Chapter 13 Repayment Plan
When you file a Chapter 13 bankruptcy, you must submit a three to five year repayment plan detailing how you plan to pay all or part of your debt. If you need to finance a car before that plan is approved, you must notify the bankruptcy trustee and modify your plan to include the car loan. If you did not realize you needed a car until after your repayment plan is approved, you still need permission from your trustee to finance the car. This rule is in place to help prevent you from getting into deeper financial trouble. However, if you can pay cash for a car and do not need financing, you do not need to notify the trustee.
Determining If You Can Afford a Car
If you are trying to buy a car before discharging a Chapter 13 bankruptcy, it is important to determine if you can afford the car. First, you should seek a used car that is a few years old rather than a new car so the purchase price is lower. Next, you should review your income and expenses to make sure your budget can cover car payments. If necessary, consider reducing other expenses to accommodate the cost of a car.
How to Notify a Chapter 13 Trustee
If you want to finance a car before discharging a Chapter 13 bankruptcy, you must notify your trustee. The process varies from state to state, but usually notification involves your filing a motion in bankruptcy court to incur this debt. The motion should state a reasonable explanation of why you need the car, such as your previous car breaking down and the repairs costing more than a new car. Without a valid reason, your trustee might object to the request.
Acquiring a Car While in Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, you are allowed to keep a vehicle, but you must be able to afford the loan. In addition, you can only retain a certain amount of equity in your car, which is dependent on state law. If you don't have a car, you do not have to notify the trustee prior to financing one. However, it is usually wise to wait until your bankruptcy is discharged, which typically takes three to six months. Until your bankruptcy is discharged, you are essentially insolvent and obtaining financing is likely to be very difficult. Once your Chapter 7 bankruptcy is discharged, you will be in a better position to obtain financing, although you will most likely have to pay a high interest rate.
Financing a Car While in Bankruptcy
Finding a lender to finance your car before discharging a Chapter 7 or Chapter 13 bankruptcy can be difficult. Shop around at several dealerships and with a variety of financing companies online, as the interest rate can vary widely. Focus your search on vehicles that are a few years old so the lower purchase price can help make up for the higher interest. Keep in mind that at this point, finding a reliable vehicle that won't need as many expensive repairs is more important than finding a fancy, new car.