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cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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My parents have about $25k in their bank account. They want

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My parents have about $25k in their bank account. They want to declare Chapter 7 in Texas very soon. Can they replace their second car older car with a newer, preowned one to protect and use the $25k cash and have it exempted as personal property in the BK? If they can trade for the second car, is their a waiting period before they can file? If so, how long?
They would then have a total of about $45k in EQUITY in their 2 vehicles, and about $15k in other personal property to hit right at about the $60k limit for married personal property.

Hi JACustomer,

Would your parents be able to claim - if necessary - that the newer car was needed because the older car is unreliable?

Customer: replied 6 years ago.
They may be able to claim that as it is several years older, higher mileage, and has some issues. Dad tends to keep older cars forever until dead on road, but most other people would call them unacceptable.

If there is a good reason for getting a newer car, it will be okay that they use some of the money in their account to purchase a newer car. The fact that the older car is having issues is a good reason.

However, if it can be determined that the intention of the purchase was to avoid paying the money to creditors or to the Bankruptcy court, the Bankruptcy court can reverse the transfer (take the car, sell it, and keep the money that came out of the bank account to purchase it).

If there is a good reason for getting the car, the purchase will not have to be accounted for on the Bankruptcy petition. However, Bankruptcy trustees sometimes ask for bank statements for the 6-month period preceding the filing. If the car is purchased more than 6 months before the filing, it will be less likely that they will have to account for the withdrawal.

Edited by cfortunato on 12/2/2010 at 12:48 AM EST
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