When is the Best Time to Buy a Car When I am in Bankruptcy?
The best time to buy a car when you are in bankruptcy depends upon whether you are filing a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. For an explanation of Chapter 7 and Chapter 13 bankruptcies see my article entitled, “The Difference Between Chapter 7 and Chapter 13, and Which One Is Right For You.
If it is your plan to file a Chapter 7 bankruptcy, your choice is to either purchase the car before you file for bankruptcy or wait until you receive your discharge and then buy the car. Car creditors typically will not work with you if you are in a Chapter 7 bankruptcy and have not yet received your discharge. The time that passes between the filing of your case and receiving a discharge is about ninety days. This is a significant amount of time to wait to purchase a vehicle, particularly if you have an existing vehicle you want to surrender in the bankruptcy. The creditor for a vehicle you surrender will not allow you to keep the vehicle and drive it around without making any payments for three months.
I gave the above advice to a client recently who asked me how this fits in with my warning not to accumulate new debt in the ninety days prior to filing for bankruptcy. For context see my article entitled, “Avoid Accumulating Debt Within 90 Days of Filing For Bankruptcy.” As I explained to the gentleman, you want to avoid accumulating debt you are seeking to eliminate in bankruptcy. If you purchase a car right before you file for bankruptcy, presumably your intention is to keep the vehicle and continue to make the payments moving forward. The car creditor will not object provided you reaffirm the vehicle and continue to make the payments. For an explanation of reaffirmation see my article entitled, “Reaffirmation Agreements and Lease Assumptions.”
The process of purchasing a vehicle is different in a Chapter 13 bankruptcy. Car creditors will work with you in a Chapter 13, provided you get the Bankruptcy Court’s permission to purchase the vehicle. You must get the Court’s permission before you purchase the vehicle. You go to the car dealer and get a document from them known as a “good faith estimate.” This good faith estimate, along with an explanation as to the source of the funds for the down payment, is provided to the Trustee appointed by the Court to administer your case. If the Trustee agrees the purchase of this vehicle is reasonable, they will sign a document known as a “stipulation” which says they agree to the Court entering an Order allowing you to purchase the vehicle. If the Trustee does not agree to sign the stipulation, a motion can be filed to the Court asking your Judge to enter an Order allowing you to purchase the vehicle. Once the Judge has signed the Order, you can take the Order to the car dealer and complete the purchase.
The above information is a general overview and is not intended to be used as legal advice. If you are considering filing for bankruptcy, the best thing to do is call our office at 248-557-3645 and schedule a free consultation so you can receive advice which is tailored to your specific circumstances.