A question that we get asked from time to time is whether a debtor can purchase a vehicle on credit while in a Chapter 13 bankruptcy. The answer to that question is yes! Though most people are trying to get out of debt while in their bankruptcy, not incur new debt, there are definitely valid reasons why you might need to incur credit to purchase a new vehicle. For example, your car might break down or repairs may become too costly. In most areas, having a reliable vehicle is a necessity. A vehicle is needed to get to and from work, and if a debtor does not have one it could very likely cause his Chapter 13 plan to fail if he is not able to earn money to make the payments.
Getting the Courts Permission
Since a Chapter 13 bankruptcy can last five years, it makes sense that a debtor might need to purchase a vehicle at some point during the life of the bankruptcy case. If you need a new vehicle while in your Chapter 13, you need to ask the Bankruptcy Court for permission to incur credit outside of your bankruptcy. You will need to show the Court that the vehicle is needed to effectuate your Chapter 13 plan. You will also need to show that you have the funds to make the monthly payment to the creditor. If these things are shown and the proposed price and monthly payment are reasonable, the Court will likely grant permission to incur new credit for the purchase of a vehicle. That vehicle will be paid for outside of the bankruptcy, directly to the new creditor.
If you are thinking of filing for bankruptcy, or if you are a current client who has questions about obtaining credit while in bankruptcy, please contact one our offices to set a meeting with one of our experienced attorneys.
Kathryn Davis is an attorney at the Bond & Botes Law Offices in Huntsville and Decatur, Alabama. She holds a Bachelor of Arts from Auburn University, and a Juris Doctorate from Samford University, Cumberland School of Law. She is passionate about utilizing the bankruptcy process to help clients navigate through what is usually some of the lowest points in their lives. Read her full bio here.