What’s an Authorization to Incur Debt with a Chapter 13?

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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.

, - July 23, 2019

An authorization to incur debt – known as an order to incur debt – during a Chapter 13 bankruptcy means you have the court’s permission to finance additional debt while the bankruptcy is still open, which includes a loan for a vehicle. You must have this authorization if you want to buy a car during a Chapter 13. If you don’t get the bankruptcy court’s permission and you buy a vehicle anyway, you could face legal consequences. There’s a right way to buy a car during an open bankruptcy, and we’re here to help explain it to you.

Steps to Buying a Car with an Open Chapter 13

Just like you normally would, if you’re in the middle of a Chapter 13, you first need to visit the dealership you plan to work with. However, you need to make sure that the dealer has the lenders available that work with bankruptcy auto loans.

When you get there, you need to request a sample buyer’s order with information about the loan such as the term, maximum interest rate possible, monthly payment, and details about the vehicle you chose.

CarsDirect Tip: Make sure the dealership lists “or similar” next to the car you pick. This way, if the vehicle you want is sold while you wait on the court, you don’t have to start the process over.

When you have the sample buyer’s order, take it to your trustee and have them look it over. They determine whether or not financing this car fits into your current repayment plan, and if you have a valid reason for buying it right now.

If the trustee approves, they then file a motion to incur debt with the court. Your creditors receive this motion as well, and you may be required to attend a hearing. At the hearing, your creditors can attend and even object the motion, but if all goes smoothly and the court approves the motion, it issues the order to incur debt.

When you’re approved by the court, you can move forward in the car buying process. Present a copy of the court’s order to the dealer, and voila, you can get the vehicle you need!

What Happens when You Don’t Get the Court’s Permission?

Regardless of where you go to finance a car, whether it be a buy here pay here or a special finance dealership, you need the court’s approval if you’re in an open bankruptcy. If you don’t get it and the court or your trustee finds out you financed a vehicle, you could be in trouble.

Depending on the severity of the issue, you could have your Chapter 13 bankruptcy automatically dismissed, regardless of where you’re at in the process. To point out: you want to make sure your Chapter 13 bankruptcy is discharged, not dismissed. Discharged means successfully completed, while dismissed means the bankruptcy is voided. Lenders see the difference on your credit reports, and you have a far greater chance of getting approved for financing if the bankruptcy is completed successfully.

Because you’re also technically buying a car illegally, you may have to go through the legal system to fix the situation. This can all be avoided if you simply talk to your trustee, and tell them what you want to do.

The Bottom Line

Get the court – and your trustee’s – approval before you finance a vehicle during an open Chapter 13 bankruptcy. Sure, it takes time to go through your trustee and the court, but buying a car without permission isn’t worth the consequences.

If you’re in the middle of an open Chapter 13 bankruptcy, and need to find a local dealership to work with you, we want to help.

At CarsDirect, we work with a nationwide network of dealers that specialize in helping bad credit car buyers get the financing they need, even those dealing with an open bankruptcy. All you need to do is fill out our auto loan request form to get started, and we’ll do the searching for you!


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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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