Can You Purchase a Car During a Chapter 13 Bankruptcy?

Even the most financially disciplined and prudent individuals can find themselves in debt. And sometimes, the best way out of unmanageable debts is to file for bankruptcy.

For example, filing for Chapter 13 allows you to restructure your debts to pay off the debt in installments per the court's order.



However, you may find yourself in a situation where you wish to purchase a car to help you get to and from work or navigate your daily errands. But the big question is, can you buy a car during a Chapter 13 bankruptcy? Learn everything to know about this matter.

Can You Buy a Car During Bankruptcy?

The answer is yes; purchasing or refinancing a car during bankruptcy is possible. But the viability depends on your financial situation and the reason for needing the car.

For example, the reason for buying the car must be acceptable per the creditor's requirement. If the creditor believes that buying a car is in your best interest, you may qualify for purchasing or refinancing a car during bankruptcy.

For instance, suppose your old car has given up, and you need a new one to show up for work. If your creditor is convinced that buying a car will help improve your financial situation, they may permit you to buy it.

Conversely, if your motive for a car purchase is purely luxury or leisure, then your creditor is highly unlikely to approve the purchase.

What Tips Will Increase Your Chances of Car Loan Approval?

Considering your financial situation, you may need to finance the car purchase with a loan. These tips will help you increase your chances of loan approval.

Get a Court Approval

You must get court approval if you wish to buy a new or used car. Why? Your monthly debt payment is based on your financial situation at the time of bankruptcy filing.

Therefore, a slight change in your budget, such as when you buy a car, may affect your ability to afford the court-ordered payments. So, the court needs to ensure you can afford the new car loan payments and the other bankruptcy debts.

Find a Willing Lender

Not all leaders will be willing to finance you in a state of bankruptcy. For example, most banks consider your credit scores to assess your loan eligibility. Since bankruptcy lowers your credit scores, you may need to look for lenders willing to finance people with bad credit scores.

Obtain a Buyer's Order

Your car dealer provides you with a buyer's order, essentially a receipt of your car purchase that includes details such as the car model, purchase price, and other related costs.

First, get a sample buyer’s order from your dealer to help you choose a car you can comfortably afford. Then, present the sample to your trustee, who will evaluate the document to determine whether the purchase is permissible.

The trustee considers if the car is a need. The trustee will also check if you can pay back the loan on top of other bankruptcy-related expenses.

If the trustee approves the purchase, they must file a motion to allow you to incur more debts. And if this motion is approved, you are good to go.

While you can purchase or refinance a car during Chapter 13, consider the overall financial situation so you don't end up in more debt. The best way to do it is to consult a bankruptcy attorney.

The attorney will help you decide whether buying a car is in your best interest. The law expert will also advise on proceeding with the case for loan approval.

You can trust us at Custer, Custer & Clark LLC Attorneys at Law to guide you through car purchases during bankruptcy. We have extensive experience in Chapter 7 and Chapter 13 bankruptcies and can offer the best legal advice. Contact us for a consultation.