Because a Chapter 13 bankruptcy takes three or five years to complete, there's a high likelihood that some debtors will need to buy or replace a car during their open case. Can you buy a secured asset like a car even during bankruptcy? How will it work? And what should you avoid? To help you find success, here are the basic steps you'll take.
1. Shop for a Car
The good news is that buying a car under Chapter 13 starts out the same way any car hunt does: shopping for a vehicle. It's important to remember that you must justify this purchase to the court, so look for something reasonable, practical in your situation, and affordable with your repayment plan.
2. Collect the Unsigned Contract
The challenging part of shopping during Chapter 13 is that you can't sign a contract without court approval. So once you find the right vehicle and the right price, talk with them about your bankruptcy limitations. You may need to find a seller with experience navigating Chapter 13 purchases. You'll need the buying and payment details as well as a purchase agreement for the trustee to look at.
3. Present Your Case
Armed with the documentation from the seller, you will then present to the court your reasons for needing the vehicle and your plans to pay for it within the boundaries of your repayment plan. Many debtors need to make some adjustment to their repayment plan—known as a motion to modify the plan—which is doable if there is a demonstrable need.
4. Get Preapproval
Court approval will take days or weeks, so you may worry that the vehicle won't be available when you're ready. However, don't panic about this challenge. If the trustee approves the purchase, they will generally use it to create a set of guidelines for a similar approved purchase. It may stipulate the maximum price and payment and the type of vehicle you're approved to get.
5. Buy the Vehicle
With court approval out of the way, it's time to go back and buy that vehicle. As mentioned, if you can't get the exact one you chose, you may need to keep looking for a substitute close enough to meet the trustee's written standards.
Whether you're already in a Chapter 13 repayment plan or you're considering bankruptcy, find out more about what you can and cannot do while it's active. Meet with a local Chapter 13 bankruptcy lawyer to learn more.