Cary Payment allowance VS Car maintenance allowance?? Unclear on difference

[seanp951]

I am a few months away from filing a Ch 13. I have been to my attorney a couple times for general consulations... I am going back to see him next week..and this one of the things I was going to ask him..I also wanted to ask here and get input from allof you. thanks.

I live in CA. the allowance for a car payment will be $496/month.

My wife and I will file jointly, and will be allowed $496 x 2. One car for each of us. We currently have two cars. We are making payments on each of them. My payment is around $450. Hers is around $550. My car is paid off in 2.5 years, hers in 3.5 years.

While in the Ch 13, and while making car payments.. we will be allowed $496 for each car payment. What I am NOT so sure about it this: What happens in the tail end of our Ch. 13, when the cars are paid off? do we get ANY kind of an allowance for REPAIRS???

both of our cars are relatively reliable. Each is currently covered by a warranty, but those extended warranties will expire at or near the time the loans are paid off. We wil have roughly a 2-2.5 year period dureing our Ch 13 plan where we have NO car payment and NO warranty coverage.

I am under the impression that once the car is PAID... we NO LONGER get teh $496 allowance, and that money will instead be applied toward debts. BUT.. is there an alternative allowance that we will get for repairs? things like oil changes, tires, things that will break? Despite our cars being reliable - I worry that in year 4 of our plan, one of our cars could have some kind of catastrophic problem that would require a lot of money to fix - and we won't have it. then we are stuck with a broken car? and there is nothign budget to fix it?

or will there be some amount per month - that we will get to set aside for repairs?

if there is NO repair budget.. it woudl make sense to get rid of our cars and buy newer/cheaper cars that have extended warranties that woudl make it almost to the end of our plan. then we'd be ensured the $496/alloance the entire 5 years...and we woudl not have to worry about any car repairs during that period.

I'm not sure what the best move is to do pre-13. is it to get rid of cars and repalce them with newer ones? or is there ever a situation where it actually makes sense to keep your cars adn NOT try to get newer ones?

our cars are a 2006 and 2007 model. both are japanese. one has 60k miles the ohter has 70k miles. given our current usage/driving habits - we will easily hit 120k miles on each car during the plan. i'm sure our cars will last that long and more - but there will for SURE be repairs do be had along the way if we keep them. if the trustee / plan is NOT going to permit any budget for repairs - we might be dumb to keep our cars as we woudl be setting ourselves up for big repairs that we will have no money for?

if we sold our cars and got newer ones... like slightly less used 2009-2010 models that came with extended warranties - and woudl get warranty coverage out to the end of our plan..and try to get 5-6 year loans..so that the cars woudl also be paid off right at the end or shortly after our plan is completed... we would end the plan with zero car payemnts...

i'm not sure what the best move is. also.. our credit is probalby crappy now..so even if we tried to get a car loan..not sure we'd get one..and if we did it would probably have horriifc rates. what hapens to a car loan once you get into a BK? do they ever force the car loan rates to more conventional / better rates.. OR if we buy a newer car and get stuck with 10-12% interest...or something erally bad...will we be stuck wiht that horrible rate throughout the BK or woudl the trustees ever modify it to something better?

any advice? thanks.

[Nofilb]

I'm also pre-13 and have two vehicles that are paid off and yes, you do get an allowance for paid vehicles. However, one of my vehicles won't make it for 5 more years. So I'm looking to purchase something before I file. The interest rate I got is horrible - nearly 17%. But I can pay the vehicle off early without penalty. I literally have almost enough money to pay for the vehicle I'm buying in a safe deposit box. I'm talking to one more atty tomorrow and will ask about what happens if you pay the vehicle off early. Hopefully I'll remember to report back! But to answer your question yes, you get an allowance for gas and minor repairs.

[catleg]

you are better off trading for a newer used vehicle with 6 year financing about a year before you plan to file.
That way the financing will run for the whole length of the bankruptcy, assuming you are stuck with 5 years.
If you pay it back through the trustee he can cram down the interest rate on the loan to something like the prime rate.
You want your payment to consume the whole payment allowance. You can finance an extended warranty too, even though
these are generally a waste of money.
Car lending is one of the few areas that is booming, even if you are subprime.

[seanp951]

catleg -

thanks for the info. I appreciate it. I will look into cars to perhaps replace one or both of mine. if I get a new or "newer" car... that has 5-6 years of payments on it.. even if the rate stinks.. at least it will be newer when the plan is over.

my current cars are actually really nice... I'm not thrilled about getting rid of them. don't get me wrong, they aren't BMWs or anything.. they are japanese.. but nice ones. think Lexus/Infiniti/Acura type cars. we've owned once since new, the other bought CPO with very low miles..and they have been very well maintained..so maybe i would be better off with my well maintained cars vs buying a cheaper used car that someone may have flogged?

I just don't want to get into year 4 of myh plan..and my SUV craps out and needs a new transmission or something..and get hit with a 5k repair bill... because on the plan.. I assume I'm not going to be have enough money for this....

what do you do in a plan when you suffer a catastrophic bill /issue like this? can you go to the trustee and ask for permission to skip a payment to fix the car? trade the car in and ask to get another car? or do they tell you to stick it and just let you suffer?

my big quesion was will there be an allowance per month for car repairs AFTER my car is paid off and I no longe can get the $496/month car PAYMENT allowance? if I had a repair allowance, I could stick that aside everyh month and be covered.

[michaelrice]

seanp951--something I didn't see in your original post: what if you planned on buying a new (or new used) car while you were in the chapter 13?

[mountanddo]

They do allow for car maintenance while you are in a chapter 13 but I don't believe you can increase it once your car is paid off to cover that car payment. If you have $100/month for car maintenance in your budget when you begin that's what you have throughout the plan. Once your car is paid off you can't really increase that to $400. Your monthly payment may go up once the cars are paid off which is why you'd be better off buying something to last through the 5 years. You also may be able to skip a payment or two if you really need to fix the car. Your plan should have some wiggle room in it so you can put some money aside for emergencies. For instance you budget $500/month on food and you only spend $400. $100 of that would go into your emergency fund. Chapter 13's don't really allow for "what if" situations. You need to build that into your plan using the allowed expenses.

[SMinGA2]

You do need to account for car maintenance in your budget, even with a car payment. Oil changes and other scheduled maintenance, occasionally tires & brake work. Those are standard even if the car is only a few years old.

For the car payments - that depends on how your district handles them. Your car loans may be paid as part of the plan. Meaning you would not make the payments directly to the lender, and it doesn't matter how long is left on the car loans. Or you may be allowed to make them as you are now. In the latter case, your plan would probably account for the higher DMI after the cars are paid off - to pay more to your unsecured.

You may want to ask your atty how secured/car loans are handled in your district. Will you have the option to pay them outside of the plan?

[catleg]

A lot will depend on whether it is customary in your district for the trustee to request a "step up" in payments once the car is paid off.
I've seen case law in the NY district that says they're not supposed to.
The same thing happens with 401k loans.
I have a step up in my plan towards the end once the 401k loans are paid off.

[seanp951]

my lawyer said payments to creditors will step up once the car is paid off.

my current car is a 2006 japanese midlevel luxury car. it has 60k miles on it. it's probably worth 19-21k. I owe about 14k. i could trade it in and make a bit of money.. i think. right now, my car will be paid off in 2.5 years. so if i keep it during my plan, the last 2.5 years of my 5 year plan, that $450/month will go to creditors.

if i trade in my existing car and get something similar but newer/lower miles - I'd wind up with a newer more valuable car in my driveway at the end of the plan. my 2006 will easily have 100k+ miles on it in 5 years if I keep it. if i trade for a barely used car that is certified - i'd have a warranty for most of my plan and when my plan is over - the car will simply be newer.

i'll have to see what kind of interest rate i can get.. if the rates I qualifyh for are terrible - it might mean trading in my "nice" car for a much "cheaper" one wiht high interest.. and maybe it's just a wash. trade a nice/reliable car for a lesser 'not so nice' car with lower miles with questionable reliability?

i like the idea of getting a newr car if it makes financial sense.

[SMinGA2]

A question to ask your attorney, before you make a decision:
1) Would a new purchase of a 'luxury' vehicle shortly before chapter 13 cause any problems with the trustee
2) If you buy a car with a high interest rate now, can it be absorbed into your plan at your district's till rate? (Designed to make more $ for unsecured, by bringing the car loan rate down to something the trustee deems reasonable. Also means the car loan would be repaid in the plan instead of you making the payment directly.) <---My district does this, which would put repay the car loan at something in the 5.5-7.5% range.

[catleg]

I would sell the cars privately, and then take a 401k loan, and use that money to buy a high end Toyota (e.g. Prius) or two.
I was able to borrow at 9.99% from Toyota/Lexus financial even with pretty poor credit.
Toyota will get less scrutiny than Lexus/Infiniti/Acura from lawyers/judges/trustee.
And remember in the upside down world of chapter 13 you're building equity for yourself by doing this.
If you don't max out your car allowance doing this then add lojack, extended warranty, etc.
Also remember that you can have positive equity in the car so long as you're paying out at least the same amount as a chapter 7 liquidation to your unsecured creditors. (at least as I understand it)

[seanp951]

my lawyer said it wouldn't matter what kind of car I bought as long as the payment was $496 or less. that is the allowance. both of my current cars are somewhat luxurious. They aren't BMW or Mercedes... but they are nice cars. I've owned one since new, the other I bought CPO with low miles. I have kept them both well maintained...so if I did keep them throughout the plan - they have a good chance of being very reliable throughout the 5 years... but nothing is certain. For all I know - each one would have major catastrophic problems.. OFF warranty... during my plan... anythign can happen. if i bought a newer/cheaper low mileage used car that is NEWER than what I have - I could probalby avoid any repairs and if I did have problems - they woudl for sure be under a waranty or extended warranty.

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... I know I sound like a snob.. i'm not. I don't drive an M5... I drive a japanese car... It's just that cars are my one vice.

I'm sure I could locate some reasonably "nice" car that is newer than what I have now with lower miles. I could trade a GS350 for an IS250... still have a nice car and probably be under the 496/month.

if I sold my existing sedan, I would make about $3000 if i trade it in. $5000 if i sold it privately. woudl it make sense to put that money down on the new car or woudl it make more sense to pocket that cash adn finance the new car 100%? not really sure what the best way to do that would be? obvoiusly, if I put the money down on the new car, it would enable me to get a slightly nicer car.

[catleg]

I have two Lexus E class...glorified Toyotas, bought both used and financed for 6 years.
My payment was over the 497 cap for both, so I ended up just negotiating more dollars into the plan (ate the difference).
You can keep what you've got, or see if you can upgrade to a newer model year.
Just keep the monthly payment near the allowance, or be prepared to eat the difference.
I assume you make enough to be forced into a 13 instead of a 7.
The car allowance allows you to build some equity instead of giving money to your creditors.
But it's not such a great deal that I would engage in an uneconomic decision to take advantage of it.

[seanp951]

what happens if you buy a car that goes OVER the allowance? can the court make you sell it or deny the chapter 13?

hypothetically.. suppose to sell my existing car and get a very similar one.. just newer.. would cost me $600/month... so I sell my car that costs me $450/month and buy one that costs me $600/month.

do they give me the $496 allowance and then force me to pay the extra $100/month out of my other expenses.... or do they force me to get rid of it? i can see a court being pissed that someone would sell a perfectly good car that costs $450/month and is almost paid off to get a newer version fo the same car, and increase their monthly payment by $150 month and feel it's cheating /d irty and then want to be punitive...

or is that what people do all the time and they just look at the dollars and cents and say, "you bough ta car that is over the allowance, so you have to pay extra"?

i'd be nervous about doing anything that would tick off the judge and/or trustee and get my plan denied. i also don't want to pass up chances to maximize the benefit this will have to me and my family. if i could get a newer version of my existing car.. great. or if i could get someting very similar...great.

i'm meeting with the lawyer in a week. i'll update you about what he says regarding this issue.

[mountanddo]

I have two Lexus E class...glorified Toyotas, bought both used and financed for 6 years.
My payment was over the 497 cap for both, so I ended up just negotiating more dollars into the plan (ate the difference).
You can keep what you've got, or see if you can upgrade to a newer model year.
Just keep the monthly payment near the allowance, or be prepared to eat the difference.
I assume you make enough to be forced into a 13 instead of a 7.
The car allowance allows you to build some equity instead of giving money to your creditors.
But it's not such a great deal that I would engage in an uneconomic decision to take advantage of it.

How did this actually work? I can't imagine that you would be allowed to sell your car and buy one over the allowance and just "eat the difference". Where did you come up with the funds to do that? It's my understanding that all your disposable income goes into a 13.