How to Purchase a Car While in Chapter 13 Bankruptcy

One of the most common questions we get from clients going through a Chapter 13 bankruptcy is whether they can purchase a new or used vehicle to replace their existing vehicle. Life doesn’t stop while you are going through Chapter 13 bankruptcy and it is not uncommon for the need to replace your vehicle to arise during the 3-5 years that you are making payments to the trustee of your bankruptcy case. If this is the case for you, the short answer is yes, you can purchase a new vehicle while going through Chapter 13 but, there are steps you must take first.

Determine if You Can Afford a Car Payment

When you filed your bankruptcy paperwork, your attorney had you fill out Schedule I and Schedule J. These are forms that list your income and expenses. You and your attorney will need to review these forms to determine your current income and expenses and whether or not you can afford a car payment. You may be able to reduce expenses in other places such as clothing and miscellaneous items.

Find a Car Dealer

Not every car dealer will sell you a car while you are in Chapter 13 but, many will as long as your credit is okay. Remember that once you filed for bankruptcy, the negative entries on your credit report stopped. Make sure that you inform the dealer of what you can afford and stick with your budget. This loan will be paid directly to the dealer or financing company, not the trustees as the contract will be outside of the bankruptcy.

File a Motion

Before you can purchase a vehicle, you must get permission from the court. To do this your attorney will need to file a motion to incur debt. The motion must state the whole loan amount, the monthly payment amount, and the reason you need to purchase a new vehicle. You will need a reasonable explanation for why you need to purchase a new vehicle, or the trustees will deny your request.

If the trustee does not object and the court grants your motion, the attorney may then submit the order. It will take a few days for the court to file the order. Once the order is filed, you may purchase the vehicle.

What if the Car You Want Sells While You Are Waiting for Permission?

Because the process of getting permission can last a few weeks, you may find that the car you want has been sold once you have received permission. Don’t worry about that as your lawyer will write the motion to include a provision in the event that the car you wanted to purchase is sold. You will be able to purchase a car with an equal or lesser payment amount to the one you were granted permission for.

Chapter 13 bankruptcy does not mean that you have to drive an old clunker. If you follow these steps, you will be able to buy a reliable vehicle for yourself and your family at a price you can afford.

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Source: Bankruptcy blog

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