Chapter 13 Bankruptcy – Can I buy a new car in an active case?

Hello, this is Jeff Kelly, and today is June the 8th, 2020 and today we’re going to talk about, can I buy a car while I’m in an active Chapter 13 bankruptcy case. Short answer? Yes, you can, but buying a car while you’re in an active Chapter 13, while it’s possible, it’s extremely difficult because most lenders are not willing to go through the process of waiting for the court to approve a post-petition car loan. Finding a lender who’s willing to work with you while you’re in an active Chapter 13 case is the biggest challenge. However, I have seen some clients pull it off successfully. It’s important to note, no one can incur any new debt in an active Chapter 13 case without permission from the court. Now, of course, emergency medical debt, that’s an exception to this rule, but as a general rule, no new debt without permission from the bankruptcy court, or you can get in a lot of trouble.

To obtain permission from the court, we had to set it down for a hearing. We have to notify all the creditors in your case what our intentions are, that we want to buy a new car. At the hearing, the trustee is going to have some questions and may or may not oppose your request to purchase a new car. Your bankruptcy attorney will present your case and then the bankruptcy judge will decide whether or not she wants to sign an order allowing it. Typically, this process takes anywhere between 30 to 45 days. It is a slow process. It is not overnight. If you truly don’t have an alternative source of transportation and the proposed payment interest rate and the amount to be incurred are reasonable, most bankruptcy courts are going to approve the purchase of your new car.

Now, if you’re wanting to get a new car, just because you’re sick and tired of the old one, it’s not fashionable anymore, forget it. You’re in bankruptcy. The court is not going to allow you to purchase a new car for that reason. You’ve got to have an acceptable reason to purchase a new car in an active Chapter 13 case. “My old car won’t run anymore and I need to get back and forth to work”. That’s a good reason. “I want a new car. I’m sick and tired of this old one. It smells”. That’s a bad reason. If you have an extra car listed in your bankruptcy case, a trustee’s going to ask, “why do you need a new one?” So, for example, we have clients all the time, some interesting clients will have three, four and five cars. Those clients, the trustee is going to approve the purchase of a new vehicle, unless there’s some sort of explanation that, “hey, this extra car that we had listed in the case, it no longer runs”.

So I think it’s a good idea to review schedule B and if you have some cars break down, since your case was originally filed, I think it’s a good idea to amend your petition to reflect the new status of those old vehicles. I want to talk real quick about the myth of the “buy here, pay here”. So I have clients all the time say, “well, a ‘buy here pay here’ doesn’t count because that’s what the ‘buy here pay here’ auto salesman told me.” “It doesn’t count because they don’t care about bankruptcy.” “It doesn’t count because well, they don’t report on your credit.” No, no, no. All that is wrong, wrong. The owner of the “buy here pay here” is wrong. You’ve got to have court permission to obtain new consumer debt. It doesn’t matter that they don’t report. It doesn’t matter what the owner of the car lot says. If you violate this rule, your bankruptcy case could be dismissed or in a worst case scenario, you could be sanctioned by the bankruptcy court.

Now, what do you do in the worst case scenario when you’re in a situation where no one will finance you because you’re in an active Chapter 13 case, and you desperately need a new vehicle, or for whatever reason, the judge is not going to approve your purchase of a new vehicle. What do you do? Well, the answer is you can voluntarily dismiss your Chapter 13 bankruptcy case. Now as a general rule, this is a terrible idea because you lose all of your bankruptcy protections. As soon as your case is dismissed, garnishments, foreclosures, and other collection activities can restart. However, some people absolutely must have new transportation or else they lose their jobs. In a base case scenario, the creditors will leave you alone long enough for you to buy another car and then you can refile later down the road if everyone comes piling on top of you again. The bottom line is if you need a new car and you’re in an active bankruptcy case, you need to call your attorney as soon as you can. Thank you.