Many people think that once they go into bankruptcy, their ability to buy pretty much anything on credit is gone. But that’s not the truth; you can still get a car, even if you’re finishing up a bankruptcy proceeding. Still, those going through Chapter 13 bankruptcy are right to wonder how they can fit a car payment into the budget … and wrong to think it’s nearly as hard as it looks.
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What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, also called a reorganization bankruptcy, allows those with a regular income and a debt burden below a certain threshold to pay off their debts on a payment plan over a three to five year period, using a portion of their income. It allows you to retain your property, such as your house, but it does create financial obligations that you have to meet and will need to work around.
In other words, if you need a new car, you need to fit a car payment into a rather strict payment plan. But how?
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Start With The Professionals
If you’re in Chapter 13 bankruptcy proceedings, the first people you’ll need to speak with about securing financing for a car are your trustee and your lawyer. It is not going to enthuse your creditors that you’re looking to take on some more debt, especially when you’re still paying off the debt you already have, and they’ll need to advise you and approve you before you move forward.
So, before you do anything, you’ll need to speak with those handling your proceedings. In general, you’ll need to be able to demonstrate a few things. First, you’ll need to show that your current car isn’t in good enough shape to be used as it is. In some cases, it’ll be fairly simple: If you get in an accident where you’re not at fault, and your only car is destroyed, that’s a pretty straightforward process. In other situations, bring repair estimates, depreciation schedules, and whatever else you can find that demonstrates that repairing your car is fiscally less responsible than buying a new one. Emphasize that this car is to help you meet your financial obligations; i.e. it allows you to get to work and attend legally required matters surrounding your bankruptcy in a timely manner.
Secondly, your request needs to be realistic. A sturdy, simple used sedan will be probably be approved by your trustee; a new luxury car is probably not going to be.
Next, you should start applying for car financing first. Be upfront with lenders about your credit situation and why you need a car; lenders that aren’t willing to work with you will be honest about that and it’ll save you both a little time and aggravation.
When you do find lenders willing to work with you, be ready to offer up any information they need and to put them in contact with your lawyer or your trustee. Even the most open-minded lender will proceed cautiously; don’t expect any “instant” approvals.
But remember, you can get financing. Bankruptcy is not a black mark: It just means you have to be realistic about your next car.