Question Should we buy a car before filing Ch7 to replace the one we intend to surrender?

[dr276301]

We are getting ready to file and we want to surrender our car in the Chapter 7 process.

We will need a car and are afraid to save up and buy a cheap cash car because that is what we had most of our lives and there were so many mechanical issues along the way.

We have a loan offer that is good through October with a low down payment. The loan has high interest (19%), but only $500 down. Our current payment is $399 and that is too high for us. I am thinking we should use the loan to finance a $5-$7,000 vehicle before we file...getting a payment around $240-$250 a month, and once we secure the 2nd vehicle...stop paying on the one we already own.

We have already paid $7485.00 on our current car that had an original list price of just under $14,000. We still owe $14,000 and the car is probably worth around $7-$9,000 (2008 Suzuki SX4).

In a free initial consultation the attny seemed to suggest that it would be okay to buy another car right before filing. Only one of us works so we can't justify two vehicles as being necessary. Would it be viewed as abuse to buy a car knowing that we are just letting another one go? Also, it looks like we need a car payment to keep our disposable monthly income at a safe level to avoid Chapter 13. I think we would make it without a car's expenses, but it would be close.

[dmc-2008]

this is interesting question.

[mynameainttracy]

We bought a car right before filing after discussing with our attorney. We were not letting one go though. For us we had a lease that was going to end during our Ch13 and we didn't want to have to deal with the aftermath of that mid-plan.

[dr276301]

Yeah, I have had a tough time finding someone else who experienced the same situation as we are, which is kind of a surprise really because it seems somewhat common to let a car go due to high payments. Surely all those people had to find a way to replace the car. We live in a rural area with no public transportation.

So, you had two cars right before filing then? One of them was a new purchase and one was a lease that was still good for a while? Also, did you have a need for two cars? Only one of us works.

[dr276301]

I agree. I cannot find it brought up anywhere online either. Quite surprised. Normally I don't ever post questions because someone else already has, but I can't find this one.

[LadyInTheRed]

Only one of us works so we can't justify two vehicles as being necessary.

Did the attorney tell you that? My husband had no job when we filed and we were allowed to claim expenses of two cars, including the one I bought a month before filing. The older car was paid off, so it's not exactly the situation you are asking about. But, I don't think both spouses have to have a job in order to claim expenses of 2 cars.

When the attorney suggested it would be okay to buy a car, did he know about the one you already have? If not, call and ask this question or go consult with another attorney. It is always a good idea to consult with more than one.

[dr276301]

Hi LITR,

No, the attorney did not say that we had to both be working to own a car. I need to call back the attorney to check on this. I had just read online that any purchases made before a bankruptcy needed to be reasonable expenses. It would be helpful for us to have two cars anyhow so that I could run household errands while my wife is at work (groceries, issues w/child at school). We do need to surrender our current car though.

I read somewhere that there had to be two licensed drivers to justify owning two cars, which we both are.

I guess now I just want to make sure there is no objection since we are giving up a debt, just to aquire a new one. I don't think it'll be an issue though since we are doing it to get a lower monthly payment for our budget.

Thanks for all replies.

[dr276301]

So, I spoke with my attorney today. She said that buying a car before filing in my situation would be fine, but that we would have to wait until the new finance company puts a lien on the car title. Apparently that can take up to 30 days. If they don't have a lien in place when I file Chapter 7 then the trustee would take and sell the car as an asset. That would create a major problem. I think we might wait to buy until after filing.

[LadyInTheRed]

If you need the car payment to qualify you for Chap 7, why not buy the car and wait 30 days to file? What's your hurry?

[dr276301]

Good question LITR, here's why:

My wife has just had her first wage garnishment for a debt on her last pay. They are taking around $300 per pay. There will already be one more garnishment before we can file. At that next pay is when we will be able to go finance a car (that is when we will have a down payment). So, if we wait 30 days after that they will garnish $600 more dollars than if we file right after this next pay.

Very complicated.

My attorney seemed to suggest that although it is possible to get the lost wages back and exempt them, that it may not be worthwhile. After this next pay they will have received over $600 in total so I think that would be considered a preference payment and be available to the trustee. However, I doubt that the trustee will bother to go after the money if we exempted it. If he didn't get it back, we would likely have to file an adversary proceeding to compel Capitol One to return the funds. It looks like that would cost $175, plus additional attorney fees on my part. Yuck!