustee takes the car, sells it, pays off your loan, gives you the value of your exemption & pays the rest to creditors.)

[Mensa1]

My concern is, will they hold it against me that I am driving an expensive car while filling for ch 7 or 11?

YES, if a ch 7.

Lets look at it from another slant. What if... I borrowed 10K from you, and couldn't meet our terms of repayment. I come to a meeting to discuss this problem with you and I am driving a shiny new, expensive car. First thought from your mind here; do you feel like cutting me any kind of a break over the 10K that I owe you?

Back to your original question... you may or may not have any problem with the means testing since the cause of the Bk is business related. The preponderance of the debt must be from the business, more than 75% of the debt you are claiming in the Bk from the business. So if you were to go out and obligate yourself for more personal debt now it could cause you to have to meet the means testing, which could throw you back into a Ch 13, vs a Ch 7. If so, that would be ONE VERY EXPENSIVE CAR you will be driving.

But maybe it would be worth it, you will have to decide.

BTW, debts like this defaulted biz debt get settled for peanuts all the time. I wouldn't put any stock in what you have been told thusfar. These proposals must be sold, just like everything else. The proposal must be believable that you are unable to repay, and demonstrated to the mtg lender. Maybe they get something in a workout and nothing in a Ch 7; which one makes sense for them?

[zeeshanb]

YES, if a ch 7.

Back to your original question... you may or may not have any problem with the means testing since the cause of the Bk is business related. The preponderance of the debt must be from the business, more than 75% of the debt you are claiming in the Bk from the business. So if you were to go out and obligate yourself for more personal debt now it could cause you to have to meet the means testing, which could throw you back into a Ch 13, vs a Ch 7. If so, that would be ONE VERY EXPENSIVE CAR you will be driving.

So are you suggesting that having more debt(i.e. car loan) will push me over to be eligible for the Ch 13 only and disqualify for7? I would have thought the other way around but obviously I do not know much about Bk.

btw, my intention of buying an expensive car is to not increase my personal debt for BK. I had been driving this car for the last 3 years and have always wanted to get into the similar car once my lease has ended!

[Mensa1]

So are you suggesting that having more debt(i.e. car loan) will push me over to be eligible for the Ch 13 only and disqualify for7? I would have thought the other way around but obviously I do not know much about Bk.

You might wish to KNOW the answer to that question before you get obligated with a car that costs you 3 times the cost of the car, if it forces you into Ch 13.

btw, my intention of buying an expensive car is to not increase my personal debt for BK. I had been driving this car for the last 3 years and have always wanted to get into the similar car once my lease has ended!

You don't need to explain that to me, but the practice might be helful because you might be explaining to the TT.

[tbon]

your kidding right??????? good grief~ if u can afford a 55K BMW why r u considering BK.... buy a Honda and live within your means.... make the payment to your debt instead of buying a freakin 55K car...... BTW like Oprah said once...if you have to LEASE a car~ that's a RED flag U CAN'T AFFORD IT

[zeeshanb]

your kidding right??????? good grief~ if u can afford a 55K BMW why r u considering BK.... buy a Honda and live within your means.... make the payment to your debt instead of buying a freakin 55K car...... BTW like Oprah said once...if you have to LEASE a car~ that's a RED flag U CAN'T AFFORD IT

Well, I can very well manage my finances and want to and able to pay off all my personal credit card / car loans etc. Unfortunately, I started a business two years ago which is worth 30% of what I paid for it and the business is not doing good at all. It will be foreclosed and the creditor's may come after me for the difference as I had personally guaranteed the loan. The amount of the loan is so high and there is no way that I will be able to pay for it, hence it may force me to file for BK. Not to mention that I would be losing all my down payment that I made.
Now in the mean time, my car lease expired and the lease/finance rate for the new car are so very attractive so I thought to get the same car again. If you say that I do not buy the car and payoff the business loan difference? Well, it is a lot more than the car cost and I would be paying for the debt for business which I have already lost!