4 Steps to Getting a Car Loan in an Open Chapter 13 Bankruptcy

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - July 27, 2018

A Chapter 13 bankruptcy can be a long process, and you may need a new vehicle while you’re going through one. Getting an auto loan during a bankruptcy isn’t ideal, but it can be necessary – and possible – if you’re working with the right dealer and following the correct steps.

Working with the Right Dealer and Lender

Getting an auto loan starts with finding a dealer and a lender that can work with you while you’re in an open Chapter 13. Remember, your credit score takes a hit when you file for bankruptcy. This means you likely need to find a dealer that works with subprime lenders. At the same time, just because a lender offers subprime car loans doesn’t mean they work with people in open bankruptcies.

When you do find the right team to work with, there’s a specific order to the steps you need to take to get a car loan. If you skip a step, pick a car that’s too expensive, or fail to consider the possibility that the vehicle you chose gets sold before you get permission, you may find yourself starting the entire process over again.

4 Steps to Getting a Car Loan in Chapter 13

After finding a dealer and lender willing to work with someone in bankruptcy, you’ll need to follow these four steps in order to get approved for a car loan with an open chapter 13:

  1. The first step is to get a sample financing statement from the dealer to take to your bankruptcy trustee. Make sure the sample statement includes the total amount of the vehicle, including taxes and fees, the maximum monthly payment, the loan term, and the make and model of the vehicle – with a note that specifies “or similar.” The statement should also list the highest possible interest rate you could receive so there are no surprises later, like being charged a higher interest rate than the court allowed.
  2. The next step is to take your sample financing statement to your trustee who, in turn, will submit it to the court as a motion to incur additional debt. Before your trustee files the motion, you have to prove why you need a vehicle. If your car is on its last leg, needs costly repairs, or has been in an accident which makes it undriveable, you’ll have a better chance of your trustee moving forward with the motion. Your trustee will determine if the vehicle is affordable enough, how this new expense fits into your repayment plan, and may make adjustments to your repayment schedule, if necessary, before filing the motion with the court.
  3. Next, your motion gets filed with the court. Because a Chapter 13 is a repayment bankruptcy, your creditors have a chance to review and oppose the motion once it’s been filed. Motions can be opposed if any creditor believes a car loan and insurance payment hurts your ability to repay your debt to them. At this point, you may need to appear in court to state your case and further prove why a vehicle is needed.
  4. Finally, the judge will either approve or deny the motion. Because this process takes time, it’s possible the specific vehicle you picked may have sold. This is the reason your sample financing statement should list “or similar” next to the vehicle description. If the dealer has a number of the same models in stock, you should be able to proceed without having to start the entire process over again.

Start Out on the Right Foot

It’s always good to know there are people in your corner when you need to take a step toward something big, like a car purchase – especially if you’re already in the midst of a bankruptcy. Here at CarsDirect, we understand how tough this can be, and we want to help.

We work with a nationwide network of dealers, many of whom work with subprime lenders. These lenders can be your best shot at getting the car you need during an open bankruptcy. To get started, simply fill out our easy online auto loan request form today!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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