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Getting new car prior to filing BK
Don't know if it's a problem because its never been an issue, but I
routinely tell clients to buy a new car if the old one is about to die
or to replace a car where one is too expensive. Just list everything,
of course, in the schedules. Never had it be a problem in either 7 or
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There is no clear-cut answer. Wasn't there a 9th Circuit (Idaho?) decision
a year or two ago that came down against the debtor where the pre-petition
purchase was frowned upon? Factors cited by the court in weighing seem to
be, as I recall, type of vehicle, payment, proportionality to budget,
closeness to filing, etc.
I had EC tell me once that the debtor's $550 SUV payment was unreasonable
and she was allowing only $300. Separately, I've persuaded people who had
JUST purchased a Corvette with a $900/month payment to not file Chapter 7
(with my office, at least). Two $800/month car payments for joint debtors
if they were purchased a year or two ago when income was much higher would
seem more reasonable. A $600 car payment for a Kia at 21% (high only
because of poor credit) feels different than a new $600 payment for an
Infiniti at 4% (high only because it was debtor's last hurrah).
Bottom line: it depends and is fact-specific.
Hale
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Debtor has about 9 months left on a vehicle lease and is about to file
Chapter 7. The lease payment is about $480/mo.
Debtor wants to get a "new" vehicle purchase-finance (instead of lease)
because he anticipates having worse credit, etc. after the Chapter 7 and
wants to make sure he has a vehicle.
Plus, given the way the vehicle deductions on the means test work, if he had
a purchase-financed vehicle at say, around $525/mo, it would help with the
means test (debtor is VERY borderline now).
Does anyone see a problem with doing the above? I assume it best to get the
"new" vehicle, then turn in the leased one prior to filing the BK.
I know Dennis had a recent case that went the wrong way with exemption
planning (as I recall), so wanted to make sure I wasn't stepping in a
landmine here.
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Mark J. Markus
Law Office of Mark J. Markus
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Studio City, CA 91604-2652
(818)509-1173 (818)509-1460 (fax)
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