Question about Car/Credit Card Cross-collatoralization and means test expense

[smokey]

Hi Everyone, I have been reading for a few months. Thanks to all who contribute.

QUESTION: Does a car payment for a car which you intend to discharge in bankruptcy still count as an expense on the chapter 7 means test?

I am planning toward a chapter 7 but am a bit of a close call with the means test so every expense matters to me.


I have two car loans (1 year old loans with no real equity in cars) with the same credit union that I also have a significant unsecured debt with.

They have said (which both my Attorney and loan paperwork confirm; it is a special trick that credit unions can do) that the cars can and will be held as collateral against my credit card. They will not allow the car loans to be re-affirmed in the bankruptcy unless I also re-affirm the credit card debt.

I have never missed a car payment but they have already begun to freeze/withhold my car payments (not apply them to my car loans) as a threat to get me to start paying on the credit cards.

I have no problem letting the cars to in the 7 along with the credit card debt but I need those car payments to qualify for the means test. Moreover, I need two cars for my household so no matter what I would incur more car payments (possibly even just with a loan against my 401K).


Do car payments for cars which you intend to let go in the BK still count as expenses on the Chapter 7 means test?

Thanks!

[smokey]

On a related note: and for more insight into Cross Collatoralization:

I asked my Father (a retired Banker) why they would want to take my cars back if there is no equity in them. It seemed to be in everyone's best interest for them to allow me to pay off the cars. That way they do not incur the expense of repossessing and selling them when they capture no equity out of their efforts.

He said that they are willing to do so because they can fail to capture equity a few times in order to capture the equity that does exist in many cases but also that they want to use that stick/carrot tool because quite a few people will actually agree to re-affirm the cc debt in order to either keep the cars they love or to avoid losing equity.

I can see why they do it...and I will happily turn my cars in if I have to. I will just have to figure out another way to get cars and I need to know how/if the pre-bk means test is affected by post bk financial expense scenarios.

[poorpoorpoor]

Hi, Smokey. I'm in the same situation and met with my attorney today. I'm on the fence about reaffirming my car and despite my questions, he couldn't tell me if it was a good idea or not. He suggested I take the car to Carmax to get the fair market value of the car, the attorney will then file a petition with the Court to declare the vehicle be worth that amount, the C.U. then can either approve the amount and let you buy the vehicle from them and they will release the lien - however, it must be stated that the car is free and clear from the other debts - cross-collateralization removed.

If approved, I would need to come up with the cash to purchase the car or have another loan lined up. This leads me to believe that the C.U. will not continue financing the vehicle after the BK??? This doesn't answer your question, but it is something you may want to think about.

As for me, I'm taking my car to Carmax later this week to get a fair market value and will decide what to do at that point... I have no equity in the vehicle, so I'm currently upside-down on the loan as it is.