Can You Still Buy a Car During a Chapter 13 Bankruptcy?

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By

Contributing Writer

David Topham covers the automotive and auto finance industries as the Content Manager of Auto Credit Express who also contributes to CarsDirect. He was born and raised in Michigan and is a graduate of Michigan State University.


, Contributing Writer - September 19, 2018

You can buy a car during a Chapter 13 bankruptcy, but if you need to finance it with an auto loan, then you need the court's approval beforehand. The keys to getting an open Chapter 13 bankruptcy auto loan are knowing what steps to take and finding a dealership that can work with you through the bankruptcy auto financing process.

Can You Get a Car Loan in Chapter 13?

The simple answer is yes, you can still get a car loan while you're in a Chapter 13 bankruptcy. Because a Chapter 13 repayment plan lasts either three or five years, there's a process in place for people to buy a car while the bankruptcy is still open. The court system understands that three years can be a long time and a lot can change from when you originally filed for Chapter 13, such as if your vehicle breaks down and you need one to get to work.

However, you need permission from the bankruptcy court before you're allowed to take on new debt. They want to look at the terms of any new car loan to make sure it fits within your repayment plan. This rule is in place to help you avoid any further trouble with your finances at a time when you're working to eliminate your debt.

Here are the steps to take when buying a car during a Chapter 13 bankruptcy:

Step 1: Plan and Budget

You want to carefully budget for a vehicle purchase for open Chapter 13 auto financing. It's likely you or your bankruptcy trustee needs to submit a budget to the court in order to move forward with this process. Make sure your car payment fits into your budget and won't affect your bankruptcy repayment plan.

Because your loan is subject to the bankruptcy court's approval, you want to make sure your vehicle choice is reasonable. Stick to the basics with your car choice by focusing on getting something affordable that you can rely on while you work to complete the bankruptcy process.

Also, keep in mind that because your credit score likely took a hit after filing for bankruptcy, you may only be able to qualify for a higher than average interest rate. This should be factored into your budget, along with other costs of car ownership like insurance, fuel, maintenance, and repairs.

Step 2: Find a Car Dealer who Deals with Bankruptcies

Next, you need to get a sample financing statement to bring to the court. To get one, you need to find a dealership that can get you approved. Car dealers who deal with bankruptcies are sometimes referred to as special finance dealerships, and they work with subprime lenders that are experienced in financing consumers in difficult credit situations – like an open bankruptcy.

At the dealership, you should be upfront about your bankruptcy and talk with their special finance manager about the situation. Using your budget and the dealer's help, you can identify vehicles at the dealership that you can comfortably afford. Then, you can choose a vehicle that best fits your needs and have them write up the sample buyer's order. Make sure this lists the year, make, and model of the car, loan amount, loan term, interest rate, monthly payment, and all other relevant information.

Pro tips: Have the dealership include the maximum interest rate on the statement because your motion with the court can be ruled invalid if you only qualify for a rate that's higher than what's listed. Also, have them include the words "or similar" next to your car choice. This process can take a few weeks to complete, but this stipulation allows you to finance a similarly priced vehicle if the one you chose is sold in the meantime. You may be forced to start over unless you include these two measures.

Step 3: Motion to Incur Debt in Chapter 13

You can take the sample financing statement to your court-appointed bankruptcy trustee so they can file a motion to incur debt. You typically need to complete some paperwork, and possibly provide a written statement explaining why you need the car.

The trustee reviews the details of the loan and assesses any potential impact it has on your repayment plan. They may request some adjustments to your loan or write up some proposed changes to your repayment plan if necessary.

Step 4: Order to Incur Debt in Chapter 13

Your bankruptcy trustee then files the motion with the court, which in turn reviews it and makes a decision. This is typically sent to the other creditors involved in your repayment plan, and each has a chance to voice their opinion. You may be required to attend a hearing if any object. If the court approves the motion, they issue an order to incur debt.

Step 5: Head Back to the Dealership to Complete the Process

You can then take the order to incur debt back to the dealer to complete the financing process. They can legally get you funded with their lending partners once you provide them with the order. You can complete the necessary paperwork, provide any other documentation they need, and take delivery of the car.

Buying a Car During Chapter 13 Bankruptcy

Now that you know the steps to take to get permission from the court to get an auto loan during a Chapter 13 bankruptcy, CarsDirect wants to help you get connected to a local dealership that can help.

We work with car dealers all across the country that know how to help consumers in unique credit situations like an open bankruptcy. We'll work to match you with a dealership in your area after you complete our free and secure car loan request form online.

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, Contributing Writer

David Topham covers the automotive and auto finance industries as the Content Manager of Auto Credit Express who also contributes to CarsDirect. He was born and raised in Michigan and is a graduate of Michigan State University.


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