Does Bankruptcy Make it Hard to Buy a Car?

Yes. If people say otherwise, they don’t know what they’re talking about or they’re telling you what you want to hear. Bankruptcy makes it hard, but not impossible, to buy a car. The same principle applies to other major purchases, including a house. In fact, in most cases, debtors can buy cars while they’re still in bankruptcy, especially Chapter 13.

That’s good news for debtors who drive used cars. Most vehicles last about twelve years, so a seven-year-old vehicle is unlikely to last until the judge closes the case.

Whether debtors buy cars after or during bankruptcy, a Chicago bankruptcy lawyer is an important partner in this process. Only an experienced lawyer ensures that the full mission of the Bankruptcy Code, which is to give honest yet unfortunate debtors a fresh start, is realized in your case.

Post-Discharge Purchases

Waiting until after discharge is usually the best bankruptcy/auto purchase option. Most judges discharge most Chapter 7 bankruptcies about four or five months after filing, and the final bankruptcy paperwork comes through about three months later.

By the time the final paperwork comes through, the bankruptcy recovery process is well underway, at least in most cases. With each on-time mortgage, auto loan, or other payment, the debtor’s credit score rises. Therefore, after six or eight months, instead of terrible scores, most debtors have below-average scores. That improvement opens the door for more auto purchase opportunities.

But don’t kid yourself. These options are still limited. A Chicago bankruptcy lawyer gives former debtors a plan that helps maximize their purchase power. This plan includes:

• Being realistic about purchase options and probable financial matters, such as the likely interest rate,
• If possible, get preapproved for a loan from a credit union or bank,
• Try to get a cosigner,
• Be upfront about your credit score with auto salespeople, and
• Make a large down payment to reduce the risk of default.

Above all, be persistent. If a bank or dealership refuses to do business with you, keep trying. There are plenty of other banks and car dealers in town.

Pre-Discharge Purchases

These purchases are more common in Chapter 13 bankruptcies. As mentioned, most debtors who drive used cars will need to replace their vehicles before the five-year protected repayment period ends.

These debtors need the court’s permission to make major purchases, like new cars. Shopping, not asking, is the first step in the process.

Find a vehicle that fits your needs, keeping in mind the limitations mentioned above. The court is likely to approve an apples-to-apples exchange, such as trading in a minivan for another minivan. The dealer should draft a dummy contract that includes all relevant terms, such as purchase price, down payment, monthly payment, and interest rate.

A mechanic is usually part of this process. If a mechanic reviews a vehicle’s condition and states that future, expensive repairs are likely, the petition to make a large purchase is more likely to succeed.

Creditors are likely to object to the petition, which must demonstrate that the debtor can make the payments without compromising the ability to make a monthly debt consolidation payment. Usually, creditors argue that if the debtor can afford to buy a vehicle, the debtor can afford to make additional debt payments.

As is often the case in life, a well-prepared Chicago bankruptcy lawyer often overcomes these objections and secures the judge’s approval to buy a replacement vehicle.

 Contact a Dedicated Cook County Lawyer

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Source:

bts.gov/content/average-age-automobiles-and-trucks-operation-united-states