Buying a car while in a Chapter 13 Bankruptcy is a lengthy process, but it can be done.
If you filed for Chapter 13 Bankruptcy, you've likely reduced your debt and are now taking the steps to repay the remaining amount. While you are making your Chapter 13 repayments, however, there may come a time when you need to buy a vehicle.
When you agreed to your Chapter 13 repayment plan, you committed to a strict budget plan, and that much of your remaining income would go towards repaying your creditors. If you need to take on new debt, there is a process you must go through before you can get approved for the loan. If you do not follow this process, the court will dismiss your plan and you will once again be responsible for repaying all debts in full.
Chapter 13 Car Buying: Your Plan
Buying a car during a Chapter 13 repayment plan can seem like a difficult and time consuming process. The process can take up to 30 days or more, so you will need to prepare accordingly. But if you take the proper steps, the process, while lengthy, can be relatively smooth.
Step 1: Visiting the Dealer
First of all, you will need to find a dealer that has expertise in helping car buyers with unique credit situations and complete the loan application. From there, you need to get a sample of the financing statement which will contain the terms of the loan, such as the interest rate, loan term length, the monthly payment, and the information on the type of car you are interested in purchasing.
And while you are there, you will want to be sure that you get two more things in writing before moving on to the next step.
- The vehicle choice should not be completely set in stone.
The sample paperwork that you present to your BK trustee will only allow you to buy the vehicle listed on it. It is important that you have the dealer make a note on this paperwork that says "Or Similar" next to the vehicle choice. The reason for this addendum is, because of the length of time involved in this special purchasing process, it is extremely likely that your selected vehicle will not be available once the approval process with the court to incur new debt is completed. The addendum will make it possible for you to choose another vehicle that will meet the court's requirements.
- Ask the dealer to note the highest possible interest rate.
Interest rates fluctuate. If the court process takes 30 days or more to be completed, you may be faced with a higher interest rate. If that rate is higher than what was originally listed on the paperwork you submitted to your trustee, the whole deal will be rendered invalid and you will need to start the whole process over again.
Once you have these two crucial points in order, it is time to take the paperwork to your trustee.
Step 2: Your Court Trustee
- Fill out the paperwork presented to you by your trustee.
The trustee will use this information to determine if you should be allowed to incur new debt, and how much it will affect what you will be able to repay to the creditors involved in your Chapter 13 plan. This is why you need to choose the most modest, inexpensive vehicle possible. If you try to purchase a high-end luxury vehicle, the trustee will likely deny your request.
- Your motion will be filed.
The trustee will file a petition with the court for you to incur additional debt. Your creditors and any other interested parties will be sent copies of this to review and possibly dispute. If there are any questions from the creditors, you may need to attend a brief court hearing explaining further why you need the car. If there are no objections, you may not be required to attend a hearing.
- You receive approval to incur new debt.
If the petition is approved, you take a copy of the court order to the dealership and the special finance manager submits it to the lender. From there, the sale can be completed as it would in any other car buying situation.
Trusted Dealers That Can Help
It is important for Chapter 13 car buyers to have a dealer who will work with them every step of the way to ensure their success. Auto Credit Express can connect you with a reliable dealer that will do everything possible to get you approved. When you apply with us, we will use our nationwide dealership network to find a dealer who has the lending resources that can help you.