Necessities? Saving the car?

[BKinIllinois]

I'm getting ready to file Chapter 7 in Illinois. My hubby is not filing. We are getting a federal income tax refund of about $8700 (we had another baby last year and hubby's business losses). Only $4000 of that is exempt in Illinois. My lawyers told me to spend it down to $4000 on "necessities". They are not the most communicative people in the world and their explanation of "necessities" didn't help at all. For example, I was told to buy formula and clothes for the kids. That's not going to work because my kids are ages 1 and 3. I asked about car repairs and didn't get a straight answer. I was told that I need a car and it has to be driveable. Well, Hubby's car has body damage, but it's driveable. Does that count as a "necessity"? In a nutshell, I'm confused as heck about what I can and can't spend the money on.

My other issue is car-related. We have a 2005 Dodge Grand Caravan that we both co-signed. We still owe about $14k and it is only worth about $8k. The auto exemption in Illinois is only $2400. We would like to keep the minivan. How does this work? Again, the lawyers aren't very helpful in explaining things.

Any advice would be greatly appreciated!

[StartingOver08]

Well, the auto issue is easy - you are upside down by at least $6k so you have no equity to exempt in the auto.

As to spending down your tax refund, you need to use it on living expenses, medical expenses, stock up on groceries and staples, ...etc. There are all kinds of threads here going into detail about which expenses fly under the radar for Trustees. Just do a search for either tax refund spending or living expenses.

[BKinIllinois]

Thanks so much for the info. At the risk of sounding completely ignorant, what does it mean that I have no equity in the car?

[StartingOver08]

Equity is the amount of value you have over and above the amout you owe.

For example if you have a car that is worth $8000 and you owe (for example) $6000, then you would have $2000 worth of equity in the vehicle.

However, if you have a vehicle worth $8000 and you owe $14,000 then you owe more than the car is worth (in essence you have negative equity!). If you sold the car today, all you could get is $8000, but in order to get the title you would have to pay off $14,000. Clear as mud?? For BK purposes, this means you have zero equity in the car when you owe more than it is worth.

[BKinIllinois]

Thanks! I got it now.