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

June 09, 2020
Chapter 13 Bankruptcy – Can I buy a new car in an active case?
Kelly Bankruptcy
Chapter 13 Bankruptcy – Can I buy a new car in an active case?
/

Show Notes

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.

Episode Transcript

No transcript available...

Other Episodes

Episode 1

November 02, 2020 00:29:55

Radio Show #1 : Interview with Patrick Matson

Welcome to the first radio show with Jeff Kelly featuring guest Patrick Matson. Today we debunk the fears surrounding bankruptcy and ensuring that your bankruptcy experience is one that goes smoothly. ...

Listen

Episode

June 22, 2020

What happens to the credit score after bankruptcy?

Hello, this is Jeff Kelly. And in this podcast today, I’m going to talk about what happens to your credit score after bankruptcy. Am I doomed? For many years. What does my future look like? Will I ever be able to buy a new car at a decent interest rate? Will I ever be able to buy that house that I’ve always dreamed of? Is my financial future ruined forever as a bankruptcy attorney who has practiced in this area since 1998? I have heard questions like these hundreds of times. And the answer might shock you. The answer is this. Most people do recover within about two years, one to two years of filing Chapter 7 bankruptcy. How can that possibly be? You may say, well, first of all, usually by the time the clients come meet with me, the damage has already been done. Most potential clients have stopped paying credit cards. Many months ago, had cars repossessed. Been sued by creditors. Had wages garnished or had their house foreclosed. Any of these will put a major hit to your credit rating. For most people considering bankruptcy, like I said, the damage is already there. So the question is, what do we want to do going forward? Do you ever get a knot in your stomach when you think about your credit score? David, just feel sick to your stomach thinking about all that debt and the interest and late fees and just mess that’s hanging over you and it’s not going anywhere. Well, Chapter 7 might help make that pain ...

Listen

Episode

June 15, 2020

How to protect yourself from thieves in a Chapter 13 bankruptcy case

Hello, this is Jeff Kelly and Today is June the 15th 2020. And today I want to talk about how to protect yourself from theft in a chapter 13 with NDC.org. Every active chapter 13 debtor should open an account with NDC.org, the cost is free, but the information you see could be worth a lot of money and save you from theft. Having an account with NDC.org will allow you to see every single proof of claim that has been filed in your bankruptcy case and it will also allow you to verify that your chapter 13 payments are being received by the trustee. Years ago I had a client whose employer took money from her paycheck, but never sent it into the trustee. We caught the error and had to sue the employer to get the money paid. Having an account with NDC.org allows you to catch stuff like this. Proof of claim is a form signed under oath, with supporting documentation that a creditor must file in a bankruptcy case in order to get paid. The proof of claim will tell the trustee the type of claim and the amount owed. If a creditor fails to file before the deadline in your case, they won’t get paid anything. For example, let’s say you had a car repossessed a few years ago, and owe the car creditor $10,000. If they fail to file a proof of claim on time, you will not have to pay that $10,000. Let’s change up the facts ...

Listen