Purchasing a vehicle in a Chapter 13 Bankruptcy is different than buying a car under any other circumstances. There are a couple of extra steps in the process than for Chapter 7 Auto Loans, but if done correctly, you will still end up with a reliable vehicle that will help you rebuild your credit.
The most unique concept of buying a car while in a Chapter 13 is that you will need to get approval from the bankruptcy court/trustee to buy a vehicle. In Washington, it is often called a Motion to Incur Debt. The motion usually will say something like this: “The debtor (you) may buy a vehicle priced up to $15,000 and have up to a $400 monthly car payment.”
For your convienience, here are two version of the form you will need to get started.
For the better auto loan programs, it is important that your plan is confirmed. It is still possible to buy a vehicle without your Chapter 13 plan being confirmed, however, you will typically need a larger down payment. The best loan programs all require that your Chapter 13 plan be confirmed.
Here are some other things you need to know before shopping for a vehicle while in a Chapter 13 Bankruptcy:
The lender will control the vehicle requirements.
We have had customers waste 20-30 hours at dealerships because they wanted to shop for a vehicle. Even though we told them it was a bad idea, they kept coming back or going to other dealers. Then when they finally got the plan confirmed and the letter signed by the judge, they found out they did not qualify for any of the vehicles they were looking at. In fact, those particular customers needed $3000-4000 down to buy anything, and more to buy the vehicle they really wanted.
People almost always pick out something that is too expensive, has too many miles on it, is too old, or just will not work with the amount of down payment they actually can come up with. It is not their fault, it is just human nature. Make sure that you deal with someone who understands Chapter 13 Auto Loans, and not just a car salesman at some random dealership so that you are given accurate information about what kind of vehicles you can look at.
The Chicken or the Egg?
The lender and dealer prefer if you have a trustee’s approval before looking at vehicles, the trustee and judge prefer that you have a vehicle picked out before they approve your purchase. What should you do?
The fastest route we have found to help someone get a car while in a Chapter 13 requires you to submit the loan request form to the trustee with a fictional vehicle on it. It is important that the trustee approves the financial portion of the transaction, but we can change the vehicle on the approval easily…usually with just an email to the trustee’s office.
If you already have paperwork in your hand stating that the trustee has approved a vehicle purchase, you will have a much faster transaction than shopping for a car first.
Why you shouldn’t go car shopping in a Chapter 13 Bankruptcy:
Some lenders do not give as good of an approval once the original approval expires. If possible, we want to avoid submitting your loan application several times. However, many of our customers are instructed by their attorney to shop for a car first and get approved for a loan. If the customer opts for shopping first, it often takes so long to get an answer from the trustee or judge that we have no choice but to resubmit the loan application.
Additionally, the Trustee may turn down the request, so the customer wasted hours of their time shopping for a car the trustee would never approve. Why go through the hassle?
Our Advice for Anyone in a Chapter 13:
- Talk to your Lawyer. Let him/her know you want to buy a car outside of your Chapter 13 plan. If your attorney thinks you budget for a car payment, proceed to the next step.
- Talk to someone who helps a lot of people in Chapter 13 obtain auto financing…like us.
- Don’t waste too much of your time by going out looking at cars that will probably be sold to someone else by the time you have a signed motion to incur debt. There are lots of cars out there. Your loan experts will tell you when it is time to select your car.
- It can take about a month (but I have had it take as long as 3 months and as little as 2 days) to get approval from the judge or trustee. Cars do not stay around on dealer lots forever. You also have to account for book value changes, which affect the amount of money a lender will advance on any vehicle.
If you are in a Chapter 13 Bankruptcy, come see us and we will review your situation, and give you an idea as to what will work for your loan.
We work with many major lenders that are helping people get Chapter 13 Auto Loans for people just like you.