Can I Buy a Car During Chapter 13?

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Can I Buy a Car During Chapter 13?

It’s almost impossible to live and work without a car. And unlike houses, cars tend to break down at the worst possible moment. They wear out and they become more expensive to fix than to replace.

If this happens during Chapter 13 bankruptcy, will you be able to get a new one?

As it happens, the answer is yes. But it’s a multi-step process.

Try to put together a down payment.

While it isn’t easy on a Chapter 13 budget, having a down payment ready can help. Bankruptcy-friendly car loan companies can be a god-send, but they aren’t being reasonable out of kindness.

They’re out to make money, and they can make a lot of money by charging a subprime borrower higher interest rates. Having a down payment can either reduce those interest rates a little, or reduce your monthly payment and the terms of your loan.

You won’t have much of a line item for “savings” on your Chapter 13-approved budget, so you might have to get creative. For example, if you have an $1000 grocery budget you can use coupons, bulk buying, and cheaper recipes to try to bring it down to $700 a month. The trustee won’t suddenly demand that you use the extra $300 to pay more on your debt, which means you will be welcome to set it aside.

You’ll need the approval of your trustee.

Your request won’t be particularly surprising. You won’t be the first person who has ever asked, and you won’t be the last.

But you’ll still be taking on new debt, and the trustee has to approve that. He or she will want to make sure your existing creditors won’t be harmed by your decision, i.e., that you will be able to keep making your plan payments. Obviously, you’ll have to keep up with your plan payments even before you go shopping for a car. If you’re consistently late or struggling then it’s unlikely the trustee will say yes.

The trustee might also place limits on how high your car payment can be, which can put some limitations on the type of car you can buy. But the limits will be realistic: the trustee also recognizes it’s hard to make your payments if you can’t get to work.

Gather Evidence for the Motion

You won’t be able to deal in vague numbers when you approach the trustee. You’ll need to have the dealership write up a financing deal without pulling the trigger on it.

It should list the make, model, and year of the car, and it should include all the loan details. This will all be included when you have your attorney file your “Motion to Incur Debt in Chapter 13.”

Once you have a court order, you can go back to the dealership and finish the process.

Keep in mind the car won’t be protected by the automatic stay. You’ll need to make every payment on time. If there are viable alternatives like public transportation, car pooling, or even putting together the cash to buy a very cheap car on Craigslist, then you should consider those before incurring another debt.

See also:

What is the Process in a Chapter 13 Bankruptcy Case?

What You Need to Know About Car Repossessions in Pennsylvania

Is Chapter 13 a Better Option than Debt Consolidation?

Will Declaring Bankruptcy Give the Court Access to My Bank Account?

Can I Buy a Car After Bankruptcy?

 

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