When you file a Chapter 13 bankruptcy, you're assigned a repayment plan for either three or five years. You must follow your repayment plan to successfully have the bankruptcy discharged. Because of the time it takes to complete one, many subprime auto lenders are willing to work with car buyers in an open Chapter 13. However, it also takes time to go through the bankruptcy auto loan approval process, and you need legal permission to do so.
How to Buy a Car during a Chapter 13 Bankruptcy
To successfully apply for car financing during an open Chapter 13, you must follow these three crucial steps:
Step 1: Get a Sample Buyer’s Order
The first thing you need to get is a sample buyer’s order from the dealership you plan on working with. The buyer’s order lists the details about your loan, including the vehicle, loan term, and highest interest rate possible. A good tip: make sure the phrase “or similar” is listed next to the car you choose, just in case it gets sold before you get approved for financing from the court.
Step 2: Get Your Trustee’s Endorsement
Once you have the buyer’s order, the next step is to go to your bankruptcy trustee and get their approval. They look at the buyer’s order, and consider why you need a vehicle. If they agree, they file a motion to incur debt with the court. If they deny you, consider why: was it your car choice, or does it not fit into your current bankruptcy repayment plan? Your trustee is going to tell you why you're denied, and from there you can decide if it’s worth trying again in the future.
Step 3: Get the Court’s Approval
The last step is to get the court’s approval. The motion to incur debt reaches the court, and from there a judge determines if you can handle additional debt right now. Depending on the court and your bankruptcy situation, they may require you to attend a hearing, where your creditors may be present, and even object. If no one objects, the court issues an order to incur additional debt, and you get a copy to take to the dealer so you can finish the auto financing process.
While it's possible to get a car loan during an open Chapter 13 without court approval, you shouldn’t because it's illegal. You signed a binding agreement stating that you wouldn’t take on additional debt unless it’s been approved, and you’re breaching it if you go behind your trustee’s back. If you're caught, your bankruptcy could be dismissed.
Need Help Finding a Dealership to Work With?
If you’re dealing with an open Chapter 13 bankruptcy and need help looking for a dealership to work with, we want to help.
At Drivers Lane, we connect car buyers with unique credit situations, like Chapter 13 bankruptcies, to qualified dealers. Save yourself even more time by completing our fast, secure, and obligation-free auto loan request form. Let us find the dealership who can help you today!