Car Trade-In Before Bankruptcy
By L. Jed Berliner, Springfield Bankruptcy Attorney on Oct 25, 2007 in Bankruptcy Practice and Procedure, Benefits of Bankruptcy, Life After Bankruptcy, Massachusetts, Personal Finance, Protecting Assets In Bankruptcy, Role Of The Lawyer
You may find yourself with a debt-free older car that you cannot protect in bankruptcy. The answer may be to trade it in for a newer car. The trade-in equity will likely be far lower than the value of the debt-free car, so much so that a trustee won’t care.
I have never seen this considered to be a willful defrauding of creditors.
There is a difference between sound bankruptcy planning and fraud, which is more a gray area in other transactions. In my experience, judges look to the end-result and then back into their ruling on good-planning v. fraud depending on how offended the judge is at the outcome. We have a saying about this: Pigs Get Fat But Hogs Get Slaughtered.
Consider that you cannot give away $6,000 cash just before a filing without getting into a heap of trouble, but you can trade in a debt-free car worth $6,000 for a financed car which loses value as soon as you drive it off the lot. You are replacing a soon-to-be unreliable and costly-to-repair used car with a reliable newer car, substituting uncertain repairs and dangerous breakdowns for fixed payments and safety. No problem.
This is exactly the situation which judges have pointed to in ruling that Congress acted unconstitutionally by trying to prohibit an attorney from advising a client to incur new debt before a bankruptcy. The attempted prohibition denied the attorney’s right to free speech in giving sound advice to a client.
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