Each bankruptcy case is unique. While there are many options for keeping your current vehicle during bankruptcy, in some cases it makes sense to surrender your vehicle and walk away from the debt. Fortunately, there are options to obtaining a different vehicle during an open bankruptcy case, so you are not trapped in a bad car loan.
Obtaining a car loan during an open Chapter 7 bankruptcy does not require any special permission from the bankruptcy court or from the trustee. However, it is wise to consult with your bankruptcy attorney prior to entering into the agreement, especially if you are providing a substantial down payment. Your attorney can ensure that the money you use as a down payment is not “property of the bankruptcy estate” that the trustee may ask you to turn over.
In the past lenders would not finance a vehicle loan until after the debtor’s Chapter 7 discharge. Today, many banks are savvy and knowledgeable about the bankruptcy process and will finance a debtor prior to discharge. Your financial stability will play an important part in the lending process, including your income, job history, and whether you have a history of financial problems. A Chapter 7 debtor with a good job and few post-discharge debts is often a better credit risk than someone with a poor job history and a substantial debt load. In most cases the lender will require a substantial down payment, but this varies from bank to bank. It is often easier to obtain financing for the purchase of a new car using financing from the manufacturer.
The process of obtaining a vehicle loan during a Chapter 13 bankruptcy is a collaborative effort between you, your attorney, the lender, the car dealership, and the bankruptcy trustee. A car loan during a Chapter 13 case requires the permission of the bankruptcy trustee, and you must show that the vehicle is necessary for the successful completion of your bankruptcy plan. If the vehicle is needed to get to work, that is usually reason enough. The trustee will limit the monthly payment amount for your vehicle purchase. Of course, the lender requires assurances from the trustee’s office that the loan is authorized. Your attorney will need to file an amended Chapter 13 plan to account for the new car payment and amend other bankruptcy documents to show your ability to pay the new amount. The bankruptcy court will then approve the proposed amendments.
Financing a vehicle during bankruptcy is not unusual. The key is being financially responsible and not over spending for reliable transportation. Your bankruptcy attorney can help guide you through the process during your bankruptcy, as well as discuss your ability to afford a new car.