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My car is not exempt -- options??

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    My car is not exempt -- options??

    Hi everyone,

    I filed Chapter 7 last week, and the only issue I still need to work out is my car.

    I am married, but filing myself. My husband is not involved in the bankruptcy.

    I am in FL, where there is only a $1,000 car exemption. My 19 year old college-age son uses an old, beat-up car to travel to college with, and that car is in my name only. It is an old '99 Toyota Rav 4 and is probably on its last legs. It has around a $1,000 value (according to what my attorney looked up), so the state exemption is going towards that car. Taking this car from my son and using it myself is just not an option.

    That leaves me with my car, which I own free and clear. I have a 2008 Honda Element EX that my attorney came up with a value of about $9,000 for. I don't feel it's an option to give up the car, as I then have no transportation to get to work and no money to buy a car. I feel really stuck.

    My attorney and I talked through a few options. One of them is seeing if I qualify for a 722 Redemption loan, to basically buy back my car over a few years. I am not sure if I'll qualify since my income fluctuates so much month to month, but I did make an initial call to a 722 Redemption company and received an application.

    Another option is taking $9,000 from my IRA or 401K. I can't do a loan, since I am no longer employed at the business where I have my 401K. I recognize the tax hit and early withdrawal penalties, and I would have to take out more than $9,000 to cover the taxes. Currently I have about $80,000 in 401K and IRA. (My husband has about $45,000 in his).

    Apparently you can also buy-back from the trustee, but my attorney says we get 10 months for that, and $900/month is too much, so that does not seem like an option for me.

    The other option was a Chapter 13, which I already rejected. The Chapter 7 is filed, and my income was very much below the means test level. It wasn't even close.

    This car issue is stressing me out and I need an objective voice or two. My gut instinct is to go with the 401K withdrawal, because even if I qualify for the 722 Redemption, I really was looking for a fresh start, and having a loan to pay off right after discharge is not appealing at all.

    Side note, I plan to keep my home (also in my name only -- I owned the house before I got married 4 years ago and husband moved in), so I will continue to pay my mortgage each month, but besides a mortgage, I was really hoping not to owe anyone anything and start rebuilding my financial life.

    Thoughts? Ideas? What would you do in my situation?

    #2
    Do a 722 redemption. You will get the loan paid off eventually. If you withdraw money from your IRA or 401K, you will never get back the tax and penalties you will have to pay or the growth on what you withdraw. Even with a high interest rate, a redemption is going to be your best financial choice in the long run. Part of a fresh start is making good financial decisions.

    How's your husband's credit? Another option may be to let the trustee have your current car and have your husband finance another car for you.
    LadyInTheRed is in the black!
    Filed Chap 13 April 2010. Discharged May 2015.
    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

    Comment


      #3
      I can't add anything to what LadyInTheRed has provided. Excellent advice on avoiding a "distribution" from your 401(K) and for you to seek out other sources! Who knows, the Trustee may even negotiate the value of the vehicle down because the Trustee would lose money attempting to liquidate the vehicle. (Think wholesale value, not clean retail and certainly not private party values.)
      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

      Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

      Comment


        #4
        Hi, do not use your 401k funds, just don't!!!! Husband financing a decent used car for you is a common sense approach or getting the car from your son (can he make other arrangements? bus? friends? move to campus? he may have to figure it out...), look you filed chp 7 and will have to make sacrifices but the one thing you should not do is use your retirement funds, pay the penalty and taxes, it just defeats the whole fresh start thing. Don't make things harder for yourself...

        Comment


          #5
          Hubby's credit is ok, but he is already financing his own car and I'm unsure if he would even qualify for a 2nd car loan. His income isn't high at all.

          Taking the car from my son not an option.

          I'll consider the 722 Redemption, but it's a big "if" if I will qualify. I have very little income in the summer months, and my other job is self-employed with extremely variable monthly incomes. So we will see! I'll certainly apply and see if that's an option and will go with that as long as I'm approved!

          Appreciate the input.

          Comment


            #6
            I had about twice that in my 401K, and I took out some cash to live on AFTER the filing date. Of course, I didn't have a job, and I needed cash to live on (and SNAP only gave me $200/mo.) I wouldn't be super against taking a distribution, but if I had an income stream from which payments could be made, I'd take advantage of that, even at a high interest rate (as long as it would not be payday-loan high!) Keeping your car is essential, and if you really had no other way to keep it, you should take a distribution; remember, you can always put cash back in to an IRA as contribution.

            Comment


              #7
              Don't MESS with your 401K!!!! If you do, no matter the best of intentions, you are stealing from your future!
              "To go bravely forward is to invite a miracle."

              "Worry is the darkroom where negatives are formed."

              Comment


                #8
                Even if you do put cash in an IRA to make up for the withdrawal, the penalties and tax on the distribution are gone forever.
                LadyInTheRed is in the black!
                Filed Chap 13 April 2010. Discharged May 2015.
                $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

                Comment


                  #9
                  All of your opinions and thoughts are taken and received. Thank you. The 722 Redemption is applied for, and I'm just waiting to hear at this point. Fingers crossed I am approved. If not, I will have to go back to the drawing board. My job requires me to do some car travel 2-3 times per week, very often 1+ hours away in the evenings (self-employed job). Taking my son's car is not an option, as mechanically it is very unreliable and I cannot be caught 90 miles away from home at 11pm on the side of the road. Already, you can hear it clanking down the road, LOL. Florida's measly $1000 car exemption is killing me here!

                  Comment

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