Wage-earner bankruptcies last up to five years. Yet the average lifespan of a new car is about eight years. Moreover, before most vehicles expire, they become so expensive to maintain that it is cheaper to buy a new one. So, unless your car just came off the dealer’s lot when you file, vehicle replacement during Chapter 13 is almost inevitable.

Bankruptcy judges understand these issues. So, there is a built-in mechanism for buying a car during a Chapter 13. In other words, although there are some hoops to jump through, it’s possible to borrow money for a car during bankruptcy.

An Athens bankruptcy lawyer can help your family though this process. That assistance extends beyond the legal aspects of buying a car during bankruptcy. An Athens bankruptcy attorney can also help your family with the practical aspects. So, if you need a new vehicle, you will have a reliable way to get to and from work, get the kids to and from school, and take care of other everyday items.

Buying a car during Chapter 13 is an excellent way to raise a credit score. The mere act of securing financing usually raises most scores. Then, with every on-time monthly payment, the owner’s credit score usually goes up at least a few additional points.

Finding a Dealer

The dreaded “with approved credit” disclaimer discourages many people from even reaching out to car dealers while they are in bankruptcy. Truthfully, however, many lenders prefer to work with people who have poor credit, especially those who recently filed bankruptcy. Since these loans are high risk, banks can charge higher interest and make more money. Moreover, since the bankruptcy court is watching these people closely, there is a lower risk of default.

Athens bankruptcy lawyers usually have professional connections in the vehicle financing area. As such, they are usually able to connect debtors with dealers who will work with them. That referral increases the chances of approval.

Budgeting and Planning

In addition to a higher interest rate, there are some other issues for car buyers who are subject to court supervision. Many lenders require higher down payments. Additionally, the buyer’s choice is often restricted to a few vehicles in stock.

The down payment and monthly payment are part of the budgeting and planning process. As for the budget, Chapter 13 debtors are usually making rather large monthly debt consolidation payments. So, they must either increase their incomes or decrease their consolidation payments in order to afford a new car during Chapter 13. Otherwise, the debtor might not be able to pay off the plan before the protected repayment period ends.

A higher income must be permanent and consistent. Seasonal employment, like a teacher’s summer job, is usually insufficient. Income from a side hustle, like an Uber driver, is usually insufficient as well. Such income fluctuates too much.

A brief note about Uber and bankruptcy. Ridesharing companies no longer offer financing or leasing assistance. However, they do offer rental assistance, even for new drivers who are in bankruptcy. This option might make more sense than buying a car in some cases.

Whether or not increased income affects Schedule I, the car payment must be included in an amended Schedule J.  The new information is necessary to support a motion to incur additional debt.

Athens Bankruptcy Attorneys and Filing a Motion to Incur Debt

In addition to amended bankruptcy schedules, most judges require a financing statement before they approve motions to incur additional debt. The judge wants to make sure the additional debt does not make the Chapter 13 debt repayment plan unsustainable.

Assuming all this paperwork is in order, and the trustee does not object to the motion, many judges grant these motions without requiring hearings.

If the trustee objects or if something does not smell right (e.g. the debtor suddenly has enough surplus income to buy a new Land Rover), at a motion hearing, most judges look at several factors. These factors include the debtor’s need for a new car, the purchase price, the payment terms, and available alternatives.

Speaking of alternatives, in the unlikely event the judge denies the motion, many debtors can convert to Chapter 7 and terminate court supervision.

What Happens After the Motion to Incur Debt?

If the judge approves your motion to incur debt, an order giving you permission to seek financing will be issued. Your other creditors will be notified of the order to incur debt. If any of them object, you may need to attend a hearing to hear their objections and defend your need to make the new purchase.

If there are no objections, or if the judge dismisses the objections and gives you the appropriate permissions, your next step is to return to the dealership to purchase a car. You complete the paperwork and provide the required information and documents just as you would have if you never filed for bankruptcy. Then you can take delivery of your car. With the order in place, the financial advisers at the dealership can work with their partners to get you the financing to purchase a new vehicle.

You will likely have to provide more information than is typical for an automobile transaction, and there will typically be more hurdles to cross to complete the transaction. Interest rates will be higher, as will payment rates. Don’t forget that it may take longer to find a lender to work with you while you are in bankruptcy.

The positive to obtaining a new car loan while in bankruptcy is that it will help you begin to rebuild your credit. Creditors will likely keep a closer watch on your payment history if you obtain a loan while in bankruptcy, so making every payment on time is imperative. If you aren’t sure you can make the payments promptly every month, you should reconsider purchasing a vehicle with a loan.

When you need a car, your instinct is to turn to the traditional methods of obtaining a loan to purchase the vehicle. However, when you’re in bankruptcy, that isn’t as easy as simply going to the bank or the dealership and obtaining a loan. There are extra steps, and the judge determines whether you should even attempt to obtain a loan.

An option if you aren’t comfortable obtaining a loan or if you are facing more hurdles than expected is to purchase a car using cash. Yes, that is still an option even in bankruptcy. However, that has its pitfalls as well. If you have excess cash, it can raise red flags with the bankruptcy court and trustees.

Use Cash to Buy A Used Car

 

Often, if you’ve saved enough to put a down payment on a new car, you can afford to purchase a used car with cash. Granted, a car you buy with cash won’t be top of the line with all the newest features. However, it will help you get from point A to point B.

There are several reasons for purchasing a car with cash instead of obtaining a new loan.

• There will be no interest to pay.
• There will be no additional monthly payments.
• The car insurance policy will likely cost less.

If you need a reliable vehicle, but you don’t have to have the newest models available, using the money you saved toward the down payment to purchase a reliable used car could be a viable option for you. Because you aren’t incurring new debt, you might not have to seek permission to purchase a car with cash. If you are unsure whether you are eligible to purchase a vehicle in a cash transaction, speak with your bankruptcy attorney for clarification.

When filing for bankruptcy, you must work toward more permanent financial solvency. Using extra funds to purchase a car may not be the best way to do that. Keep in mind that if you buy a brand-new car or one that is only a year or two old with cash, it will raise questions about why you haven’t increased your bankruptcy payments.

With that said, the courts and trustees don’t expect you to maneuver in the world without a vehicle. If you have a car that’s on its last leg, you have to do something to continue getting to and from work. If you can’t get to work, you can’t pay your creditors, and judges and trustees understand that.

Get in Touch with an Astute Chapter 13 Bankruptcy Lawyer Immediately

If you need a car and you have filed for Chapter 13 bankruptcy, you likely wonder what your options are for having reliable transportation. The truth is you have options. To learn about those options and get the process started for yourself, contact the professionals at Morgan & Morgan for assistance.

If you were asking can you buy a car while in Chapter 13 bankruptcy, the answer is yes. Moreover, the experienced Athens bankruptcy lawyers at Morgan & Morgan, Attorneys at Law, P.C., can make it happen. Call us at (706) 843-2905 today for a free consultation.