Every bankruptcy case is different and unique. While there are many options for keeping your current vehicle during bankruptcy, in some cases it may make sense to surrender your vehicle and walk away from the debt. Today, we provide options to obtaining a different vehicle during an open bankruptcy case, so you are not trapped in a bad car loan.
When you obtain a car loan during an open Chapter 7 bankruptcy, it does not require any special permission from the bankruptcy court or from the Trustee. However, it is wise to consult with your bankruptcy attorney prior to entering into the agreement.
Many banks today are understanding and knowledgeable about the bankruptcy process and will finance a debtor prior to discharge. Your ability to pay, debt-to-income ratio and financial stability will play an important part in the lending process, including your income, job history, and whether you have a history of financial problems. A Chapter 7 debtor with a good job history and few post-discharge debts is often a better credit risk than someone with a poor job history and a substantial debt load. It is often easier to obtain financing for the purchase of a new car using financing from the manufacturer.
If you are in the process of obtaining a vehicle loan during a Chapter 13 bankruptcy, it is a joint effort between you, your attorney, the lender, the car dealership, and the Bankruptcy Trustee. A car loan during a Chapter 13 case requires the permission of the Trustee, and you must show that the vehicle is necessary for the successful completion of your bankruptcy plan. If the vehicle is needed to get to work, that is usually reason enough. The Trustee will limit the monthly payment amount for your vehicle purchase. Of course, the lender requires assurances from the Trustee’s office that the loan is authorized. Your attorney will need to file an amended Chapter 13 plan to account for the new car payment and obtain an approval for a Motion to Incur Debt. The bankruptcy court will then approve the proposed amendments.
Working with us to obtain financing a vehicle during bankruptcy is not unusual. The key is being financially responsible and not over-spending for reliable transportation. As always, your bankruptcy attorney can help guide you through the process during your bankruptcy, as well as discuss your ability to afford a new car.
- When it is time to get a new car in our program, while in your Bankruptcy, you can reach out to me here or have your Attorney follow-up with our office.