The Bankruptcy Code does set a time limit on when you can buy a car after bankruptcy. You could go to a car dealer or personal seller the day your bankruptcy case closes to purchase a vehicle. However, you want to wait as long as possible after receiving your bankruptcy discharge to get the best deal on a car after bankruptcy.
How Long Should You Wait to Buy a Car After Chapter 7?
If you pay cash for another vehicle after your Chapter 7 case closes, you do not need to wait any specific length of time. Once the court closes your case and you receive your bankruptcy discharge, you may buy any car you desire.
However, if you want to buy a car while your Chapter 7 bankruptcy is open, you need to use caution. Talk with your Chapter 7 bankruptcy attorney before signing any documents or making a down payment. Your lawyer needs to know a few things before deciding how buying a car in Chapter 7 affects your case:
- Year, make, and model of vehicle
- Fair market value
- How are you paying for the vehicle?
- Where did you get the cash to pay for the vehicle?
- How is the vehicle going to be titled?
If you use exempt cash to purchase a non-exempt vehicle before your Chapter 7 case closes, the trustee could seize the car to pay unsecured creditors. Therefore, it is best to wait until after your Chapter 7 case is discharged and closed to buy a car.
Suppose someone wants to give you a car after you file Chapter 7. That is fantastic news! Let them know it is best to wait until after the court closes your bankruptcy case to transfer title. You want to avoid receiving assets while your Chapter 7 case remains open.
Purchasing a Car While In Chapter 13 Bankruptcy
The same issues we discussed above apply in a Chapter 13 case, but with a few slight differences.
You are fortunate that you can afford to buy a car while paying your Chapter 13 plan payments. However, the Chapter 13 trustee, judge, and your creditors may wonder where you got the extra money. Did you get a raise at work? How about an inheritance or windfall? Have your monthly expenses changed to reflect a more significant disposable income? Maybe if you have more income, your Chapter 13 payment should be higher to pay your unsecured creditors.
Another issue would be the value of the car. Even if someone gave you a car while you were in Chapter 13, the car’s value could be an issue. If the vehicle’s value exceeds your allowed bankruptcy exemptions, your Chapter 13 plan payment could increase.
Before you buy a car, talk to your Chapter 13 bankruptcy lawyer. If you need to borrow money to purchase a car, you must file a motion with the court seeking permission to incur debt. The court and the Chapter 13 trustee carefully review the petition. You must prove that making the new car payments will not cause you to fall behind on your bankruptcy plan payments.
My Case Is Closed, So Now Can I Get Another Vehicle?
If the court closed your bankruptcy case, nothing should prevent you from purchasing a vehicle. However, keep these things in mind when you go to buy a car after bankruptcy:
- It could be challenging to obtain favorable car loan terms with a bankruptcy on your credit history. However, you can receive better loan terms the longer you wait after your bankruptcy case closes to apply for a new car loan.
- If you have a repossession or surrendered car on your credit report, it could make it challenging to get a loan for a new car.
- Buy-Here Pay-Here places are tempting because they sell cars to anyone. However, you pay much more than the car is worth.
- A cosigner could help you obtain better loan terms. However, you put that person at risk of paying for a car they don’t own or losing their good credit rating if you default on the car loan.
Instead of rushing into buying a car after bankruptcy, focus on improving your credit scores. You can take steps even before you complete your bankruptcy case to improve your credit score. If possible, borrow someone’s car or pay a friend monthly payments to purchase their car. Remember to put all agreements in writing to protect all parties.
Preparing to Buy a Car After Bankruptcy
If you know you need to purchase a car after filing bankruptcy, begin preparing now. Steps you can take include:
- Start saving money for a new car as soon as you file your bankruptcy case (do not accumulate a lot of money before filing)
- Use your tax refunds to purchase a car
- Research the sales process for cars in your area before you go to a dealer
- Shop around to find the best deal
- Take a trusted friend or relative with you to help “talk you down” from making a hasty or poor decision
- Before you leave home, know what you can afford and do not go over that limit
Rebuilding your credit and saving money for as long as possible is the best way to buy a car after bankruptcy that is affordable and worth your money. Fight the urge to overextend your budget to purchase a car. Purchasing a car that strains your budget could start a cascade that puts you back into bankruptcy again.
Contact Ascend Today for More Information
We understand how frustrating it can be to deal with debts you cannot pay. We have developed numerous tools to help you get out of debt. Most of our tools and resources at Ascend are free of charge. Our sincere desire is to help you find a way out of debt that works best for you.
We can also discuss several debt-relief options that do not involve filing bankruptcy, including our Savvy debt payoff planner. So let’s get started today working on a plan that gets rid of your debt and puts you on the road to a better financial future.