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What is the Best Way to Keep Our Jeep in Bankruptcy? – Debra

“Dear Steve,

My husband and I are 57 years old with credit card of $90,000 and two mortgages on our house totaling $230,000. After 4 years of struggling, shifting funds from credit card to the other and writing cash advance checks against our almost paid off house, we have finally resorted to filing bankruptcy. We met with an attorney who I feel will be very good for us, but in our meeting he made us aware that we would probably lose our newest vehicle, a 2006 Jeep Liberty. We have a 1999 Chevy Cavalier and a 1998 Chevy Blazer. I was prepared for everything that would happen to us when filing, but I am quite upset about losing our paid off vehicle.

Our attorney suggested that once the trustee takes the vehicle, we could buy it back but we would have to find the thousands of dollars needed to do so, so he suggested we take a $9000.00 loan and offer the money to the trustee. I was wondering if we could pay off some low balance cards, pay the attorney and then offer the balance to the trustee. Since we would be taking a loan very close to filing, would this be fraud? In your opinion, how do you think this would be viewed by the court and/or trustee? I am very confused as to what to do.

Thank you for your time,

Debra”

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The Answer

Dear Debra,

Conventional wisdom says that a loan close to bankruptcy would be very frowned upon by the court. I’ll ask some bankruptcy attorney friends to comment and give their opinion as well.

Big Hug!

What is the Best Way to Keep Our Jeep in Bankruptcy?   Debra
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Debra

    Steve,
    Thank you very much for taking the time to respond to my question. Dealing with such a situation is very trying especially when you do not know the answers to the legal issues. Your opinion, as well as Dan Nunley’s, has helped us to begin the bankruptcy process with the knowledge needed to make the right choices.

    Again, thank you.
    Debra

    • http://sandiegobillproblems.com Carl Starrett

      I appreciate Mr. Nunley’s very thorough and thoughtful response to your question. It save me a lot of typing and I will only offer a few additional comments.

      You are filing for bankruptcy and that will necessarily require some risk and sacrifice. You will need to work with you attorney to properly prioritize the use of your available exemptions.

      It seems to me that your attorney may have intended for you to use the Jeep as collateral for the $9000 loan. Borrowing money when you know that you are going to file for bankruptcy could resulting and the creditor filing and adversary proceeding, but providing collateral and/or reaffirming the debt may have been part of what your attorney intended to advise.

      Paying off the smaller creditors is a bad idea as noted by Mr. Nunley. The trustee could force the creditors to return the money anyway.
      .-= Carl Starrett´s last blog ..Should Christians File for Bankruptcy? =-.

  • http://www.oklahoma-bankruptcy-attorney.com Dan Nunley

    Debra,

    Thinking through available options to protect property before you file bankruptcy is known as “bankruptcy planning” and is entirely appropriate and necessary. Each of the options you come up with will have its pros and cons. And some options are inadvisable as they may throw up red flags to a bankruptcy trustee or even raise allegations of fraud.

    I’m not sure in which state you live, but depending on the exemptions available to you, you may be able to protect your Jeep if you were willing to risk having to give up one or maybe both of your two older vehicles.

    Here in Oklahoma, a debtor is allowed to exempt $7,500 equity in a vehicle which means that you and your husband could combine or stack your exemptions to protect a vehicle worth up to $15,000. And depending on the condition, mileage and value of your older vehicles, the trustee may not be interested in them.

    Your state exemptions for motor vehicles may be more or less than what is available to debtors here in Oklahoma. Also some states allow you the option of using federal exemptions. If you are able to do that, then the federal exemption for motor vehicles is $3,225 but there also is a “wild card” exemption of $10,125 that if also used would increase your available exemption to $13,350.

    There are several issues that you need to be aware of regarding taking out a loan on the eve of bankruptcy.

    First, under the new bankruptcy law of 2005 (BAPCPA), bankruptcy attorneys are prohibited from advising debtors to incur new debt. (This issue is currently on appeal before the US Supreme Court).

    Second, if the loan is unsecured, that creditor certainly would have a valid objection to the debt being discharged.

    Third, if you paid off a credit card with the loan proceeds, and that payment exceeded $600.00 and was made within 90 days of your filing bankruptcy, it would be considered a “preferential transfer” and the trustee could force the credit card company to turnover the money to him for redistribution to all of your unsecured creditors.

    The above three points assume that you take out the loan before you file bankruptcy. If you are unable to protect the Jeep with available exemptions and therefore decide to take out a loan to pay the trustee the non-exempt value, you may want to consider borrowing the money after you file bankruptcy. This would avoid the appearance of bad faith on your part as the loan then would not even be a part of the bankruptcy. You could even apply and be approved for the loan before you filed bankruptcy, disclosing your intention to file bankruptcy, and then closing on the loan after your bankruptcy case has been filed.

    I would suggest discussing these issues in more detail with your bankruptcy attorney and then following his advice. I wish you well.

    Dan Nunley
    .-= Dan Nunley´s last blog ..Free Tax Preparation Help Available To Tulsa County Residents =-.

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