Ideally, you should wait until your Chapter 13 bankruptcy has been discharged before you apply for auto financing. But, because a Chapter 13 takes three or five years to complete, this isn’t always doable. The good news is you can still get a car loan during an open Chapter 13, you just need to keep the court involved.
Getting a Car Loan During an Open Chapter 13
The first thing you need to do is find a lender to work with. You can try for pre-approval from your bank or credit union, or search online for lenders who work with bankruptcy. However, these lenders typically won't work with borrowers with poor credit and/or who are in an open Chapter 13 bankruptcy. You best shot at finding somebody to work with is at a dealership with special finance lenders available.
These dealers understand and know how to work through the bankruptcy financing process. The first thing you need to do once you locate a dealership that can work with you is have them write up a sample buyer's order with a vehicle you qualify for.
The sample buyer’s order needs to be taken to the court in order for you to get approved for auto financing during an open Chapter 13. The sample buyer’s order must include all of the things a dealer normally lists, plus two special stipulations:
- The phrase “or similar” next to the car you chose.
- The highest possible interest rate you could get.
If these aren’t included, you may have to start the process over again. If the vehicle you want is sold in the meantime, or the actual interest rate you get is higher than what's listed on the sample buyer's order, the court is going to deny your motion. Make sure to include these two things to avoid this tedious and frustrating outcome.
Next Steps to Take
Once you have the sample buyer’s order, you can take it to your bankruptcy trustee for approval. You need to explain to them why you need an auto loan, and they determine whether or not you can handle it under your repayment plan. If it’s approved, they file a motion to incur debt with the bankruptcy court.
The motion is sent to the court and the creditors involved in your Chapter 13. Your creditors are given the chance to object, and the court then decides whether or not to approve or deny the motion. It it’s approved, you’re then given an order to incur additional debt that you can bring back to the dealership to finalize the car buying process.
Need Help Finding a Dealer?
No matter if you’re in the middle of an open Chapter 13 bankruptcy, or you have one that’s been discharged, Auto Credit Express wants to help you find the right dealer to work with.
We're teamed up with a nationwide network of car dealerships that are equipped to handle challenging credit situations, including bankruptcy. Our free service can connect you with one of them in your area. To get the process started, all you need to do is fill out our secure auto loan request form.