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Car lease ends in August, which option is best?

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  • Car lease ends in August, which option is best?

    My lease ends in August. The vehicle is a 2005 Honda Pilot in excellent condition, 63,000 miles on it.
    I can turn it back in or buy it for approximately $12,500. I would prefer to buy it but I'm not looking forward to seeking trustee approval or trying to line up financing. My wife drives the car to work and it is our primary car for family trips.
    I also have a 2003 Mitusbishi Galant that will be paid off next month. It has about 125,000 miles but it's still in decent condition. I drive this car to work.
    We are 22 months completed on a 60 month plan. It's been fairly smooth sailing so far.
    The options I see are:
    1) Turn in the Honda and buy a $2,000 cash car for my wife. We have about that much in the emergency fund. My wife HATES this idea. Considering the likely condition of a $2k car and the condition of the Galant, we would probably rent a car for any long trips.
    2) Turn in the Honda and get a $4,000 loan against my 401k to buy a $6k car. This should net a decent car. Not sure if we need trustee permission for the loan since I'd be borrowing from myself.
    3) Put the $2k in savings with the $4k 401k loan and borrow another $6k from my adult daughter and buy the Honda. Again not sure if we need trustee approval. Suspect we do, though, and that he would have lot's of questions about this arrangement.
    Crazy option 4) Put the savings, 401k loan, and $3k loan from daughter together, turn in the Pilot, and lease a new Accord. We would propose to pay the upfront costs and 3 years of lease payments at the lease inception. Can they not approve that? Has anyone ever tried this?
    I know I need to ask my attorney what she thinks will fly, but just wanted some opinions. Thanks.

  • #2
    Originally posted by dyrstr8s View Post
    My lease ends in August. The vehicle is a 2005 Honda Pilot in excellent condition, 63,000 miles on it.
    I can turn it back in or buy it for approximately $12,500. I would prefer to buy it but I'm not looking forward to seeking trustee approval or trying to line up financing. My wife drives the car to work and it is our primary car for family trips.
    I also have a 2003 Mitusbishi Galant that will be paid off next month. It has about 125,000 miles but it's still in decent condition. I drive this car to work.
    We are 22 months completed on a 60 month plan. It's been fairly smooth sailing so far.
    The options I see are:
    1) Turn in the Honda and buy a $2,000 cash car for my wife. We have about that much in the emergency fund. My wife HATES this idea. Considering the likely condition of a $2k car and the condition of the Galant, we would probably rent a car for any long trips.
    2) Turn in the Honda and get a $4,000 loan against my 401k to buy a $6k car. This should net a decent car. Not sure if we need trustee permission for the loan since I'd be borrowing from myself.
    3) Put the $2k in savings with the $4k 401k loan and borrow another $6k from my adult daughter and buy the Honda. Again not sure if we need trustee approval. Suspect we do, though, and that he would have lot's of questions about this arrangement.
    Crazy option 4) Put the savings, 401k loan, and $3k loan from daughter together, turn in the Pilot, and lease a new Accord. We would propose to pay the upfront costs and 3 years of lease payments at the lease inception. Can they not approve that? Has anyone ever tried this?
    I know I need to ask my attorney what she thinks will fly, but just wanted some opinions. Thanks.
    My opinion? Go with option 1. Pay cash if you can.

    Option 2, 3 and 4 require trustee approval. (In our district we cannot borrow money over $1000 without obtaining trustee approval. Your attorney will know what the threshold is in your district)
    Filed Chapter 13 02/2006 - Confirmed 05/2006 - Discharged 09/2011
    I'm not an attorney. My replies are merely suggestions or observations, not legal advice. As always, consult with an attorney before making any decisions.

    Comment


    • #3
      I say keep that emergency fund and get approval for a used auto loan. Nothing crazy, but will a $2000.00 auto get you through the rest of your bk? Will it need repairs? then you'll be digging into your emergency savings. Our 03 auto just had $1700.00 worth of repairs which is why we bought newer/used auto to get us through the next 5 years.
      Good luck!
      Retained atty 3/2010. Filed Chapter 13 on 1/2013.

      Comment


      • #4
        Our lawyer guided us in the direction that it would be ok to get a car in less than 2 yrs when our lease is up because we were approved and have already been paying a car payment all along. So it doesn't change the amount of our income/bills etc.

        We will see how it truly goes in about 16 mos.....

        Filed July 09
        Confirmation - June 2010
        Final Payment - June 2014 - 7/2/14 DISCHARGED

        Comment


        • #5
          I would certainly not lease another vehicle. How about just getting an auto loan for the same amount as your current lease payment and buying a used vehicle for that amount? Or does your plan call for you increasing your plan payment once your lease is over?

          edited to add: you need to get trustee approval to take on ANY new debt over the limit listed in your plan (usually over $1000), this includes borrowing from family or your 401k.
          Filed Chapter 13 on 2-28-10. 341 completed 4/14/10. Confirmed 5/14/10. Lien strip granted 2/2/11
          0% payback to unsecured creditors, 56 payments down, 4 to go....

          Comment


          • #6
            Our car loan ($244 per month) and lease ($302 per month) were averaged into our plan payment, so in August when these are paid off that's an extra $545 in our pockets! So I'm not so concerned about spending the emergency fund, it should build back up quickly.

            Comment


            • #7
              Originally posted by momofthree View Post
              edited to add: you need to get trustee approval to take on ANY new debt over the limit listed in your plan (usually over $1000), this includes borrowing from family or your 401k.
              Are you certain about that? I was wondering about this the other day and would be interested if you actually have been advised by an attorney on the issue. In Egjebjerg v. Anderson, the 9th Circuit Court of Appeals ruled that a 401k loan is not considered debt under the bankruptcy Code. After that ruling, the only reason a payment on a 401K loan is an allowable expense in Chap 13 is because the BK Code specifically says it is. The question in the case was weather a 401k loan payment could be deducted on the Chap 7 means test, but I think the reasoning in the Egjebjerg case could be applied to argue that taking a 401k loan is not incurring debt. Here's a quote from the opinion:

              "We join the vast majority of courts in holding that the
              debtor’s obligation to repay a loan from his or her retirement
              account is not a “debt” under the Bankruptcy Code.... [snipped cites to other case]....

              The reasoning behind these decisions is straightforward.
              Egebjerg’s obligation is essentially a debt to himself — he has
              borrowed his own money... [another snip].... Egebjerg contributed the money to the account in the first place; should he fail to repay himself, the administrator has no personal recourse against him. In re Villarie, 648
              F.2d at 812. Instead, the plan will deem the outstanding loan
              balance to be a distribution of funds, thereby reducing the
              amount available to Egebjerg from his account in the future.
              ...[snip snip]... This deemed distribution will have
              tax consequences to Egebjerg, but it does not create a debtorcreditor
              relationship.
              http://caselaw.lp.findlaw.com/data2/...h/0855301p.pdf

              I think borrowing from a 401k may be good option for the OP if his attorney advises him he can do so without trustee approval. I wouldn't say that in all situations, but the OP would just be replacing one payment with another so it won't create any new budeting problem. He will pay a much lower interest rate than on a car loan and he'd be paying that interest to himself. If the current rate of return on his 401k is anything like mine has been recently, a loan to himself may be a safer and more profitable investment.
              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

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