A friend of mine, who recently has been complaining that she doesn’t have 2 dimes to rub together, shows up at my place with a brand new $35,000 car. All she says is that the lawyer told her to buy a new car because she’s filing for bankruptcy. What’s really going on here? Does she somehow get to keep that car? What happens to the rest of her bills?
I’d be worried about buying the new car, as I understand, there are certain assets that can’t be taken away (such as a house and pickup truck in Texas) when one files for bankruptcy, but I also understand that there is a time limit where creditors can’t go past when claiming money (i.e. if you stash your loot someplace X days before or after filing, it’s still fair game). She’s probably taking advantage of this to put her money in…something before it gets doled out. Now why someone would want to hide their money in something that does nothing but depreciate in order to hide it from being taken is beyond me.
[quote]
(d)
The following property may be exempted under subsection (b)(1) of this section: [snip] The debtor’s interest, not to exceed $2,400 in value, in one motor vehicle. If she doesn’t buy the auto, (kept the money in the bank, for example) she would have no exemption. Although she doesn’t get to keep the car, it would have to be sold and she would be entitled to the $2400.
If your friend tries to convince a bankruptcy judge that she had the money to buy a $35K car but couldn’t settle her depts, someone is likely to say it doesn’t compute. If she is entitled to keep a certain amount of the car’s value, I would bet it is enough to cover the attorney’s fee and not a nickel more. I would think that doing something like this borders on bankruptcy fraud and that is fairly serious charge. I might advise her to get a second opinion.
This bankruptcy faq may be helpful. Or this one.
A person who is considerig bankruptcy might buy a new car for several reasons. (I’m assuming she didn’t actually buy the car outright, but rather financed or leased it as most people do.)
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current car needs replacing: if you’ll need to replace your current car soon, doing so before bankruptcy makes sense because it may allow you to take advantage of more favorable interest rates, and financing a car may be difficult/impossible post-bankruptcy.
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too much equity in current vehicle: the exemptions for vehicle equity vary by state; if your equity in a vehicle exceeds your state exemption, the bankruptcy trustee may choose to sell the vehicle, or allow you to buy out the non-exempt equity. In that situation, it may be better to trade the current car in and buy a new car in which you end up having less equity after sales tax, license fees, and instant depreciation.
You snipped the important part, which is that states can opt out of those exemptions and set their own.
Most states (I believe almost all) do opt out. So those numbers probably don’t have much relevance.