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Sticky situation...help!

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  • Sticky situation...help!

    One year ago, I was doing OK financially. Had a 2015 Chevrolet Malibu that was running OK, had some issues (such as constant low tire pressure in different tires), didn't really like it, couldn't trade it due to being WAY upside down. So I went out and got a new 2016 Chevrolet Spark as a second vehicle instead. The previous two times I'd done that, the first time it ended in bankruptcy (Chapter 13 in 2006), the second in repossession (2014)...but this time would be different, since the combined insurance and payments were a bit lower than before...right?



    Wrong. Things were indeed OK for the first few months, but then started to go south. With my low to mid 600s credit score, I could get the car loans, but not much else in the way of credit (especially unsecured credit with good rates), so when things got tight, I found myself going to payday and other high interest lenders to make ends meet. Eventually I would up with three of those, plus the two car loans, plus 6-7 credit cards. None of them had balances over $1,000, but it was still money out of my pocket. And of course you had food, gas, bills, rent etc.



    In April, I had fallen behind on the Malibu and was preparing to let it go (couldn't sell either car due to being WAY upside down on both)...but then I got something in the mail about a refinance. I called the number on the mailer and set up an appointment with a local car dealership to see about refinance or a trade. Of course I figured they would probably not do a refinance, after all, selling cars is what they do, but I thought anything would be better than a repossession. They promised to lower my rate and payment with a 2017 Malibu, and in the end, the rate was half of what it was on the 2015, but the payment was about $40 higher. Not worried at the time though, I figured I'd get $2,000-$3,000 back from the cancellation of the extra cost products on the 2015 (such as GAP), use that to pay down/pay off at least one or two of the payday-type loans, and get back on track.



    Well, things didn't turn out exactly as planned. I did get a decent check, but more like $1,400, and I ended up having to use half of that to pay a $700 Verizon bill, the other part to live on, so I wasn't able to make June's or July's Malibu payment, and now I'm about two weeks away from losing the 2017 Malibu...and I'm at a crossroads. Part of me wants to let the Malibu go, keep the Spark, and just hope for the best after repo...part of me wants to file a Chapter 13 and try to keep the Malibu since 1) I do like it 2) I'd love to keep it 3) I may be forced into Chapter 13 anyway after they come after me for the deficiency balance. But in light of the situation -- especially with one of my current loans being a payday loan -- would a Chapter 13 be advisable, or even possible, right now anyway? Or would I be told to come back later?

  • #2
    Originally posted by shawnaeby113 View Post
    Part of me wants to let the Malibu go, keep the Spark, and just hope for the best after repo...part of me wants to file a Chapter 13 and try to keep the Malibu since 1) I do like it 2) I'd love to keep it 3) I may be forced into Chapter 13 anyway after they come after me for the deficiency balance. But in light of the situation -- especially with one of my current loans being a payday loan -- would a Chapter 13 be advisable, or even possible, right now anyway? Or would I be told to come back later?
    I'm not sure you can afford to keep both. A serious look at a budget that looks forward a year or two may be best. A Chapter 13 is a good tool, maybe the best tool, to save property. In a Chapter 13, however, you will likely be unable to keep two vehicles without a very good reason (one is a work vehicle or you have a dependent).

    it will boil down to just what you can afford. Your vehicle payment shouldn't be more than 10% of your gross salary. That's because housing is usually 30% of your gross salary. With taxes and food and maintenance and medical and... you can see how quickly you will not have any money for any of life's challenges.

    You're going to need to take a closer look.

    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog


    I am not an attorney. Any advice provided is not legal advice.

    Comment


    • #3
      I wouldn't want to keep both, but I was kinda thinking that if I may be forced into Chapter 13 anyway, it might be better to be stuck with the much nicer vehicle during that time frame. But would the lack of payments, extreme negative equity (we're talking owing $50K on a car worth half that much) and the timing of the purchase be viewed by the court as an attempt to maliciously cram down the Malibu's balance/payments?

      Comment


      • #4
        For secured debt, such as a car, the court and Trustee usually don't look beyond the fact that it's merely secured debt. The only inquiry could be in how much you are paying on a monthly basis! At $50K, that payment must be at least for 60 months (5 years) at 0% interest is $833/month. That's way outside what's allowable.

        Now, if you get a good attorney and they fight the valuation, even though it's a so-called "910-vehicle," maybe they can get the negative equity moved into the unsecured part of the claim and you'd only be paying the secured portion. There are cases which cover the entire gamut of whether the negative equity is protected under the 910-vehicle test in Chapter 13s. If you could get that negative equity taken away, you may be okay. The allowable monthly payment for a car, a/k/a the ownership allowance, is $485/month. If you exceed that amount the Trustee would/should take opposition.
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog


        I am not an attorney. Any advice provided is not legal advice.

        Comment


        • #5
          Thank you, that was very helpful. Is the $485/month fixed or does it vary based on income? Now as far as the actual payments go, on the Malibu goes, I believe it's $887/month and on the Spark it's $370/month. So how I'm understanding what you're saying is, basically if I were to file today pre-repossession, I would be forced to give up the Malibu anyway unless the attorney could base the payments off the actual KBB value in the mid $20s. Sounds like I could be better off letting the Malibu go and only filing if the worst happens post-repo (which it might not).

          Comment


          • #6
            The $485/month is the national fixed amount. It does not vary. You would have to give up the Malibu *if* you could not cram it down *or* you won't pay the extra value to the unsecured creditors. That's where it can get a little complex. I'm pretty sure that most automobile lenders come after people for the deficiency, especially when it's more than the value of the vehicle!
            Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
            Status: (Auto) Discharged and Closed! 5/10
            Visit My BKForum Blog: justbroke's Blog


            I am not an attorney. Any advice provided is not legal advice.

            Comment


            • #7
              Why, exactly, do you want to file a Chapter 13? Is it because you are way over the median income for your state, and unable to pass the "means test", or is there non-exempt property which you want to keep? My point is that with all this negative equity, deficiency balances, and payday loans, you have a lot of unsecured debt, and Chapter 7 is a better tool for dealing with insurmountable unsecured debt. If you qualify, you could keep your Chevy Spark (assuming your equity in it is within your state's exemption amount) and surrender your Malibu, and discharge all your unsecured debts.

              And next time, please keep your car until it no longer runs and cannot be repaired. It is best to avoid taking on debt in order to replace a car which runs fine with a new(er) one. Newer is not always better, and certainly not worth going into debt for!

              Comment


              • #8
                Originally posted by justbroke View Post
                The $485/month is the national fixed amount. It does not vary. You would have to give up the Malibu *if* you could not cram it down *or* you won't pay the extra value to the unsecured creditors. That's where it can get a little complex. I'm pretty sure that most automobile lenders come after people for the deficiency, especially when it's more than the value of the vehicle!


                Right, I'm not expecting the lender to just eat the loss, especially when it's it the neighborhood of $20K-$30K like it will be here. So I'm thinking best case scenario is collections, worst case judgement/garnishment/something like that. I'm still paying on a repo from 2014 that went to collections, and they've been really good about working with me on a doable payment. Probably because they know that if they play hardball, I could file and their chances of recovery go way down. But the Malibu represents the vast majority of the debt -- Malibu is $50K, Spark $14K including about $7K negative equity, installment loans about $9K, credit cards about $5K...I figure the negative equity from the Malibu would more than cover the unsecured creditors.

                Comment


                • #9
                  Originally posted by bcohen View Post
                  Why, exactly, do you want to file a Chapter 13? Is it because you are way over the median income for your state, and unable to pass the "means test", or is there non-exempt property which you want to keep? My point is that with all this negative equity, deficiency balances, and payday loans, you have a lot of unsecured debt, and Chapter 7 is a better tool for dealing with insurmountable unsecured debt. If you qualify, you could keep your Chevy Spark (assuming your equity in it is within your state's exemption amount) and surrender your Malibu, and discharge all your unsecured debts.

                  And next time, please keep your car until it no longer runs and cannot be repaired. It is best to avoid taking on debt in order to replace a car which runs fine with a new(er) one. Newer is not always better, and certainly not worth going into debt for!

                  I actually don't want to file for bankruptcy, and would rather pay my debts off via a Dave Ramsey-style "debt snowball" system without filing, as that would give me much more control over my finances over the next few years. I am just thinking that if the repossession of the Malibu causes its lender to try to put me into a corner financially, then I may be forced into it anyway, and I was thinking it might be better to have to commit to a much nicer car for a 3-5 year period than a much more basic car, hence my considering filing pre-repossession, and my posting this thread. But it sounds like it would be hard to keep it either way, so I might be better off NOT filing for now, letting the Malibu go, seeing what the lender does, and if they want to play hardball, then perhaps file, as all but $7K of my $85K debt estimate being unsecured from my previous post could put a Chapter 13 case in a much different scenario...right? Although I would expect about $20-$25K of that to go away upon the Malibu's resale at auction.



                  And as far as not borrowing money for cars...I will say that this has put a bad taste in my mouth not just for car credit, but credit in general. I have paid off one tiny, $400 credit card, and that was hard -- and nearly broke me -- but hopefully I can pay the rest of my debts off without filing!

                  Comment


                  • #10
                    To be honest, nothing in your above post explains why you shouldn't file for bankruptcy. In fact, after reading it several times, I think you should quit paying all your unsecured debts and file ASAP. I don't know how old you are, or what the "shelf life" is for someone in your industry, but the fact remains that for all of us, we have a finite number of working years, in which to build enough wealth to sustain ourselves through retirement. Even if "retirement" means working a part-time job while collecting Social Security, you still need to start saving now, and throwing good money toward bad debts is preventing you from doing that. Do not let "pride" or concerns about the "morality" of stiffing your creditors force you into an unsustainable situation. The decision to lend money to you was strictly a business decision, and the decision to declare bankruptcy and shed your unsustainable debt burden must also be strictly financial.

                    To put this into perspective, you are likely older than me, and have fewer working years remaining than I do, and more debt than I did when I filed, and looking back, my only regret is that I didn't file sooner. At the time when I filed for Chapter 7 bankruptcy in April 2013, there was only one debt which I was being pursued aggressively over--a Discover credit card, which resulted in a lawsuit and eventual judgment for over $8800 on an original balance of less than $3000. All of my other debts were simply sold repeatedly, and none bothered to file a lawsuit. In theory, I could have negotiated a payment plan with the judgment creditor, and scrimped and struggled and paid it off, but why? As a result of declaring bankruptcy, I have gone from having minimal savings and approximately $40k in debt, to having over $10k in the bank, and another $8k in my retirement account. Bankruptcy allowed me to use my income to save for the future, and pay for living expenses going forward, not throw it down a black hole to pay for old bad debts. Oh, and before I filed, I didn't even own a car, now I have a 2004 Toyota Corolla and 1995 Dodge Caravan, both bought used from private sellers, without a loan.

                    I suggest putting aside your sense of "pride" and "morality" and making the smart financial decision, which is to look out for Number One. That would mean cutting your losses on all this bad debt, filing for Chapter 7 bankruptcy (if possible, or Chapter 13 if you don't qualify), and learning to live more frugally. It is almost always cheaper to keep an old car running, than to buy a newer one, especially if you have poor credit and need to finance. I do most of the work myself, however even if I was paying a mechanic, it's still cheaper in the long run than paying interest on top of interest on top of refinanced negative equity.

                    Comment

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