This can be a sticky wicket. I’ve never actually used that word in a sentence. 🙂 Normally you can buy a car before filing bankruptcy. In fact, in some cases it can be a good idea (note: as a bankruptcy attorney I am not supposed to tell our clients to buy cars before filing). But you should know that if you do pull the trigger to buy a car before filing you often can get a better interest rate or other financing terms than if you are actually in a bankruptcy. You still have to pay to keep it of course. But you’ll have a better idea of what your budget will be when you actually file for bankruptcy. It’s a bad idea to have too high of a monthly payment also, so keep it within a sustainable amount. Getting a replacement vehicle before you file can also be a good idea because then any future repairs will be covered by a warranty. Once you are in bankruptcy, you likely won’t have extra money sitting around to fix a broken transmission, and would have to file motions to replace the car or obtain a short term stay of your plan payments if a Chapter 13.
What about selling your car before filing? Also a sticky wicket. That’s twice now, I’m on a roll. If you are selling for fair market value to a third party, all is good. If you are giving your friend or family member the deal of a century that is an incredibly bad idea however. The trustee can go get the car back and sell it at its real value for the benefit of your creditors. It is best to keep a record of the transaction and deposit the funds in your bank account so the bankruptcy Trustee can see that the money actually was paid and where the money went.
So, what about trading in a vehicle? Well, that also is not as black and white as you might think. I’m done with the wicket thing. If you are trading in a vehicle with a good amount of equity (maybe even free and clear) and you soon afterwards file a Chapter 7, the Trustee might not be too happy about it. You see, to them, you’ve now liened up an asset that may have been over your exemptions. They would have wanted to sell that free and clear vehicle to bring money into the bankruptcy estate. Particularly if you don’t have any exemptions left to cover the equity in the vehicle. But if the vehicle had a large lien on it and you’ve merely switched to another vehicle they likely won’t care. If you are in a Chapter 13, it likely won’t make a bit of difference. But be careful if you are filing Chapter 7 and make sure to obtain the advice of a good bankruptcy attorney before trading in your vehicle if it has equity.
Thinking about putting the vehicle in relative’s name so it’s not part of your bankruptcy? Not so fast. This is a huge red flag and often is deemed to be fraudulent. Only in rare circumstances will this be permitted – such if the vehicle had no equity and you wanted to put it in the real driver’s name (your child for instance) for liability purposes. Speak with a bankruptcy attorney before transferring any assets out of your name.
Bankruptcy has a lot of nuances. Only a bankruptcy attorney is going to know what those are. And if you want phone calls and emails returned about questions such as these, be careful of hiring a mill. We are a small firm in the Tampa Bay area who can strategize with you for the best result possible. See Christie D. Arkovich, P.A. and check out our Avvo client reviews to see if we might be a good fit for one another.