A Chapter 13 bankruptcy can take either three or five years to complete, and focuses on a repayment plan. Some people going through a Chapter 13 bankruptcy may need to finance a car, and aren’t able to wait for it to be discharged. The good news is that you can still apply for an auto loan – it’ll just take some time and patience.
Sample Buyer’s Order
The first thing you need to do is get a sample buyer’s order from a dealership to give to your trustee. This will be used to show the court the debt that you plan to incur, allowing them to either approve or deny it based on your current standing in your Chapter 13 bankruptcy. You should see if you can get pre-approved from your bank or credit union first, but because you’re going through bankruptcy, this could be difficult. If that isn’t an option, finding a dealership that has a special finance department may be the only way to go for a Chapter 13 auto loan.
In order to get a sample buyer’s order, you’ll need to pick a vehicle first. What’s important here is to not think too big – the court isn’t going to approve an expensive luxury vehicle. Instead, opt for something that’s practical and affordable. Once you picked a car out, a sample buyer’s order can be created.
Make sure two things are listed on the order: the words “or similar” next to the vehicle you picked out, and the highest possible interest rate you might qualify for. Listing “or similar” on the order is a sort of backup plan – the car you have listed can be sold during the process, and if you have “or similar” listed, you may be able to get a similar vehicle and avoid having to start over. As for the highest possible interest rate, your request becomes illegitimate if the rate you get is higher than what’s listed on the sample buyer’s order.
Take it to Your Trustee
Once you have your sample buyer’s order, take it to your trustee. You’ll need to explain to them why you need the car, fill out the proper paperwork, and wait for the trustee to decide if buying the vehicle is reasonable. Trustees consider your ability to pay for the car on top of your current bankruptcy repayment plan. If they deem the request reasonable and determine you’re able to afford the vehicle, they’ll bring a motion before the court.
Motion to Incur Additional Debt
Once the trustee files the motion to incur additional debt, the creditor(s) involved in your bankruptcy will be given the information, and you may need to attend a hearing in order for the court to make a decision. If it’s approved, you’ll get an order to incur additional debt that you can bring with you back to the dealership. Once you give them the copy of your order, you can move forward with the car buying process.
Buying a vehicle during a Chapter 13 bankruptcy isn’t impossible, although there are extra steps you need to take. If you’re able to hold off on buying a car until your bankruptcy is discharged, that’s often best. However, we understand that three or five years is a long time.
The Bottom Line
Things happen, and if you need a car during your Chapter 13 bankruptcy, don’t be afraid to go through the process of requesting permission to do so. Make sure you have the proper documentation before beginning the process of applying for a loan – without it, you can’t get financing.
If you’re in the middle of a Chapter 13 bankruptcy and are ready to buy a vehicle, but aren’t sure where to start, let The Car Connection lead the way. With our simple auto loan request form, and our nationwide network of dealers, we want to connect you to a local dealership that can help you get the financing you need.