Buying a car before filing?

[MrsM]

Our car is old, like 1994 old. Can we buy a new one before we file Ch7? I'm worried that our car will give up the ghost right after bankruptcy, before we can qualify for another loan. Will the trustee give us the stink eye if we do, even if we reaffirm? Will the bank try to repossess, even if we stay current?

I'm so stressed out. Maybe I shouldn't be, but I am.

[AngelinaCat]

It is natural to be stressed. So don't worry about it.

So having said that, there are many that recommend purchasing a new car before going into a Ch13, when the potential filers do not believe that the vehicle will live through a five year plan if it comes to that.

You are in much the same situation. If your car is totally paid for, and on its last legs, it is well worth your while to look into a newer used car, although not necessarily a brand new car. If your credit is good now, and you can (ideally) pay cash for a good used car, or finance same at a good rate, I would at least look into it.

There are other factors to consider, such as the Means test, and your exemptions, etc.

But, I caution you to think this out thoroughly, and talk this over with your attorney. If you do buy a car, especially a new one--before you file, let several months pass before you start the filing process. The more time you let pass, can work in your favor here.

I am only talking about a potential vehicle purchase here, nothing else. Good wishes to you.

[MrsM]

Do you think $20,000 will set off any alarm bells? We want to get a newer used van that we can drive into the ground, but everything with a reasonable number of miles on it is ridiculously expensive (imo). We're looking at a 2007 Honda Odyssey with over $60000 miles on it. After taxes, registration, and fees it will be almost $20,000.

[despritfreya]

There is nothing wrong with purchasing a newer vehicle if the older one is about to go to auto heaven. $20k seems reasonable. The real question is can you afford the payments? If you elect to do this make sure that your financing is 100% in place and you have made at least your first payment to the lender.

If you are trading in the older vehicle (for whatever that is worth) make sure the "transfer" is disclosed on question 10 of the Statement of Financial Affairs. Also make sure the newer vehicle is listed on Schedule B and the lender is listed on Schedule D. If you are filing a Chapter 7, your Statement of Intention would indicate that you will "reaffirm" and the monthly payment would be listed on Schedule J.

Des.

[Pandora]

..We're looking at a 2007 Honda Odyssey with over $60000 miles on it. After taxes, registration, and fees it will be almost $20,000.

are you sure you want to purchase a 5 year old vehicle for that price and finance it? Ouuucchh! Any other options for you (model wise) vs. a Honda? I have an 05 Honda Civic Hybrid and while I love it, the cost for parts is pricey vs. other brands if you go OEM.

Another factor you may want to consider first before committing to a particular vehicle is insurance; it will be affected if you're in a credit profiling state. Add to that a newer vehicle with full coverage and you could be looking at quite an increase in your monthly bills. Honda, like Toyota - retain their values better than some other models, so insurance is a bit more just for the make/model.

Something to check into before committing to a purchase....

[btbeme]

Yes, the Trustee will look at the pre-petition purchase. That does not mean that it cannot be done; rather, it has to be done right.

- a reasonable vehicle. Got kids? A van seems reasonable. Its a Honda, not a Mercedes. And, it is used. I'd say you are probably OK there.
- a reasonable price. Used cars are commanding big premiums right now. $20k seems a bit high for that vehicle according to my research, but within reason.
- a reasonable reason. You car is dying, right? Right? You need transportation. Seems reasonable.
- enough time. In this case, financing seems appropriate, since you will want to exempt the vehicle's value. Having a loan on the vehicle causes a lower exemption amount and allows you the payment exemption on your filing and Means Test, both of which could help you. BUT...make sure you do this well in advance of a filing, as Cat says above, to allow the loan to be "perfected" and the Trustee to not consider it abuse or a signal to dig deeper into your case. Des makes this point as well. It is important.

And, yes, of course, be 200% sure you can afford the payment post-discahrge, even if disaster strikes, because you will likely have to reaffirm the loan (ugh) and do not want a repo after discharge.