You must have the court's approval to finance a car during an open Chapter 13 bankruptcy. If you get a loan without it, your bankruptcy could be dismissed. An authorization to incur debt in a Chapter 13 is a court order that gives you permission to finance additional debt while the bankruptcy is still open. We can walk you through the steps you need to take to get the authorization.
Buying a Car with an Open Chapter 13 Bankruptcy
The process of financing a vehicle with an open Chapter 13 bankruptcy can take some time – your trustee has to agree, you need the court’s approval, and it may be subject to a hearing. Depending on your case, it could take over a month before you’re approved.
Getting permission starts with you visiting a local dealership. When you arrive, you need to explain your situation to the special finance manager. If they can work with you, the next step is to pick out a reasonably-priced car and list the information on a sample buyer’s order.
In addition to the vehicle's information, the buyer’s order lists information about the loan such as the maximum term, interest rate, and monthly payment. Make sure the dealer lists “or similar” next to the car you pick.
This is in case the vehicle is sold before you get approved by the court. Without this stipulation, you would have to start the process over again if the car is sold in the meantime. With it, you can continue with the existing buyer's order and a similarly-priced model.
From there, you take the sample buyer’s order to your trustee. They review it and if they conclude that the reason for buying this vehicle is valid and the payment won’t affect your current repayment plan, they file a motion to incur debt with the court.
The motion is also sent to your creditors, and a hearing may be required. Your creditors can attend the hearing and even object to it. If all goes well and the court approves the motion, you receive an authorization to incur debt, or an order to incur debt. At this point you can take a copy of the order back to the dealership and complete the car buying process.
When You Don’t Have the Court’s Approval
Now that you know what it takes to get a motion to incur debt, what happens if you try and finance a vehicle without the court’s approval? Well, as we said before, it’s a slippery slope to walk on, and you could face legal action.
If you decide to buy a car through a buy here pay here dealer – most of whom don’t run credit checks – and your trustee or the court finds out, a number of things could happen:
- Your bankruptcy could be dismissed.
- You could be sued by your creditors.
- You could lose your vehicle to repossession, causing your credit score to drop further.
The bottom line is this: get approved for a loan by the court before you sign any finance contracts. The consequences of going around the court and behind your trustee’s back aren’t worth it, and can put you in an even worse situation.
If you have any questions about financing a car with an open Chapter 13 bankruptcy, don’t hesitate to reach out to your trustee and talk it over.
Need Help Finding a Dealership?
Once you’ve been approved by the court and your trustee, the car buying process during an open Chapter 13 bankruptcy can move quickly. However, getting started and finding a dealership to work with an open bankruptcy can be a challenge on its own, and that’s why we want to help you.
At Auto Credit Express, we work with a nationwide network of dealers that specialize in helping bad credit car buyers get the financing they need, even those dealing with an open bankruptcy.
All you need to do to get the process of being matched with a local dealership started is fill out our auto loan request form.