Buying Car before Filing Chapter 13 - question about interest rate

[seanp951]

I am about to file a chapter 13. I will be put into a 5 year plan. I have talked to my attorney about buying a car prior to filing and he said it is fine, go ahead, just make sure the payment is under $500/month.


here is one issue. i haven't aske dmy lawyer this question.. i can on Monday, but I wanted to see what people here thought.

given that I have stopped paying a lot of my creditors.. my credit rating is probably in the toilet. so if i tried to get a car loan, i'm sure the rate i would get is horrible. that severely impacts the payment and makes it harder to get a good car at the $500/month price point.

the price point of cars i am looking at are in the 25-28k range. depending on the interest rate I can get - the monthly payment will either be just UNDER or just OVER the $500 threshhold. (i have a small amount of equity in my current car, so when i trade it in, it will count as a small downpayment.. maybe 3-4k)

suppose that I find a car that i like.. but the rate I get quoted from the subprime lender is 15% or 20% - that makes the car payment come out to $575. my lawyer indicated that if I buy a newer car prior to filnig, but the car payment is over $500 it will cause problems.. they could try to force me to sell it, not keep it to approve my plan.

if I could qualify for a standard/normal used car rate like 5-8%, the cars i'm looking at would easily be under $500/month over 72 months.

if I buy a car, but get poor financing, and the car payment i sign up for is OVER $500/month, but it COULD be under $500/month if the rate was reduced or the term extended - does the BK court intervene to adjust any of these factors? would they force the interest rate down? or would they not do that at all?

I don't want to go out and spend too much on a replacement car only to piss of the trustee, and run the risk of losing it.. but i don't want to sell myself short and buy a car that is too cheap... the whole point of truying to buy a car before filing is to not only have a newer/more reliable car, and at the end of the plan, i'll have a car that is newer/worth more than the one i have now. i'm only looking at low mileage, reliable, practical cars.. but if I can get one that costs 28k instead of one that costs 22k, it will all benefit me...

if I have to just keep my exisiting car, that is fine too.

let me know if you think the BK court would intervene / take over that new car loan and somehow modify or force the terms to adjust so that the interest rate would be reduced to a better rate?


thanks.

[LadyInTheRed]

.. but i don't want to sell myself short and buy a car that is too cheap... the whole point of truying to buy a car before filing is to not only have a newer/more reliable car, and at the end of the plan, i'll have a car that is newer/worth more than the one i have now. i'm only looking at low mileage, reliable, practical cars.. but if I can get one that costs 28k instead of one that costs 22k, it will all benefit me...


if I have to just keep my exisiting car, that is fine too.

let me know if you think the BK court would intervene / take over that new car loan and somehow modify or force the terms to adjust so that the interest rate would be reduced to a better rate?

You're attorney said don't exceed $500. He knows you're trustee better than any of us, so follow his advice.

You can get a reliable, practical car for less $500 a month on a 60 month loan. You can probably even throw in a maintenance contract to get you through your plan. I usually wouldn't recommend a maintenance contract because they aren't cost efficient. But, in a Chap 13, what doesn't go to the car payment, will go to unsecured creditors. At the end of your plan, the car will be paid off and you can trade it in for a more expensive car if you want.

You could get a new Honda Fit for 60 months at 20% for around $450 a month. I'm basing this on the suggested retail price, and you should never pay suggested retail for a car. That leaves room for a maintenance contract. Go used and you'll pay less. I love my Fit and I am a very practical person. It's amazing how much stuff you can fit in the car. If you ever watch Dr. Who, I compare it to the Tardis - Bigger on the inside than on the outside.

There are a lot of other good reliable cars that you can get for less than $500 a month. Here's one list: http://www.edmunds.com/car-reviews/c...cars-2012.html. A great source for car buying is the Consumer Reports annual car issue. Not only does it give thorough reviews and comparison charts, but it gives you tips on how to get the best deal on a car. A $6.95 monthly online subscription is worth the info in that issue alone. Or, you can buy it anywhere magazines are sold. (I sound like an advertisement, but it's only because it was a very valuable resource for me a month before I filed BK.)

You don't need a $25K car. As you start your Chap 13, it's important to get in the habit of satisfying your needs instead of your wants.

[LadyInTheRed]

I just looked through your previous threads and saw this statement you made in another thread about buying a car:

i'll be totally honest.. selling my luxury cars to get "nice" toyotas would not be something I would be all thrilled about. I have always been somewhat of a car guy. don't get me wrong - I need to stop thinking like that... living beyond my means is why I'm here... but while I woudl have no problem completely giving up eating out, or buying new clothes.... driving a boring car would be something that for me woudl take getting used to...

Getting through a Chap 13 requires sacrifice. You need to lower your standards for a few years. You are bankrupt! You may just have to suffer the boredom of a non-luxury car. Either that or keep your current luxury cars and hope they make it through your Chap 13. I, personally, wouldn't take that risk. I love the security of knowing my car is going to get through my Chap 13 with me.

[SMinGA2]

I agree with LITR - assess why you 'need' to spend $25k-28k on a car. And follow your attorney's advice - he/she knows best.

Before you buy anything, discuss loan term with your attorney as well. I suspect it may need to be at/under 60 months as well.

[karm43]

The problem ib the interest I bought a car had no choice the rate was crazy 18 percent and 7 years Bought it 6 months before hand. They worked with the creditor got 5 and a quarter rate the extra money that i save on the car goes to unsecures maybe this would work for you with the lower rate put me lower then i needed, cause i was worried at the time too. But my hob car real old do not know how its gonna make it well i know its not oh well. Just make sure u buy 1 descent car 5 years is a long time

[keepsmiling]

My understanding was that in a 13, they bring the interest rate down to the "till" rate. Can you experts chime in here? Did I misunderstand this?

[Pandora]

@ keep

Generally that seems to be the consensus, however if you read the thread below - I guess it can vary.

http://www.bkforum.com/showthread.php?77345-Reduce-interest-rate-on-car-loan&highlight=till+rate

[SMinGA2]

I think that is a separate point. The issue here, I think, is the OP has advice from his attorney (regarding payment max) but is shopping for a type of vehicle that is likely to put him in a higher payment. Sounds like he's looking for validation that buying the more expensive car is ok. I would presume the attorney has good reason for saying keep the car payment at/under $500/mo. It might be that the trustee would see it as a bad faith move to take on a $600 car payment just before filing. There could be other factors, such as the OP's budget for the 13 in terms of what must be paid in full in the plan. (The car loan likely would be one of them.)

My understanding was that in a 13, they bring the interest rate down to the "till" rate. Can you experts chime in here? Did I misunderstand this?

[HHM]

Don't exceed the recommended payment, period. That is an issue related to the means test and what is allowed and not allowed. Some districts are far more strict on the car payment issue. And most districts are very strict on the car payment issue if the car is purchased on the eve of filing chapter 13 BK. If you go from no payment or a relative low payment, suddenly to a payment that is more than (twice that) of the allowed amount, that will generally be construed as bad faith and will jeopardize the BK. (e.g. get is dismissed).

[ksgirl38]

Ok, so now I'm curious, what kind of cars are you looking at?

[LadyInTheRed]

The problem ib the interest I bought a car had no choice the rate was crazy 18 percent and 7 years Bought it 6 months before hand. They worked with the creditor got 5 and a quarter rate the extra money that i save on the car goes to unsecures maybe this would work for you with the lower rate put me lower then i needed, cause i was worried at the time too. But my hob car real old do not know how its gonna make it well i know its not oh well. Just make sure u buy 1 descent car 5 years is a long time

Please post in proper sentances. This is too difficult to read.

[scuguy77]

Similar experience, wanting to replace my 10yr old car.
Filled out credit app at dealer today, there was the question 'have you ever filed or are filing bk in next 90 days?' I answered no.

If we file in April can this come back to haunt me? (I was declined so loan never happened)

Would other creditors see this or just the inquires on credit?

[ccmisery]

Similar experience, wanting to replace my 10yr old car.
Filled out credit app at dealer today, there was the question 'have you ever filed or are filing bk in next 90 days?' I answered no.

If we file in April can this come back to haunt me? (I was declined so loan never happened)

Would other creditors see this or just the inquires on credit?

That's a tough one, as I'll be in the same boat soon. I hope I am not asked that question on filing in the next 90 days.

Read the fine print on liability, it's probably a means of filtering but you can always say, well I did not think I was but you know.

Who are you shopping with, auto make? I heard some are worse then others on bad credit scores and you won't even get a loan.

[momofthree]

Similar experience, wanting to replace my 10yr old car.
Filled out credit app at dealer today, there was the question 'have you ever filed or are filing bk in next 90 days?' I answered no.

If we file in April can this come back to haunt me? (I was declined so loan never happened)

Would other creditors see this or just the inquires on credit?

#1, that clause does not hold water in court. #2, since the loan was never funded (because you were declined), it's a non-issue anyway. #3, other creditors cannot see the details of the application you filled out with another loan company.

[scuguy77]

I think it is only used in your file if a deal is made.

I was shopping at BMW which BMW FS is very conservative (strict) on their lending criteria.