In helping clients file for bankruptcy, they often ask the following two questions:
- If something happens to my car while I am in bankruptcy, can I buy a new one?
- Will I be able to buy a car after I am out of bankruptcy?
These are reasonable concerns. Having reliable transportation can be considered a necessity. Especially, if you need it to get to work so you can earn the money to support your family and pay your debts.
Clients who asked these questions have two typical concerns. They wonder if bankruptcy rules will allow them to buy a car if needed during bankruptcy. And, they wonder if their financial status will be good enough to buy a car after bankruptcy.
Bankruptcy Rules about Buying a Car During Bankruptcy
There is not a set bankruptcy rule that says a debtor cannot buy a new vehicle while they are in bankruptcy. But, there is a rule that the debtor must contact the bankruptcy court to receive permission to buy a new vehicle.
A Chapter 13 bankruptcy can last between 3–5 years. During this time, the debtor completes their court-approved repayment plan. The bankruptcy court understands that anything can happen to a debtor’s vehicle during this length of time. So, they are open to granting permission to buy a new car during bankruptcy. But, the bankruptcy filer must meet certain requirements.
- The debtor must show that the new vehicle is necessary. In the eyes of the court, “necessary” means it is needed as transportation to work for the debtor or their spouse.
- The vehicle must be a reasonable model. The court defines a reasonable model as a non-luxury model that is at least 5 years old.
- The purchase price of the vehicle must be reasonable.
- The debtor must show that they can make the monthly payments. They will make the payments outside of bankruptcy.
Buying a Car After Bankruptcy
Many clients believe bankruptcy will ruin their credit. They fear it will hurt their chances of purchasing a vehicle after they have been in bankruptcy.
This is one of the biggest myths about bankruptcy.
A Federal Reserve study revealed two interesting results about the credit of those who file for bankruptcy. It showed that those who filed for bankruptcy received a boost in their credit score shortly after filing bankruptcy. It also revealed that those who went through bankruptcy had greater access to credit after completing bankruptcy than those who continued in debt.
There are reputable car dealers who are more than willing to sell to someone who is in bankruptcy or has recently completed bankruptcy.
It is important that you shop around for the best car, best deal, and best dealer.
Getting Help Understanding Bankruptcy
Are you thinking about filing for bankruptcy? Do you have questions about how it will affect your transportation situation? Each bankruptcy case is different. So, it is best to contact a bankruptcy lawyer that can help guide you through the process.
Brock and Stout’s bankruptcy attorneys have over 25 years of experience guiding clients through the bankruptcy process. Please contact us for a free evaluation of your situation to see if we can help you.