Title car Loan before BK?

[vicmost]

I'm turning in my paper work to file chapter 13 this week. I recently purchased a second car so my wife could work. Being a mechanic I found a newer car with a bad engine and subsequently made the purchase and replaced the engine with borrowed money from my brother.
I now own the car free and clear and it is worth about $6500.
I owe my brother $1700.
I can't borrow any money from a bank do to my poor credit and the only source I found was a Title loan company. They require me to borrow at least $2500 and charge outrageous interest (5% per month) plus they want to charge me $200 in loan fees.
I know this is a bad deal. However I was thinking that since I was filing BK that it would eliminate the interest and I would only be paying the principal back plus the trustee's cut. And I was thinking that it would be better to have a car "financed" so I could get the exemption rather than having a car with equity in which I would have to pay in off in my BK plan. I live in California and I believe the allowable car expense is $2500.
Opinions please, I don't want to make a major mistake.

[LadyInTheRed]

You Need to Learn More About California Exemptions

If you want to get the loan to pay your brother, don't bother. It will be a preference and the trustee can go after your brother for the money. As a legal matter, your brother's loan will be discharged in bankruptcy. However, that doesn't mean you can't repay him anyway. Just don't do it until after your plan is confirmed at which time you can pay him if you can take the money from elsewehre in your budget. He may have to wait until after you after your done with BK.

You may be able to exempt the full value of the car. What other assets do you have? I checked your other posts and see you have a home and will be stripping the second, so I assume you have no equity and won't need to use the hometsead exemption for your home. If you use sytem 2 for your exemptions, you can use the unused $22,075 homestead exemption, plus the $1,175 wildcard on any property. The exemption for a car under system 2 is $3,525. So, you can use $2,975 of the homestead to cover the rest of the value of your car, leaving $20,275 to exempt other assets not covered by other exemptions.

California Sytems 1 and 2 are summarized at: http://www.courtinfo.ca.gov/forms/do...exemptions.pdf Page 1 is system 1 and page 2 is system 2. This is the only place I can find the exemptions effective April 1, 2010, so if you find something different, it probably isn't up to date. The $2,500 you mention for a car sounds like an old number from system 1. Pick whichever system is best for you, but you can't mix and match. We are fortunate to have relatively generous exemptions here in CA.

[SMinGA]

Agreed - paying your brother will be a problem. You can try to pay him back as you're able after your BK case is over, but anything sooner would be a problem.

Depending on how recently this transaction happened, perhaps he could be added to the title as lienholder for the $1700 - but ask your attorney first and make sure you can produce a paper trail that he gave you the $ to repair the car. This may not work, as to be successful he may have needed to go on the title at the time he loaned you the $.

Avoid the title loans though, even beyond paying your brother its a bad idea. The interest & fees you'd burn thru before filing already make it a bad idea.

[LadyInTheRed]

California Sytems 1 and 2 are summarized at: http://www.courtinfo.ca.gov/forms/do...exemptions.pdf Page 1 is system 1 and page 2 is system 2. This is the only place I can find the exemptions effective April 1, 2010, so if you find something different, it probably isn't up to date. The $2,500 you mention for a car sounds like an old number from system 1. Pick whichever system is best for you, but you can't mix and match. We are fortunate to have relatively generous exemptions here in CA.

I just noticed that the link I provided doesn't list the homestead exemption for system 1. I think it is because there was not an adjustment from what is in the current CCP Code Section 704.730. The link shows adjustments made to exemptions since the current CCP sections were inacted.

For system 1, CCP 704.730 sets homestead exemption as follows:

It's pretty confusing. Ask your attorney for clarrification of anything you don't understand.

P.S. CCP = Code of Civil Procedure.

[SMinGA]

Also-

Keep in mind that people usually don't 'lose' non-exempt assets in a ch. 13. They just determine a minimum that must be paid to unsecured creditors over the life of your plan.

[momofthree]

Repeating what others have already said:

1. CA has a very high wildcard exemption that you can use to exempt the full value of the car in addition to your other assets, so do NOT take out the title loan.

2. Do NOT under any circumstances pay your brother that money back until after you've filed and had your 341. You will have to pay him back gradually with extra money you have in your budget, or the trustee will take it back from him and you'll both be out the money. You may even have to list this "debt" to him on your petition.

[vicmost]

Problem solved! As luck would have it I recieved $2800 for some time I took off to bond with my new born. I wasn't exspecting that much but I'm not going to argue with their math! Now I just have to figure out how to keep my brother happy.
Thanks to all for comments!

[LadyInTheRed]

I just love getting unexpected checks!

But, uuummmmm, I'm confused. I thought the problem was that you were trying to come up with money to repay your brother. Since you say you need to find a way keep your brother happy, I assume you don't plan to use the $2,800 to pay him back. But just to be sure: Don't pay your brother!

So what problem did you solve? Having cash to buy the non-exempt portion of the car from the trustee? As already pointed out, if you have non-exempt assets, you don't buy them from the trustee in a Chap 13. You just need to pay enough over the length of the plan so that your unsecured creditors get at least as much as the non-exempt property is worth. Do you have $23,250 in assets that you need to use the wildcard exemption for? If you don't need all of the wild card for other assets, you can exempt the car and the $2,800 cash!

[vicmost]

I just love getting unexpected checks!

But, uuummmmm, I'm confused. I thought the problem was that you were trying to come up with money to repay your brother. Since you say you need to find a way keep your brother happy, I assume you don't plan to use the $2,800 to pay him back. But just to be sure: Don't pay your brother!

So what problem did you solve? Having cash to buy the non-exempt portion of the car from the trustee? As already pointed out, if you have non-exempt assets, you don't buy them from the trustee in a Chap 13. You just need to pay enough over the length of the plan so that your unsecured creditors get at least as much as the non-exempt property is worth. Do you have $23,250 in assets that you need to use the wildcard exemption for? If you don't need all of the wild card for other assets, you can exempt the car and the $2,800 cash!

Part of the problem is paying my brother. I can pay him some cash now and the rest over some installments making him happy. As long as I don't pay out a large sum at once I should be okay.
I'm looking at a no-asset case with payments only going to my secured creditors. I probably can roll the equity of the car under the wildcard exemption. I'm trying to maximize my exemptions to minimize my payments. It seams to me that you get penalized for having a vehicle paid off. Perhaps that is why people purchase new cars and then file.
Thanks Again

[momofthree]

Part of the problem is paying my brother. I can pay him some cash now and the rest over some installments making him happy. As long as I don't pay out a large sum at once I should be okay.
I'm looking at a no-asset case with payments only going to my secured creditors. I probably can roll the equity of the car under the wildcard exemption. I'm trying to maximize my exemptions to minimize my payments. It seams to me that you get penalized for having a vehicle paid off. Perhaps that is why people purchase new cars and then file.
Thanks Again

Be very very careful here. You cannot pay him more than $599 total in the year prior to filing. It doesn't matter if you pay him that $599 in 1 lump sum, or give him $20 here and there. Do not exceed that amount before filing or they will take it back from him or make you pay it back to them (so you'd pay it twice). If you, however, exempt the cash and then pay him back after filing, I *believe* this would be fine. HOWEVER, check with your attorney first!

[vicmost]

I will be careful. I will have receipts to back up anything I spend. Congradulations on your 0% payback to unsecured creditors. I hope to do the same!

[SMinGA]

Something I don't know why we didn't consider yesterday -

This is a ch. 13 filing, right? Not ch. 7?

Preferential payments, non-exempt assets are different in ch. 13. They just set the minimum amount you need to pay to unsecured in the plan. So if you pay your brother, you'll need to acknowledge that on your petition and you'll need to pay at least that much to your unsecured over the term of your plan. $1700 over 36-60 months

Not the end of the world, depending on what your DMI is and what priority debts you already have.

As always, I'm not an attorney and you should consult your attorney before making decisions.