Financing a Car Before Filing Chap 13 - Northern Dist of CA

[LadyInTheRed]

I'm thinking about financing a car at just under $15,000. It would be a five year loan with payments between $250-$300 per month. The only way I will be able to make the car payments is to stop paying either my credit cards or 2nd mortgage that will be stripped. But, I would stop paying soon any way as I my ability to continue making all payments will cease in April or May because of the end of an introductory CC rate. Even with the car loan, my unsecured creditors will get something in my plan, but they will get less than half of what they will get if I don't buy the car. I know buying a car is a common bankruptcy planning technique. But, could the trustee or unsecured creditors object to the purchase and finance of the car immediately before stopping payments to unsecureds and so soon before filing bankruptcy?

That's the question. Here's more background:

I will be filing a Chapter 13, probably in about 3 months, more if I don't get sued and can stand the calls from creditors. I am current on all my debt payments. My last credit card charges were in mid-January, but those were only a couple of small automatic payments that I didn't cancel (I made more significant charges in December). The only reason I haven't already stopped paying unsecured creditors is that I want to be able finance a car before late payments show up on my credit report. I'm married and filing separately. We have one vehicle in my name, a 1999 Toyota Tacoma truck. I am worried about relying on it for the next five years. I would also like something more fuel efficient, but don't want to give up the truck because we use it for camping, which will likely be our only way to take vacations over the next five years. We will also need it to sleep in on road trips to visit our elderly parents since we will no longer be able to charge a hotel room to the credit card when we can't stay awake the whole way. My assets are well within California exemptions even if I end up with some equity in the new car, which isn't likely.

I've consulted with one attorney who said it would be okay to finance a second car. But, she isn't very experienced and I had to correct her on one thing she told me. I'm not completely confident following her advice. I plan to consult with a more exprienced attorney, but if I am going to buy a car, I want to do it quickly before my next round of payments to unsecured creditors comes up. So, I thought I'd see what people here think.

[LALADY]

As you may know, I'm the one with the 401 loan repayment issue. I've had numerous attorneys involved in my situation. I'm in Ch7 with a motion to dismiss. I was advised that one strategy would be to allow dismissal, finance a car and get term life and then refile under 13 so I would be paying myself in essence (by getting a car since mine's old) and not so much to the creditors. (Forget the 401 loan repayment issue.) Another advised me absolutely not, that the trustee under a 13 would see right through it and file another motion to dismiss. My story is not exactly like yours, but that's what I was told. My situation is complicated, unlike most. Good luck!

[LadyInTheRed]

Thanks for your input, LALady. I suspect opinion will vary on this question.

I hope things work out for you. I also have a 401k loan, but my payment is not as high as yours. Based on the research I've done, I'm not concerned about the loan at all since a Chap 7 isn't the best option for me anyway. The incorrect information the attorney gave me was about the loan. She said it would be paid in the plan. I disagreed with her and she later emailed me to tell me I was right. I think she has more experience with Chap. 7. At least she was willing to do the research and admit she was wrong. It's a good lesson not to be afraid to question an attorney's advice if it doesn't seem right.

[momofthree]

We financed (100% + registration + fees) a $28000 brand-new minivan in July and stopped making payments in September to credit cards AND our 2nd mortgage. The attorney didn't even bat an eye at our purchase. The car is the ONLY thing we're even paying into our bk. You'll be fine buying a $15k car beforehand. It's even recommended when you're going into a ch. 13.

edited to add: we're also in CA. Eastern district.

[LostNFound]

Not to take away from your question, but is there a difference if you file a Chap 7 or a Chap 13 with the intent of buying a car before you file? In other words, BOTH Chap7&13, you would be able to buy a car before you file? right?

[lrprn]

Not to take away from your question, but is there a difference if you file a Chap 7 or a Chap 13 with the intent of buying a car before you file? In other words, BOTH Chap7&13, you would be able to buy a car before you file? right?

As long as:

(1) the car you buy is reasonable;
(2) the number of cars you own at filing matches the number of drivers in your immediate family;
(3) you can protect all the cars you own with your state exemptions (or are willing to pay what you can't protect to your trustee); and
(4) you can prove the car purchase was necessary right before filing,

then chances are yes, the purchase will be ok whatever chapter you file.

HOWEVER, always discuss this with your lawyer first before going ahead with a car purchase within 90 days before filing.