A Guide To Bankruptcy And Buying A Vehicle

The average lifespan for a new car is about eight years. A bankruptcy filing remains on a credit report for a minimum of seven years. So, most people who file bankruptcy may need a new vehicle before their credit history reports are fully restored. Additionally, people who file Chapter 13 and drive used cars might need to purchase new vehicles before the protected repayment period, which is normally five years, ends.

Buying another car, even a brand-new car, is possible in both scenarios. However, there are some additional legal and financial complexities, especially for debtors who make major purchases while their finances are under court supervision. A Chicago bankruptcy lawyer helps families overcome these additional legal and financial hurdles. So, uncertainty over this issue shouldn’t prevent distressed debtors from obtaining the fresh start the Bankruptcy Code guarantees.

Buying a Vehicle During Bankruptcy

The earth keeps turning after people file bankruptcy. Children still need new clothes, electronics still degrade, and families must still replace aging or unfit vehicles. Bankruptcy judges in Illinois understand these needs.

However, they also know that most people file bankruptcy because they owe more money than they could comfortably repay. Moreover, many families are barely making ends meet as it is. That’s especially true if they are making large Chapter 13 monthly debt consolidation payments. Therefore, most judges closely scrutinize major purchases.

Automotive dealers and existing creditors often have some concerns as well. As a matter of policy, many dealers or lenders do not work with people who have yet to emerge from bankruptcy. Furthermore, unsecured creditors often object to major purchases. They argue that instead of buying something new, the debtor should use the extra money to pay down unsecured debts, like credit cards and medical bills.

A Chicago bankruptcy lawyer addresses all these concerns. Let’s start with the judge. Most attorneys file amended schedules which show the new income. Typically, this income comes from a new side hustle or a new part-time job. These amended schedules show the judge the income comes from a reputable source, the income is new, and the added expense of a monthly car payment won’t affect the debtor’s ability to make Chapter 13 payments.

Then, an attorney works with a dealer on a dummy sales contract. This contract usually includes key financial figures, like the total purchase price, interest rate, down payment, and monthly payments.

Attorneys also deal with creditor objections. As long as the purchase is reasonable and necessary, most judges overrule most creditor objections.

Buying a Vehicle After Bankruptcy

When former debtors buy vehicles after the judge closes the case, they obviously don’t have to deal with the court supervision element. But the unique financial aspects remain.

Attorneys often point families to dealers and lenders who work with people that have damaged credit. Most likely, your purchase options will be limited. Furthermore, you will probably pay a higher interest rate than other buyers. Deep down, however, many lenders like to work with damaged credit buyers. Since these loans are high risk, they can charge higher interest rates and make more money.

If a dealer or lender refuses to work with you, don’t take it personally. It’s just business. And, there are plenty of other dealers or lenders who will welcome you with open arms. 

Count on Experienced Cook County Lawyers

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. After hours, virtual, and home visits are available.

Resource:

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