Can I get a car loan while in Chapter 13?

On Behalf of | Jul 22, 2021 | blog, chapter 13 |

People in New Jersey going through a Chapter 13 bankruptcy still need to drive to work, school and family events. During the course of your bankruptcy proceedings, you may need to purchase a new car and want to finance the purchase through a car loan. However, you may be uncertain whether you will be able to do so while your bankruptcy is underway. A borrower can still take out a car loan while in Chapter 13, but there is a process that must be followed in order to protect your plans for the future.

Understanding Chapter 13 bankruptcy

There are two major types of consumer bankruptcy: Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, non-exempt assets are liquidated with the proceeds going to creditors, and the remaining balances of some unsecured debts are discharged. However, there are limitations on Chapter 7 bankruptcy, and some filers may make too much money to pursue this option. They may also want to retain important assets like a family vacation home or a second vehicle, which they would be required to liquidate under Chapter 7. A Chapter 13 bankruptcy allows filers to agree to a plan where they partially repay their creditors over a set period of three to five years.

Car loans in Chapter 13

There is a market for bankruptcy car loans available to people in Chapter 13. In order to take out one of these loans, you must be current on your repayment schedule and it must be one year after the filing date, unless you already included an existing car loan in the bankruptcy. You must also obtain authorization from the bankruptcy court for the car loan, just like any other major new debt. After getting a buyer’s order with the loan details, the bankruptcy trustee, after reviewing and approving the order, can file a motion with the court for approval. If approved, the court will issue an “Order to Incur Additional Debt” as an amendment to the Chapter 13 repayment plan.

It can be more complicated to finance a car purchase while going through Chapter 13 bankruptcy, but it is still possible to do so while protecting your financial future. A bankruptcy attorney can provide detailed advice about your options for debt relief.