Buy/lease new while my credit is still good?

[billtshea]

Here's the situation. Just went through a divorce will most likely have to file chapter 7 at some point. My credit is still good (in the 700's) as I'm barely above water making the minimum payments on everything. Soon, all will start catching up with me. My current car is only a year old (lease), but I took on a lot of negative equity with it and the payment is ridiculous. I will need a car post-bankruptcy, so here is what I am thinking. Buy/lease something new without trading in (eliminating the negative equity), voluntarily surrender the old car. Thoughts? Am I missing something?

[LadyInTheRed]

Sounds like a good plan to me. I recommend against leasing unless you have a good business reason to do so.

Do keep in mind that if you default on the lease and they repo, they will probably sue for a deficiency. So make sure you time it so that you aren't forced to file sooner than you plan. Also, if you know you will file and have no good reason to delay, stop paying on your unsecured debt (after buying the car of course).

[LadyInTheRed]

One other thing: Find out what the vehicle exemption is in your state so that you can make sure you don't have too much equity in the new car.

[billtshea]

Thanks Lady In Red! Well I'm looking to lease the new one so there won't be any equity in it. One more thing...I still have a few credit cards which I can use to pay off the negative equity in my current car (then just trade it in for the new one) if you think that's a better idea? Thanks again!!!

[bcohen]

Leasing any vehicle is the biggest waste of money on Earth, unless you are a business, and are leasing for tax purposes. Why not find out what your state's vehicle exemption is, and buy a beater that is worth close to that? A lot of good, dependable cars have very low values due to depreciation, but will still get you where you need to go.

[billtshea]

State vehicle exemption is 7,500. With a lease there's no equity, but you get a car that will last you the 10 years while you're rebuilding your credit. So should I just continue to buy beaters over and over again? That sounds like a bigger waste of money to me.

[bcohen]

You can buy a pretty decent car for less than $7500...a lot less than $7500. In fact, the market is flooded with decent, reliable used cars and vans for approximately $2000 to $3000. That's a lot better than having a monthly payment, even taking into consideration routine maintenance, and the possibility of repairs.

[LadyInTheRed]

It doesn't take 10 years to improve your credit. Bkforum members have reported getting great auto rates within a year or two of Chap 7 discharge.

Lease for ten years and at the end of 10 years you can buy a 10 year old car or return it. Buy a new or relatively new used car with a 5 year loan and in ten years you will own a car that is probably in pretty good shape.

Or, as bcohen suggests, buy an older used car and drive it as long as you can. By the time you have to replace it, you should be in a better financial position.

To get the best of the fresh start a BK will give you, you need to make good financial decisions. Leasing a car is rarely a good financial decision.

Using credit cards to pay down the lease before filing BK is risky. Don't do it without first discussing the possible consequences with a BK attorney.

[billtshea]

Thank you both for the advice. So it sounds like voluntary repossession is less risky than taking on the additional cc debt. Lady in the red, you mentioned a risk getting sued by the leasing company but if I'm going to file anyway, what's the risk? At what point should I stop using the credit cards and let them go? I'm at the point where I can't afford making the minimum payments and I only was because I wanted to get the auto situation figured out. Thanks again.

[LadyInTheRed]

I was just worried about the leasing company repossessing the car and trying to get a default judgement before you were ready to file.

First, do whatever you are going to do about the car so you can do it while you have good credit. Then, assuming you have not made luxury purchases totaling $650 with the same creditor within 90 days of the date you will file BK or taken cash advances over $925 within 70 days, I would stop making payments as soon as I was certain I was going to file BK. But, be ready to start getting phone calls from creditors.

Before you do anything that you can't reverse, please consult with a couple of bankruptcy attorneys and ask them these questions.

[billtshea]

Thanks!!!