Buy a Car After Filing Chapter 7

Can I buy a car while I am in an active Chapter 13 bankruptcy case?

Buying a car while you are in an active Chapter 13 is possible but it is also extremely difficult.  Most lenders are not willing to go through the process of waiting for the court to approve a post-petition car loan.  Finding a lender who is willing to work with you while you are in an active Chapter 13 is the biggest challenge.  However, I have seen some clients successfully pull it off.  

No one can incur any new debt in an active Chapter 13 case without permission from the Bankruptcy Court.  To obtain permission, a hearing must be set down and all creditors in the case must be notified of the debtor’s intent.  At the hearing, the trustee will have questions and may or may not oppose your request to purchase a new car.  Your bankruptcy attorney will present your case and then the Bankruptcy Judge will decide whether or not she wants to sign an order allowing it.  Typically, this process can take from 30-45 days.   

If you truly don’t have any alternative source of transportation and the proposed payment, interest rate, and amount to be incurred are reasonable, most Bankruptcy Courts will approve the purchase of your new automobile. 

If you are wanting to purchase a new car because you are just tired of your old one, you need to wait until the end of your case before purchasing another one. 

You must have an acceptable reason to purchase a new car in an active Chapter 13

“My old car won’t run anymore and I need a way to get back and forth to work” is a good reason.  “I just want a new car because I’m tired of my old one” is a bad reason.   

If you have an extra car listed in your bankruptcy case, a trustee is going to ask why you need a new one.  If all of the cars have broken down since your bankruptcy case was filed, it is a good idea to amend schedule B of your bankruptcy petition to reflect the current status of old vehicles.   

The Myth of the Buy-Here Pay Here 

If a “buy-here-pay-here” car lot tells you that they don’t care about court permission and that they will gladly sell you a car, they are wrong.  You must have court permission to obtain new consumer debt.  It does not matter that the buy-here pay-here auto lot does not report on your credit.  If you violate this rule, your bankruptcy case could be dismissed or in a worst-case scenario, you could be sanctioned by the Bankruptcy Court.   

What do you do if you cannot obtain financing or if the Bankruptcy Court says no? 

If you are in a situation where no one will finance because you are in an active Chapter 13 case and you desperately need a new vehicle, what do you do?  The answer is that you can voluntarily dismiss your Chapter 13 bankruptcy case.   As a general rule, this is a terrible idea because you lose all of your bankruptcy protections as soon as your case is dismissed.  Garnishments, foreclosures and other collection activities can restart.  However, some people absolutely must have new transportation or else they lose their jobs.  In a best case scenario, the creditors will leave you alone long enough to buy another car and then you can refile later if everyone comes piling down upon you again.   

The bottom line is that if your car is about to give out and you are in an active case, call your bankruptcy attorney as soon as you can.  

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