Car Buying During 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.


, - September 5, 2017

A Chapter 13 bankruptcy is a tough process that can last either three or five years, and sometimes, unexpected expenses come up during that time. What if you need a new car? Accidents, unforeseen career changes, or a growing family can demand a new vehicle, but can you do that during bankruptcy?

Yes, but it could be a long, difficult process.

If you find yourself in bankruptcy or another bad credit situation you will most likely be looking for a subprime auto loan. Subprime lenders usually work indirectly through dealers, rather than banks and credit unions who work directly with borrowers.

Car buying while in a Chapter 13 bankruptcy will mean following a few steps before you’re on your way down the road in a new set of wheels. The most important thing before purchasing a vehicle during bankruptcy is to make sure it’s a necessity. Purchasing a vehicle without permission from the court may end up getting your entire bankruptcy dismissed.

Step 1: The Dealer

Once you know you need a vehicle you need a dealer who can work with your chapter 13 filing. The dealer’s special finance manager will provide a sample financing statement that includes the details of your proposed loan term, interest rate, monthly payment amount, and the type of vehicle you are interested in. This sample is what you will take to your trustee.

Make sure to have the dealer note the highest possible interest rate for you, and that the paperwork says “or similar” when dealing with vehicle type. You want your interest rate to reflect the highest amount you can possibly qualify for, because the court process can take up to 30 days while buying a car in bankruptcy. Interest rates fluctuate, and if it is higher on the purchase order than on your sample paperwork, you will have to start the process over.

As for the vehicle type, what you originally selected may be gone due to the length of time it can take the court to approve your petition to incur debt. Having “or similar” listed allows you to select a different vehicle with a similar price tag, rather than starting the process over again.

Step 2: Your Trustee

Now that you have your sample financing statement, you and your trustee will fill out the necessary paperwork. Your trustee will determine how much this new debt you’re asking for will affect your current Chapter 13 repayment plan. This is one reason to make sure your vehicle choice is modest – you want to take on as little new debt as possible, so that you’re still able to repay the creditors included in your bankruptcy.

If your trustee determines you can take on this new debt, they’ll file a motion to incur debt with the court. Copies of this will be sent to your creditors as well, and they may dispute your petition if they have questions. Sometimes a court hearing is necessary if there are questions about your need for a vehicle.

Step 3: The Court

If a hearing is needed, you will have to appear in court to justify buying a new vehicle. But, if none of your creditors object, you usually won’t have to go to a hearing. The court will either approve or deny your request.

If the court approves, you’ll get a court order stating you can take on this new car payment. You can take this order back to the dealership for the special finance manager to submit to the lender, so you can complete the loan process and purchase your car.

Get the Process Started

Because a lot can happen during the three or five years of a Chapter 13 filing, we understand why you might need a vehicle during your bankruptcy. Finding the right dealer to work with your bankruptcy can be tough, but here at CarsDirect we have a knowledgeable network of special finance dealers who have the resources available to help.

The lenders they work with can help people in many different credit situations, including bankruptcy. So, if you are in Chapter 13 and you need a vehicle, let our experts help point you in the right direction. You can get started right now by filling out our free online auto loan request form.

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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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