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A.J.
A.J., Attorney
Category: Bankruptcy Law
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Experience:  Experienced consumer bankruptcy attorney.
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If a debtor who is filing a chapter 7 BK wishes to purchase

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If a debtor who is filing a chapter 7 BK wishes to purchase a car and will have a car loan how would that be treated in the BK that will be filed shortly. He lives in TX and the exemption is unlimited however the question is pertaining to the fact that he is purchasing the car and then filing the BK within a few weeks.

SavyLawyer :

Hello, and thank you for using Just Answer. My name isXXXXX am a bankruptcy law professional and I look forward to answering your question this morning.

SavyLawyer :

That is a very good (And very common) question to ask right before filing for chapter 7 bankruptcy. Unfortunately, the full answer can be a little complicated, and depend on how much the loan is, but generally large purchases immediately before bankruptcy can be tricky. The issue is that the court and the bankruptcy trustee will be concerned that you ran up a big debt right before bankruptcy, only to have it discharged in bankruptcy. This raises two red flags for the trustee to contest.

SavyLawyer :

The first is that the debt will be discharged in bankruptcy unless you reaffirm it (meaning you agree to keep paying it after the bankruptcy, it is not discharged). Racking up a lot of debt only to have it discharged in bankruptcy could be considered a fraudulent use of the bankruptcy code and could lead to the trustee seeking to either void the purchase or have the bankruptcy dismissed, neither of which is a good outcome.

Customer:

Understood however this will not be discharged but reafirmed

Customer:

As he needs a vehicle

SavyLawyer :

Understood. Generally, in that case, the debtor could seek to find a vehicle that was low enough priced that the it does not raise a red flag for the trustee (there is no set in stone number, unfortunately). Or, in the alternative, if the debtor can wait some time after purchasing the vehicle to file (say 6 months), then it may be less likely that the vehicle is made a big deal of, particularly if the cost of the vehicle was not too high and it is a necessary purchase (to get to and from work, for example).

SavyLawyer :

Ultimately, you just have to be careful that the trustee, or really the court, will not see use of the bankruptcy as an abuse of the bankruptcy code, which is grounds for dismissal of the case. When a debtor makes a large purchase right before bankruptcy is filed, or takes on a new debt right before the bankruptcy is filed, this could be seen as an abuse, and so it is important for the debtor to tread carefully.

Customer:

Thank you

SavyLawyer :

You are most welcome, and let me know if you have any additional questions. Otherwise, please remember to RATE my answer so that I can receive credit for my work.

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