Yes, it is often possible to purchase a vehicle while you are in a Chapter 13 Bankruptcy. In order to purchase a vehicle, it is necessary to get the Court’s permission first. There are a few things that you will need to do in order to receive the Court’s Approval.
1). The Court will not grant permission to purchase any type of luxury vehicle, i.e. Mercedes, BMW, Lexus, Etc. The Court sets limits on the amount that can be financed. This limit is $21,000.00. The Court sets limits on the amount of the monthly payment. This limit is $500.00 per month. The Court sets limits on the amount you can pay in interest on the loan. This limit is 21%.
2). Once you have picked out a vehicle that fits the above parameters, then you will need to approach the dealership about the vehicle that you are interested in. You will need to work out terms that fit within the above Court restraints. You will need the dealership to provide you with a proposed sales contract. You CANNOT sign a contract for purchase until the contract is approved by the Court.
3). Once steps 1 and 2 have been completed, you will need to file a Motion to Incur Post Petition Debt in your Bankruptcy Proceeding. You will need to update your income and expense schedules with the Court. You do this by providing your Attorney with current paystubs for all members of your household that are working or receive income and a list of your current expenditures. This Motion is usually outside of the constraints of a simple uncontested Chapter 13 Bankruptcy, and attorneys in our district are allowed to charge an additional fee of $400.00 for the work expended.
4). Once the Motion has been filed with the Court, it will take approximately 30-45 days to receive an order allowing the purchase to be finalized. You will then take the signed order back to your dealership and purchase a vehicle that fits within the constraints of the Order signed by the Court. This does not have to be the vehicle in the proposed sales contract provided; it must just fit the constraints as outlined above.
5). There are many financial aspects to consider when purchasing a vehicle especially while in a Chapter 13 Bankruptcy. First and foremost, can you afford the additional payment in addition to your current expenses as well as your trustee payment? Second, no reduction to your trustee payment will apply even if your car payment increases. The post-petition debt (meaning incurred after filing the case) incurred to purchase the vehicle is not deductible when evaluating any distribution to unsecured creditors. Finally, do you believe that your income is secure enough to see the car loan contract through completion? Since the debt is post-petition, you will not be able to surrender the vehicle through the pending bankruptcy and receive a discharge as to that debt if issues with payment arise. This could result in putting a Debtor back into a similar position as they were when the case was filed. The result of a Chapter 13 Bankruptcy should be a fresh start so please ensure that you discuss the ramifications of purchasing a vehicle with your Bankruptcy Attorney.