Questions about secured boat loan in my name with payments being made by someone else

[PurplePanda]

I am in the process of preparing for CH7 and I plan to file at the end of the year, so in November, 2021. I will be contacting and meeting with an attorney in the near future and I am getting my ducks in a row. I will discuss this issue with the attorney, but I am wondering if anyone here has input on this between now and then.

I purchased a 20 year-old boat in October, 2019 and obtained a secure loan (around $20K) in my name only. It was a "joint" purchase between me and my significant other, meaning that we both intended to put money toward the payments, maintenance, upkeep, etc. Currently, and for the last 6-8 months, he has been transferring money to my bank account to make the monthly payment. There currently is no equity. I would like to keep the boat and don't plan on surrendering it. I am not sure whether or not it would need to be reaffirmed.

Anyway, here is what I am thinking and wondering about: seeing there is no equity and my SO is making the payments anyway, would it be possible for him to assume the loan from the credit union and transfer the title to him? My guess is that it would create issues. If this is not possible, how would this work going forward as far as the trustee is concerned? I am happy to continue our current arrangements but would the trustee not allow that arrangement? My SO transfers me money every month for the boat payment and also for half of the joint cell phone bill. Would he still be allowed to do this?

Thanks for your help!

[justbroke]

First, welcome to BKForum!

Anyway, here is what I am thinking and wondering about: seeing there is no equity and my SO is making the payments anyway, would it be possible for him to assume the loan from the credit union and transfer the title to him? My guess is that it would create issues.

Absolutely positively do not transfer the title or any other property. A bankruptcy Trustee will look for these types of "insider" transfers that are done within 1-2 years of filing bankruptcy.

The problem is that you not only have bare-title to the boat, you have also made payments towards the boat. I don't think -- and I'm no expert -- that you could claim that you don't have any ownership interest in that boat. But don't despair, I don't think trustees like boats because they are difficult to sell and you have already stated that there is little to no equity in the vessel. If I were the trustee... I run from that boat.

If this is not possible, how would this work going forward as far as the trustee is concerned? I am happy to continue our current arrangements but would the trustee not allow that arrangement?

You shouldn't just transfer this property because it would likely create what is known as a "fraudulent" transfer. It sounds like a scary term, but usually it just means that you transferred property to an insider (someone you know) for less than the market value. The trustees are allowed to look back a certain period of time for such transfers. It's to make sure that people don't "give away" property to family and friends once they have contemplated filing for bankruptcy.

For a Chapter 7, the Trustee doesn't really care about this boat, but may question why you need a luxury item. The real question is whether you should reaffirm the boat and I say the answer is no. Why not just let it go? If you still owe $20K on the boat and it's costing you money to maintain, clean, repair, store, and use, now is the opportunity to sink your losses through bankruptcy.

You could "sell" this boat, but it would need to be for fair market value (FMV) and you'll need to be able to articulate the FMV. Since you owe as much as you paid for it, it's likely it's worth the $20K any longer (or even the balance of the loan). A bankruptcy may be a blessing in that you can surrender the boat to the credit union and be done.

My SO transfers me money every month for the boat payment and also for half of the joint cell phone bill. Would he still be allowed to do this?

If you are keeping the boat, it may be okay. Since it's a credit union, they'll likely want a reaffirmation. I think that's a bad idea, but you must decide. Any contributions that your SO makes towards your household or living expenses must be "offset" on your Schedule J and on the Means Test. For example, your rent is $1,000 a month and it's an allowed expense. However, your SO pays 50% of that amount or $500. You must either add an additional $500/month to your income or reduce that housing allowance to $500/month.

So, bottom line, don't do anything with the boat right now. You need to think about whether to keep the boat or not.

[PurplePanda]

First, welcome to BKForum!

Thanks, justbroke. But, this is sort of a re-welcome, unfortunately. I was previously a member of this group when I filed for CH7 and was discharged about 12 years ago or so. I never thought I'd find myself back here. I made a career switch about five years ago and my income was changed to half salary/half commission. Since March (thank you Covid), my income has decreased by about 40% because my commissions have all but vanished. Two years ago I was in the best financial position of my life. And now, here I am.

Absolutely positively do not transfer the title or any other property. A bankruptcy Trustee will look for these types of "insider" transfers that are done within 1-2 years of filing bankruptcy.

The problem is that you not only have bare-title to the boat, you have also made payments towards the boat. I don't think -- and I'm no expert -- that you could claim that you don't have any ownership interest in that boat. But don't despair, I don't think trustees like boats because they are difficult to sell and you have already stated that there is little to no equity in the vessel. If I were the trustee... I run from that boat.

You shouldn't just transfer this property because it would likely create what is known as a "fraudulent" transfer. It sounds like a scary term, but usually it just means that you transferred property to an insider (someone you know) for less than the market value. The trustees are allowed to look back a certain period of time for such transfers. It's to make sure that people don't "give away" property to family and friends once they have contemplated filing for bankruptcy.

For a Chapter 7, the Trustee doesn't really care about this boat, but may question why you need a luxury item. The real question is whether you should reaffirm the boat and I say the answer is no. Why not just let it go? If you still owe $20K on the boat and it's costing you money to maintain, clean, repair, store, and use, now is the opportunity to sink your losses through bankruptcy.

You could "sell" this boat, but it would need to be for fair market value (FMV) and you'll need to be able to articulate the FMV. Since you owe as much as you paid for it, it's likely it's worth the $20K any longer (or even the balance of the loan). A bankruptcy may be a blessing in that you can surrender the boat to the credit union and be done.

If you are keeping the boat, it may be okay. Since it's a credit union, they'll likely want a reaffirmation. I think that's a bad idea, but you must decide. Any contributions that your SO makes towards your household or living expenses must be "offset" on your Schedule J and on the Means Test. For example, your rent is $1,000 a month and it's an allowed expense. However, your SO pays 50% of that amount or $500. You must either add an additional $500/month to your income or reduce that housing allowance to $500/month.

So, bottom line, don't do anything with the boat right now. You need to think about whether to keep the boat or not.

So, you confirmed exactly what I was thinking... that transferring title would be considered some kind of insider/fraudulent transfer by the trustee. Even though I am not trying to hide assets or do anything shady, the trustee doesn't care and it would be looked upon as a fraudulent transfer. I totally understand. But you mention "selling" the boat as being allowed. Why can't I sell it to him? Because of his relationship to me?

As for keeping the boat, it's not currently costing me anything to maintain, clean, repair, store, use, etc. My SO is paying for everything boat-related. He's making the payments, paying for insurance, he stores it at his house and personally does all of the maintenance and repairs. So, there is really no reason why I wouldn't keep it, quite honestly. And yes, a boat is technically considered a luxury item, but it's certainly nothing extravagant. But I understand, it is by no means a necessity.

And, thank you for the information about monthly expenses. That is exactly what I needed to know. I will need to include the $100/month he pays toward the phone bill as income or reduce my allowance for that. As for the boat, seeing there is no "allowance" for it, I would need to include what he pays me (the payment amount) as income. Correct?

Thanks, again, for your help.

[justbroke]

Thanks, justbroke. But, this is sort of a re-welcome, unfortunately. I was previously a member of this group when I filed for CH7 and was discharged about 12 years ago or so.

Re-welcome! I also refiled because the income taxes were just too overbearing after my Chapter 7 discharge.

So, you confirmed exactly what I was thinking... that transferring title would be considered some kind of insider/fraudulent transfer by the trustee. Even though I am not trying to hide assets or do anything shady, the trustee doesn't care and it would be looked upon as a fraudulent transfer. I totally understand. But you mention "selling" the boat as being allowed. Why can't I sell it to him? Because of his relationship to me?

You could sell it, but it would need to be at fair-market value (FMV) and you'll need proof of this. The reason is that they don't want you to "give away" the equity to an insider.

And, thank you for the information about monthly expenses. That is exactly what I needed to know. I will need to include the $100/month he pays toward the phone bill as income or reduce my allowance for that. As for the boat, seeing there is no "allowance" for it, I would need to include what he pays me (the payment amount) as income. Correct?

The payment would be income, and the boat payments would be an expense. So they cancel each other out but must be shown.

Personally, I want a boat. I just can't afford the boat that I want! (I want a Sea Ray Sundancer 360/380 but no more than 10 years old. But I am also investing in property so I am in my years of no-joy. Hopefully followed by years of joy and boating!)

[PurplePanda]

Re-welcome! I also refiled because the income taxes were just too overbearing after my Chapter 7 discharge.

I hear you. Approximately $20K of my credit card debt was incurred to pay income taxes over the past four years. I preferred credit card payments over payments to the IRS.

You could sell it, but it would need to be at fair-market value (FMV) and you'll need proof of this. The reason is that they don't want you to "give away" the equity to an insider.

Okay, that makes perfect sense. And that's exactly the way we would do it. I need to talk it over with my SO to get his thoughts on it. Here's another thought I had... is there any reason I can't do a float through (see what I did there)? So, keep making payments but not reaffirm the debt? I did that with my car when I filed 12 years ago.

The payment would be income, and the boat payments would be an expense. So they cancel each other out but must be shown.

Personally, I want a boat. I just can't afford the boat that I want! (I want a Sea Ray Sundancer 360/380 but no more than 10 years old. But I am also investing in property so I am in my years of no-joy. Hopefully followed by years of joy and boating!)

We have a 2000 PowerQuest 260 Legend and we love it. It's a just a *little* bit smaller than your size preference but ours is easy to trailer. I am about 20 minutes from Lake Michigan and there are lots of options here. We took a 5-day boat trip this past summer up the west coastline of Michigan and it was perfect.

[justbroke]

I don't think that a credit union (CU) would allow a so-called "ride" (float) through. CUs are notoriously bitter when it comes to losses. They would not want to have any CU member keep property without recourse against that member. This is why CUs and small regional banks demand that the debtor either redeem, surrender or reaffirm property. Since boats are both (relatively) luxury items and difficult to sell, a CU should demand redemption, surrender or reaffirmation from the debtor.

(I believe that CUs are pretty good at making sure the debtor chooses one of the three options allowed by the code. The membership demands that the CUs committee ensure the integrity of the union and this is why CUs don't like losses from an individual member.)

The Yooper and the Great Lakes region are awesome and I envy you in that respect. But, I'm here in Florida and there are some interesting things here too (with some lakes, the inter-coastal on both coasts, the Keys, and the Cays of the Caribbean). My dream is to retire and explore the 1,700 islands of the Florida Keys (and step foot onto each one even if it's a glorified sand bank). Also would hope to have a large (safe) enough vessel to "do the crossing" over to Bimini or other 700 islands in The Bahamas, solo. That means dual engines for safety and at least 25' in my opinion. That's my retirement dream.

At MarineWorld, I looked at a Regal 2600 Express, but then looked a used Sundancer 360 minutes later. I should have never stepped aboard the 360. I immediately suffered from two-foot-itis, only that it was more like ten-foot-itis. Of course the MarineWorld rep just said to buy the Regal 2600 Express and then upgrade in a couple of years. LOL

[despritfreya]

There are some additional concerns over this thread and JB alluded to at least one.

The boat, regardless of the contribution by your significant other is your boat. From what I gather, your partner placed funds into your bank account. You then made the payment. Since the funds became your funds the moment they hit the account, it can be argued that your partner has absolutely no interest in the boat.

The funds paid to you (or on your behalf) by your partner for the six months prior to filing need to be referenced for means testing purposes and may or may not impact your ability to qualify for a Chapter 7. The only expense that will be “allowed” for means testing purposes, is the payment to the secured creditor since that is your obligation. The cost of the upkeep of this non-necessity are not referenced for means testing (assuming you are above median income and must complete the means test). Whether or not you can list such expenses on Schedule J depends upon local procedure. If the cost of keeping a “toy” is at the expenses of paying your creditors, you may have to “surrender” the toy. If surrendering shows you have positive cash flow you may have to elect a Chapter 13. You need to discuss this with an attorney.

As it relates to the attempt to shift the loan and ownership to your partner, JB is correct. Just don’t go there. The reality however, is that the lender is unlikely to agree to an assumption of the loan by some third party so, even if the idea of the transfer were a “good” one, it probably would not happen.

Please talk to one or more bk attnys in your local area.

Des.

[PurplePanda]

Thanks, guys. I really appreciate all of your help on this.

As it relates to means testing, I will be below Michigan's median income for over six months prior to filing, including the income/monthly payments from my SO for the boat and phone bill. So, I shouldn't have any issues there. I plan to discuss this, and a few other significant issues, with my attorney.