When you began your Chapter 13 bankruptcy, you agreed to repay a portion of your debt to get your finances back on track. But now, you find yourself in a position where you need to buy a car.
Is it possible to assume a new debt like a car loan while in a Chapter 13 bankruptcy? Yes, but you need to ensure that you have a plan, and patience.
When you are in the middle of a Chapter 13 repayment plan, the loan approval process takes longer than it would for a typical car purchase. The reason for this is because, in addition to getting loan approval from the dealer, you will need to get approval from the court to incur new debt, and this process is known to take 30 days or longer.
This may cause problems with vehicle selection because dealers do not like to hold on to inventory, as there's always the chance that you won't be approved for the purchase by the court. Frankly, for dealers it's a risk holding on to a vehicle for too long.
How Buying a Car During a Chapter 13 Bankruptcy Works
The beginning of the loan process is the same as any other car loan. First, you find a dealer that has expertise in working with car buyers in a Chapter 13 bankruptcy and complete the necessary paperwork. From there, get a copy of the financing statement from the dealer that has all of the terms of the loan - the length of the loan, interest rate and monthly payment - as well as the information on the car. To ensure a good start to the process, keep the following things in mind:
- Vehicle choice "or similar."
Your sample contract will only allow the purchase a specific car, truck or SUV. But, because of the length of time involved, there is a chance that the car will not be available once the court approval is complete. In order to avoid this issue, be sure that the dealer notes "or similar" next to the stated vehicle. This will make it easier for you to choose another vehicle that still meets the requirements of the court.
- Note the highest possible interest rate on the contract.
Since interest rates fluctuate, the rate stated may change after 30 days. If it is higher than originally listed, it will render the whole deal invalid. Having the dealer list the maximum rate on the sample contract ensures that you do not have to start the entire process over again from scratch.
Covering these two bases while at the dealership will help you save as much time as possible. Now, it is time to go to your court trustee.
- Complete the Chapter 13 trustee’s paperwork.
Once you complete this documentation, the trustee will weigh your ability to incur new debt against how much it will affect what you will now be able to repay to your existing creditors. In order to strengthen your position, be sure to choose a modest, inexpensive vehicle, as your request will likely be denied if you are trying to purchase a high-end luxury vehicle.
- A motion to incur additional debt is filed.
The trustee will file a petition with the court for you to incur additional debt. The petition will then be reviewed by your creditors and any other interested parties. You may need to attend a brief court hearing to further explain why you need the car. However, if no one objects to the petition, you may not need a hearing at all.
- Petition granted.
If the petition is approved, you will return to the dealer with a copy of the court’s order. You can then complete the purchase process. If you don't follow these procedures, you could have your chapter 13 plan dismissed, meaning that you will have to deal with even more debt.
Get the Car You Need
Drivers Lane connects car buyers with unique credit situations, like Chapter 13 bankruptcies, with qualified car dealers who can help. Save yourself even more time by completing our fast, secure and obligation-free application. Let us find the dealer who can help you today!