Chapter 13 bankruptcy is a way of repackaging your debt into affordable monthly payments over three to five years. A lot can happen in that time, including your car breaking down or getting totaled in an accident.
Normally, it’s your decision whether to buy a new vehicle. But if you are in Chapter 13, the bankruptcy court has a say too. Generally, as part of the repayment plan, a debtor agrees not to take on new debts until they are finished with bankruptcy. Also, a Chapter 13 bankruptcy filing appears on your credit report and stays there for seven years. These facts can complicate things when you need a new car.
Four steps to your new automobile
Fortunately, it’s still possible to purchase — and even finance — a new ride in the middle of Chapter 13 bankruptcy. Here’s how.
- Draw up a new budget to show you can afford the new car payments along with your bankruptcy repayments and other expenses. If necessary, work with your bankruptcy attorney to show how you would need to adjust your repayments to afford the new vehicle.
- Find a lender and dealership that work with people in Chapter 13. Most auto lenders and dealers in the Salt Lake area don’t, but some will do business with people undergoing reorganization bankruptcy. Your attorney should have a list of dealers and lenders you can try.
- File a motion with the bankruptcy court. The motion will explain why you need a new vehicle and must take out a loan to get it. If you have a good reason, such as your old vehicle is broken down and you have no other way of getting to work, bankruptcy judges tend to be sympathetic.
- Once you get the court’s permission, buy the new car and make sure you keep up on the payments.
While Chapter 13 bankruptcy can make things like buying a new car more complicated, most people find it’s more than worth it. Bankruptcy protection puts an end to harassing calls from creditors and the stress and dread of living with insurmountable debt.