Rats! I need a new car and I’m stuck in Chapter 13
Do You Need to Finance a Car in Chapter 13?
The last thing you want to do is get further into debt while you are in Chapter 13. (The goal of Chapter 13 is to get out of debt.) But sometimes you need to–most often if you need to replace a junker car.
There are two things you need to know about financing a car while you are in Chapter 13?
First, car dealers are surprisingly eager to finance a car for people in Chapter 13. That’s because they figure people in Chapter 13 are trying to get their lives together; but also people in Chapter 13 are stuck paying high interest rates, so those loans can be very profitable.
Second, you do need court approval to finance that car. (The finance guys at the car dealerships usually know that and will tell you to get a letter from the court.)
Approval from the judge takes about four weeks
You need to get approval from the judge–that takes about four weeks–if nobody objects.
Here’s the info we’ll need from you, so we can put it in front of the Chapter 13 Trustee and the judge.
Five things we’ll need to explain to the judge and the trustee and yourself
- Why do you need a new car. If you had a car when your bankruptcy started, what happened to that one?
- What kind of a car do you want. What’s the year, make and model. (This court will never approve a luxury brand. And they won’t approve a souped-up economy brand either. ) What are you going to pay; where did you get the down payment, what’s the interest rate and monthly payments. The dealership will need to give you that info. We’ll need it on their letterhead.
- Now in three weeks that car will be gone, so don’t get attached to it. But you’ll have court permission to get a similar car.
- How can you afford this car? This court will never let you lower your bankruptcy payments no matter how much you need a car. They will also turn you down no matter how much you need a car if they think you can’t afford it. So this needs a lot of explanation.
- Is getting a car loan at a terrible interest rate really something you need to do. Is there a way to keep your old car running a little longer? Do you have some cheaper way to get around until your bankruptcy case is over? Are you really being smart here?