You can finance a car while in a Chapter 13 bankruptcy, but you need to get approved with a dealer and the court first. When you file for a Chapter 13 bankruptcy, you’ll be making payments for either three or five years and unable to take out any new debt without your bankruptcy trustee’s and the court's permission.
How to Get a Car Loan in a Chapter 13
A Chapter 13 bankruptcy involves a three- or five-year repayment plan that’s designed to pay off your debt, or at least a portion of it. Usually, you’re able to keep your assets, including your car. Three to five years is a long time and a lot can change. If your car breaks down, gets stolen, or is totaled during your bankruptcy, and you rely on it to go about your life, you’ll likely need to take out a loan to purchase a new vehicle.
The tricky part is you can’t just visit a dealership and arrange financing for a car – you have to go through a few more steps before you’re able to get a car loan during a Chapter 13 bankruptcy:
- Check your finances – The first thing you need to do is check your budget to make sure you can afford a car payment. You’ll need to consult your trustee to make sure there’s enough money in your budget to finance a car while still keeping up with the repayment plan. If you need to, you can cut back on other expenses. But if you have to tap into other essential expenses and the budget is unrealistic, it can result in a rejection from bankruptcy court.
- Find a dealer to work with – Once you’ve discussed with your trustee on how much car you can afford, you’ll need to find a dealer that's signed up with subprime lenders to work with you. When you visit the dealer, let them know that you’re dealing with a Chapter 13 bankruptcy and have a set monthly budget in mind. If approved, you’ll be able to choose a qualifying vehicle and have the dealer write up a buyer’s order for you to take to the court. Make sure you have the dealer list “or similar” on your paperwork for the vehicle you’re looking at, as well as the highest possible interest rate you can receive. If they don’t and the car you chose is gone by the time the court approves you, or you only qualify for a rate that's higher than the one listed on your buyer's order, you’ll have to start over.
- Have your trustee file a Motion to Incur Additional Debt – The last big step to take is to have your trustee approve your purchase. They will then file a Motion to Incur Additional Debt with the court. In this motion, your trustee is required to list the vehicle, overall amount of the car loan, monthly payment amount, and your reason for needing a car. You must list a reason in the request. If you don’t, the trustee can automatically reject it.
- Wait for the court’s approval – After all is said and done, you’ll wait for the court’s approval. If the motion is accepted, the court will officially file an Order to Incur Additional Debt and you can bring that back to the dealership and move forward with the car purchase.
Make sure there’s a legitimate reason for purchasing a car during your Chapter 13 bankruptcy. It can be tough to go without a vehicle for a long period of time, so plan it out and sit down with your trustee so the process goes smoothly.
If you’re in a Chapter 13 bankruptcy and find yourself in need of a dealership willing to work with you, Drivers Lane may be able to help. We specialize in helping people with credit issues – like bankruptcy – find dealers who work with lenders that offer special finance auto loans. Our service is free, fast, and doesn't put you under any obligation to buy. Get started right now by filling out our auto loan request form.