Refinance cars to avoid cross-collateralization

[Grumpy2]

Perhaps this is a better question for an attorney, but I'm staring down the barrel of a chapter 13 that won't work. I currently have two cars that I am moderately upside down. Between both cars I am 8k upside down. I don't know what I was thinking, but I refinanced the 1st car on the day I purchased the 2nd. I had intended to trade it in, but they were offering me 5k less than low book for a new car with 20k miles! I couldn't sell it myself despite my efforts. I guess people in a hot area don't care for an awd car... To make it worse, I have 19k in unsecured debt at the same credit union. All of my eggs are in one basket. Since the credit union has a cross collateralization clause, if I were to file chapter 13 I would end up with a tremendous balance to pay off on my cars and it wouldn't help me at all. I don't want to file chapter 7 because I want to keep the cars. Even under chapter 7 I would have the same problem with reaffirming the loan.

Is it ok to move both vehicles to a new credit union now and file chapter 13 90 days later? I would save $582 in payments a month under that route and be able to take a deep breath for a change. If I were to file with cross-collateralized debt I would get stuck paying after the plan...

Is it a bad idea to remain upside down in the cars? I would like to keep them.

[momofthree]

If you have the option, then yes. However, do you know that you will get approved for the full loan amount? They might not be willing to refinance an upside-down balance....

[SMinGA2]

I'm not familiar with any credit union that will refinance upside-down-vehicles, but if you can then that is an option. Consult with your attorney though because it might be possible to negate the cross-collateralization issues in a 13. And depending on how long ago you bought the vehicles, you may be able to 'cram down' and only have the value treated as secured.

[HHM]

Assuming you could do so, that tactic is not a problem and actually a known tactic for dealing with the x-col agreements. You don't even need to wait 90 days. However, the TITLE MUST change hands AND, the old credit union must remove its lien.

The reason you don't see this strategy talked about more is because, as a practical matter, it is rarely done. The car is usually too upside down in value or by the time the debtor realizes bankruptcy is inevitable, his credit is already going down and cannot qualify.

So, can you refi, YES. Does it create problems for your BK, NO. Will you actually be able to do it, probably not.