Can You Buy a Car before Filing a Chapter 7 Bankruptcy?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - May 29, 2019

You can buy a car before filing a Chapter 7 bankruptcy, but you should probably wait until the bankruptcy has been discharged. It’s difficult to get a vehicle during an open Chapter 7 bankruptcy, and if you know you plan on filing, it doesn’t make sense to buy a car just before bankruptcy because you run the risk of losing it. However, if waiting isn’t an option, you can still buy a vehicle, but you have to ask yourself some questions before you jump the gun.

Question 1: How Badly Do You Need This Car?

First and foremost, how badly do you need this car right now? Many Americans rely on vehicles to get them around every day. If your reasoning behind financing a car before filing is valid in the eyes of your bankruptcy trustee, you may not need to give it up.

Some examples include: if you totaled your last vehicle, the car you have now isn’t worth fixing, or you needed a bigger vehicle for your family. These are all valid reasons for needing and buying a car, but, ultimately, validity is determined by your trustee.

A good tip is to pick a vehicle that’s reasonably priced – don’t finance your dream car right now. Your trustee is more likely to force you to give up your vehicle if it’s not seen as a necessity.

Question 2: Can You Protect the Vehicle’s Equity?

When you file a Chapter 7 bankruptcy, you may need to take the Chapter 7 means test if your income exceeds your state’s median for a family of the same size (unless your state doesn’t require this). If you pass the test or your household size and income is below the median in your state, then you can file a Chapter 7.

Each state has a list of property exemptions and amounts, and as long as the equity in your car is under the exemption amount, you can keep it – although most states allow you to keep at least one vehicle, according to the legal experts at Nolo.com.

If you bought a car before you filed for bankruptcy and its equity is higher than the exemption amount, you may be required to give up your vehicle. If this happens, the trustee sells the car, hands you your exemption amount, and uses what’s left to pay your creditors and any fees.

The Bottom Line

Filing for bankruptcy is a big decision, and should be a last resort option if you’re struggling to keep up with your bills. If you’re worried about losing your vehicle, talk to your lender ahead of time before things get out of hand to see if they can help you out.

On the flip side, if you recently had a Chapter 7 bankruptcy discharged and are looking to finance a car, we can help you get started. CarsDirect connects credit-challenged borrowers to local special finance dealers that can get them financed. Getting started is a snap, just complete our free and easy auto loan request form today!

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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