Buying a used vehicle before filing..HELP

[mgs0987]

Hi Everyone,

New to the board here...I have decided to file BK7 and just a little bit of background info...
I am 22 years old and about 25,000 in credit card debt with payments totaling around 400 per month for the minimum...
I have a car I leased back in January (no clue WHAT i was thinking) its a 2010 Honda for 569.00 per month/36 month lease
On top of all of this I also have student loan payments coming due soon and those will total over 400.00 per month (I have some of those AWESOME sallie mae private loans with interest rates close to what you pay on a credit card...)

Anyways, I know for sure that I can NOT afford to keep my car once these student loans come due. I guess i had no idea how much the student loan payments would be.

I was just approved for a loan to purchase a 2008 Honda Civic at 10.39% for 72 months, payment of 258 per month. This is do-able on my income which is roughly 38,000

Is it OK for me to go ahead and buy the car before I file? I have discussed with an attorney and he recommends buying a car before I file to qualify for a better interest rate. My FICO is 685 right now but I am over-extended which explains the bad interest rate.

I don't know what to do and I am worried sick about the whole thing...I just know that I can not continue to live like this and I have learned my lesson. Living beyond my means and trading one car for another several times is what got me into this mess.

Also, should I let my leased vehicle be repossessed before filing? does it make a difference as far as what my credit report will show after I file? I'm wondering if it will show "Repossession/Included in Bankruptcy" or just iib.

I'm so sorry for all the questions..any advice would be greatly appreciated.

[LadyInTheRed]

If your attorney says to buy a car and you are sure you can afford the payments, go for it.

Be prepared to keep a straight face when they ask you to initial the box saying you don't plan to file for bankruptcy. I don't know if you are financing through Honda Financial, but they had such a box when I financed a car last month. I'm not worried about it since I plan to pay the loan as agreed.

[mgs0987]

The loan will be with Fifth Third Bank, my current auto lease is with American Honda Financial. I'm worried about the trustee not liking the whole buying a car before filing thing. I need a car though, and definitely can't afford to hold on to this lease much longer. The attorney I had a consultation with is not the attorney I will be hiring though because he is too far from my home. Should I still take his advice or wait until I talk to another attorney? In my opinion it makes sense because 1. I need a vehicle. 2. This honda civic is MUCH more affordable for me. 3. it's not like its a brand new car or anything....

Anyone have any advice on whether or not I should let my leased vehicle be repo'd before or after I file?

Oh, one more thing. I will be taking a loan from my 401k to cover the downpayment on the honda (1,700) will this be a red-flag? I hope not because it is my money..its not like I'm putting the down payment on a credit card or anything.

Again, I'm so sorry this is so long..I'm sure everyone feels anxious and stressed out after deciding to file.

Thanks again.

[NowImDownInIt]

If you are going to do this then I would stop paying the lease note now and save it for your down payment for your "new" used vehicle, rather than taking a loan against your 401k. That is NOT a sound financial decision.. The leased vehicle will show as repossessed either way and this way you aren't taking out another debt (even if it is only against yourself). I understand about trying to get right financially. Especially early in life.. I filed my 13 one month before my 22nd birthday. Personally though, I would do everything in my power not to take out a loan for a vehicle. Your situation sounds much like mine, in that, a car was a major source of my monetary woes... because of that, I will NEVER buy a car on credit again.

What state are you in? / Are you single with no dependents?

[SMinGA]

Buying the used car @ $250-ish per month seems to be a better move than trying to keep the high lease payment.

As to the rest, I'd say not to worry about what your credit report shows and don't pay more $ to your credit cards or the lease. About the same result as throwing cash onto a bonfire.

I say not to worry about your credit score/report because you have already lined up reliable transportation (the used Civic) and so will not need to purchase another auto for years. And I imagine buying a house is not going to be on the horizon for a while. I know many people want to jump to rebuilding their credit right after a bankruptcy, but first it can be very healthy to learn to live without credit cards for a while. When you do start re-establishing, go slow.

[NowImDownInIt]

I agree. My husband and I are falling off the credit radar forever.. We plan to buy a house after my discharge, but other than that, I don't care at all about my credit.

[SMinGA]

I won't go so far as to say 'forever' but I do not plan to ever have credit cards except for the purpose of maintaining credit for home loan purposes. And if all goes well with our inhouse modification, that won't even be needed for a while. (But at some point we will outgrow our house.)

I just worry about the person who has not yet filed and is more concerned with their credit report than learning to better deal with their financial well-being.

I agree. My husband and I are falling off the credit radar forever.. We plan to buy a house after my discharge, but other than that, I don't care at all about my credit.

[researchnerd]

I agree. My husband and I are falling off the credit radar forever.. We plan to buy a house after my discharge, but other than that, I don't care at all about my credit.

Totally with you on that. I don't care if I never see another credit card again. They are inherently evil.

I kind of don't care if we never own a house again either. I may feel differently after we come out the other side of our current foreclosure / bk mess, but now that we're renting instead, it sure seems a lot easier to deal with. We had a broken pipe the first week we moved in, and I thought "Oh NO, we can't afford a plumber right now....oh yeah, let's call the landlord."

[NowImDownInIt]

I just worry about the person who has not yet filed and is more concerned with their credit report than learning to better deal with their financial well-being.

I worry every time I see that. I also worry every time I go on the "ReBuilding" forum and see people gauging their success on how much new credit they can rack up. This does not give me much confidence that people have learned their lessons. Though my opinion and confidence in people doesn't matter any really.

[mgs0987]

Whoa, you guys really don't understand. I'm not more concerned with my credit than with learning a hard lesson in life. HOWEVER-obviously credit is judged for pretty much everything and I am concerned due to the fact that I am 22 years old, I don't own a home but would like to someday, and so for those reasons I would like to be diligent in cleaning up my report, not racking up new debt. I was just asking how it would show if I let my car go before going bankrupt. Not that I care, not much I can do either way. Those that "don't care about their credit" must already own a home and a car. I, however would eventually like to move out of my one bedroom apartment and own a place of my own. Apparently people saying they don't care are at a very different point in their lives than where I am at with mine. I'm sure a majority of filers are not as young as me because they rode it out as long as they could, avoiding the inevitable. I realize my financial disaster will not improve even if I did hold out. That is exactly why I am filing as early as I am, so I can move on with my life and put this all behind me. By the time I am 32 this will all be over with, off my credit. Most people buy their first home in their late twenties or early thirties....

[SMinGA]

Was not trying to be judgmental. My thought (and each person is entitled to their own opinion, and must ultimately do what is best for themself) is that the credit report should not be the first concern of the pre-bankruptcy planning.

Bottom line for credit after bankruptcy: make sure you have nothing negative after filing. So its imperative to get your ducks in a row, as the saying goes, before filing. It seems you are trying to do just that, by switching to a reasonable car payment. And a vehicle that should last a while.

In my opinion, its not terribly important what accounts go into the bankruptcy. Giving up the budget-draining car will do enough for your financial well-being to offset any negative credit impact of turning it in. Re-establishing is important in terms of getting a home, car loan. I am not one who will tell you that you don't need revolving credit - for the purpose of having a high credit score to get good mortgage terms, you do need open/positive revolving lines. Just should not be a #1 priority now. And it will be easy enough to add those things when you need to. (Ideal time frame would probably be to make sure you have accounts 2-3 years old before applying for a mortgage.)