How to Get a Car Loan While in 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 - March 9, 2018

A borrower can get a car loan while in a Chapter 13 bankruptcy, but there's a specific process that has to be followed.

Getting an Auto Loan During a Bankruptcy

Chapter 13 bankruptcy filers agree to a plan where they will – at least partially – repay creditors over either three or five years. A lot can change in that time frame, and many people find themselves in need of a car during the bankruptcy. Some lenders have stepped in to offer open bankruptcy car loans to fill this lending gap.

To qualify for a car loan during a Chapter 13 bankruptcy, a borrower has to be current on their repayment plan and one year has to have passed since the filing date – unless they included any existing auto loan in the bankruptcy. More importantly, a borrower needs authorization from the court to take on a car loan, or any new big debt for that matter.

The Process of Financing a Car During a Chapter 13 Bankruptcy

To get the court's permission, a specific series of steps must be followed:

  • Get a Buyer's Order from a Dealership: The first step is finding a dealership that's signed up subprime lenders who are willing to finance an open bankruptcy loan. The dealer will draw up a buyer's order with the details of the loan for the borrower to take to their trustee. This should include the highest interest rate possible and "or similar" next to the vehicle choice – otherwise, the process can be ruled invalid if the actual loan doesn't match what's on the buyer's order.
  • Bankruptcy Trustee Files Court Motion: Next, the borrower brings the buyer's order to their court-appointed trustee along with their reasons for needing a car. If the trustee agrees, they file a "Motion to Incur Additional Debt" with the court, which includes a proposed adjusted repayment plan that factors in the auto loan.
  • The Court Makes a Decision: The creditors and other parties involved in the repayment plan also receive the motion and are given a chance to object. There may be a hearing the borrower has to attend to justify the loan. If the court approves the motion, they issue an "Order to Incur Additional Debt" and amendments are made to the repayment plan.

The borrower can take the order – the necessary authorization from the court – back to the same dealership to complete the purchase.

Helping You Along the Way

When you need a car loan, whether you're in an open Chapter 13 bankruptcy or your credit is less than perfect, CarsDirect wants to help you find financing. We match consumers to local dealerships that are signed up with lenders who specialize in assisting consumers facing credit issues such as bankruptcy. We'll work to point you in the right direction if you submit our secure auto loan request form.

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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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