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Loans against non-exempt vehicle equity

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    Loans against non-exempt vehicle equity

    Just another reminder on exemption creativity.

    I own a car valued at ~ $11,000; the exemption is only $2,150. My attorney told me that I should consider getting a loan against the car (from either a lending institution or family member) and put the money into needed home improvements. I have no equity in my home, and the homestead exemption is $30,000. Just be sure the lender is added as a lien holder on the title.

    #2
    You need to be careful about borrowing against non-exempt equity just before BK. Not all district are lenient on that manoeuvre. It can be viewed as a type of fraud, i.e. intentionally encumbering non-exempt assets for the express purpose of avoiding creditors, that is bad bad bad.

    Also, you will almost certainly have to reaffirm the new loan with the lender.

    To do this move you should.

    1. Have a legitimate purpose for the loan proceeds and no other alternative but to borrow.
    2. You should not borrow more than what you really need for that purpose.
    3. You should probably wait about 3 months from the date you get the money before filing BK.

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