There's a process to follow if you need to buy a car in the middle of a Chapter 13 bankruptcy. You need to get the court's approval in order to take on such a major purchase, but it's often possible if you follow these steps.
Get a Sample Buyer’s Order
The first step is to find a dealership and lender willing to work with you. Because most lenders only work with consumers with good credit, your best bet is to find a dealership that is signed up with subprime lenders. It's smart to review all of your options, so there's no harm in trying to get pre-approved with your bank or credit union first, however.
The finance departments at dealerships with subprime lenders are experienced in handling all types of credit situations. They'll be familiar with the process of buying a vehicle during a bankruptcy and can help you along the way. Their finance manager will draw up a sample buyer’s order for you to take to the court, but you first have to select a vehicle.
It's important to be realistic during this part of the process. The bankruptcy court isn't going to allow you to finance anything expensive at this time. So, you'll want to choose something affordable to increase your chances of success.
The sample buyer’s order they'll create will list the car you're planning to buy, its price, and your monthly payment amount. There are two very important things the dealer must include on the it:
- Make sure they list "or similar" next to the car you choose. It can take the court some time to process your request. It's possible that the vehicle you want will be gone by the time you can move forward.
- Have them include the highest possible interest rate you could get. Your request will become invalid if the interest rate you actually get is higher than the one listed on the order.
Make sure these stipulations are included so you won’t have to start the process over again in the event something goes wrong.
Take it to Your Trustee for Approval
A Chapter 13 bankruptcy repayment plan lasts for either three or five years. A lot can happen in that much time, so the court understands if you need to purchase a car, but it has to be out of necessity.
Take your sample buyer’s order to your court-appointed trustee and explain why you need a car. They'll have you fill out some paperwork and decide if your choice is reasonable.
The trustee will look into your ability to handle a car payment in addition to your existing bankruptcy payment plan. They may even want to make some adjustments. If they approve you, they'll bring your motion before the court.
The Motion to Incur Additional Debt
Your trustee will file what's called a Motion to Incur Additional Debt with the bankruptcy court. This will also be sent to the creditors involved in your Chapter 13 repayment plan, giving them a chance to object. It's also possible you'll need to attend a hearing.
In the end, the court will either approve or deny the motion. They can also make specific requests related to your auto loan contract. For example, they can set a maximum interest rate or loan amount you're allowed to have.
If approved, you'll be given an Order to Incur Additional Debt to bring back to the dealership. Present the finance department with a copy of the order and you're free to move forward with the loan application and car buying process.
Being in an open Chapter 13 bankruptcy doesn't have to stop you from financing a car if you need one. Just make sure you know the steps to follow and understand how important it is to find the right dealership.
If you're having trouble finding a dealership that can work with your situation, Auto Credit Express wants to help. We're teamed up with a nationwide network of car dealers that are equipped to handle challenging credit situations. 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 car loan request form.