Chapter 13 bankruptcy creates a three to five year repayment plan. This gives the debtor the opportunity to reorganize and pay back a portion or all of their debt over time. However, three to five years is a lengthy commitment. While in Chapter 13 bankruptcy you must make an agreed upon monthly plan payment to the bankruptcy trustee and you must ask the bankruptcy court permission to purchase a car while in chapter 13.
Can I Purchase a Car While in Chapter 13 Bankruptcy?
You can buy a car while in Chapter 13, with court approval, to provide needed transportation. So long as you meet certain criteria, the court is likely to approve your request for permission to purchase a car during the life of your bankruptcy case.
Because of the length of Chapter 13 bankruptcy cases, it is not uncommon that a debtor’s vehicle will need to be replaced. Perhaps an ageing vehicle requires repairs that would cost more than it is worth, or the previous vehicle was totaled in an accident. Things happen, and the bankruptcy court understands this.
If you are in Chapter 13 bankruptcy and find you need to purchase another car, do the following:
- Shop around for a vehicle. Consider used cars (but new to you!) are often a better deal and less expensive than a brand new car. Look around to see what you can get for a payment you can afford.
- In our bankruptcy law practice, we have had the Chapter 13 Trustee approve car loans in amounts ranging from $150 per month to $450 per month.
- Be mindful that your new car payment will be paid outside of the plan and made directly to the lender. It is critical that you only take on a monthly payment that you can afford, while still making your monthly plan payments.
- There are lenders who will approve car loans to debtors while in bankruptcy, but they may not want to work with you until you have permission from the court. However, it is important to have a clear idea of what you can buy with a monthly payment you can afford. Plus, you need to know if you will need a down payment, and if so, how much.
- Once you have done the research and preliminary shopping, gather current paystubs (for you and your spouse if you are married) and prepare a realistic budget to ensure you can afford to add a car payment to your present budget.
- After careful review of your budget, schedule an appointment with your bankruptcy attorney so that the proper paperwork can be filed with the court to ask permission to incur new debt.
- Understand that if the court approves your request, you must provide the trustee with proof of purchase within 45 days of approval.
- If you do not follow through with the purchase once approved, your Chapter 13 plan payment will be increased by the amount you would have paid toward the car payment, as your budget demonstrating the monthly payment you could afford is then considered additional disposable monthly income.
The Benefits of Filing Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a powerful tool that can help you save your house, catch up on missed payments, and eliminate unsecured debts, like credit card debt. It requires a three to five year commitment to a monthly payment, but the benefits are vast. We are here to help you understand the process and decide if filing for relief under Chapter 13 is the right choice for you and your family.
Contact us today to schedule a free consultation.
The Law Offices of Barbara B. Braziel proudly serves Savannah, Richmond Hill, Hinesville, Pooler, Port Wentworth, Tybee Island, Clyo, Ellabel, Midway, Ludowici, Springfield, Pembroke, Brooklet, and Garden City, GA.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.