One of the frequently asked questions consumers ask when considering filing bankruptcy is, “Can I buy a car during bankruptcy?”
Is Bankruptcy the Perfect Time to Buy a Car?
When asking if it is possible to buy a car during bankruptcy, the most straightforward answer is yes. It is possible. Is bankruptcy the perfect time to purchase a new car? No, it is not. However, when the situation demands it, it is possible to buy a car during a bankruptcy case. Immediately upon hearing this question, some dismiss it as a low priority, but this is a big assumption. In some cases, purchasing a vehicle during a bankruptcy case could be essential to the individual or family’s ability to function.
Buying a Car After a Discharge vs. During a Bankruptcy Case:
If possible, bankruptcy petitioners should wait until the discharge is received before buying a car. However, if the situation demands immediate attention, you can purchase a car while your Chapter 7 bankruptcy case is pending. Waiting until you receive your debt discharge means you have more negotiating power with the lender since the bank knows the discharge clears your debt. Additionally, after receiving a discharge, any lender will also know that you receive another Chapter 7 bankruptcy discharge for at least eight years (from the recent Chapter 7 petition filing date). With no debt and no risk (at least for several years) of the bankruptcy discharging the debt, lenders may see an opportunity. It also helps that most petitioners who recently received a discharge of debt seek to rebuild their credit, so they pay even more attention to making on-time payments and fulfilling the terms and conditions of any new credit received post-bankruptcy. In comparison, purchasing a car while a bankruptcy case is pending means significantly less negotiating power.
When purchasing a car during bankruptcy, it’s important to remember that the debt is a post-petition debt and will not be discharged. Therefore, carefully consider the terms and conditions of any offers made by lenders to ensure the monthly payment amount is affordable and suits your budget. For instance, you will likely be offered a high-interest rate when you purchase a vehicle amid a pending bankruptcy case. Use caution to avoid damaging the fresh financial start offered by your Chapter 7 bankruptcy discharge and leading you to the same complex financial situation you faced before filing.
Cars & Bankruptcy: Refinancing, Reaffirming, or Redemption
There are a few other common scenarios related to bankruptcy and vehicles. In today’s world, having a car is a necessity in most cases, and the bankruptcy court is aware of this need. As such, there are options to ensure that bankruptcy petitioners are not left without a vehicle when one is necessary. In some cases, it’s possible to “refinance” by doing either a reaffirmation agreement or redeeming the car with a new loan. If reaffirming the loan is possible (discuss the possibility with an experienced bankruptcy attorney), the petitioner can ask the lender for a lower interest rate or reduce the balance owed. When a lender agrees to this type of concession, the bankruptcy court is more likely to approve the reaffirmation agreement. When a petitioner redeems their car in bankruptcy, they essentially purchase it for current market value instead of the remaining balance owed on the loan. In this scenario, a new loan may be necessary as a form of refinancing, but the new loan amount would no longer exceed the vehicle’s value.
Working With an Experienced Bankruptcy Attorney Can Help
Our office has relationships with lenders who make car loans to debtors even when they are still in their bankruptcy. Every deal stands on its own facts, and some folks won’t qualify, but on the other hand, many are surprised by how many people qualify for car purchases even before they receive their discharge. In this scenario, the debtor files the case, buys a car, then gives the old car to the Chapter 7 trustee (or the secured lender) afterward. The debtor never has a day without a car in such an instance. Make an appointment and ask how it works!
We understand that financial struggle is difficult, and we want to help. If you have questions about buying a car during bankruptcy, reaffirming a car loan, or redeeming a vehicle, please don’t hesitate to contact Ken Rannick. You are in good hands with Kenneth C.Rannick, PC. Most bankruptcy offices in the Chattanooga area don’t have a single Consumer Bankruptcy Specialist on staff. Ken Rannick is recognized as a Board Certified (Senior Specialist) in Consumer Bankruptcy Law by the American Board of Certification. In addition, he is recognized and inducted as a “Superlawyer” by his fellow lawyers, which is awarded to less than 2% of all lawyers in his field. Rannick P.C. Make an appointment today.