Making large purchases before filing for bankruptcy is generally frowned upon, but Ohio residents who are struggling with unmanageable bills sometimes have few choices. A reliable car is a necessity for those who commute to work and have few, if any, public transportation options, and buying a vehicle before a bankruptcy filing can actually be beneficial in certain situations. However, bankruptcy trustees know the rules well, and they are rarely sympathetic when it appears that debtors may be trying to take advantage of them.
Trustees can dismiss entire bankruptcy cases if they feel major purchases were unnecessary. Debtors who buy expensive vehicles despite already owning a functioning car may find it difficult to explain themselves, and trustees may conclude that they are deliberately depleting their bank accounts and putting the money into exempted assets. This is because cash reserves can be used to pay creditors in Chapter 7 bankruptcies while debtors may be able to hold onto motor vehicles. The motor vehicle exemption in Ohio is currently $3,775, and this figure will be adjusted in 2019 to reflect changes in the consumer price index.
Those who fail the Chapter 7 means test may choose to file a Chapter 13 bankruptcy instead, but taking on a car loan can make it easier to pass the test as the monthly payment involved reduces the debtor's disposable income. However, those who take this path are walking a fine line, and trustees will have to be convinced that the purchase was both necessary and reasonable.
Individuals who are struggling financially are often reluctant to take action because they are worried about losing their assets, but attorneys with debt relief experience could explain that the nation's bankruptcy laws were written to give debtors a second chance and not to punish. Attorneys may also go over the various bankruptcy exemptions and the kind or behavior that could be viewed unfavorably by bankruptcy trustees.
Source: Ohiojudges.org, "Exemptions from Execution, Garnishment, Attachment or Sale", accessed on Jan. 30, 2017