Advantages for Buying Newer Car Before Filing Chapter 13

English: Chapter 13 end fleuron from en:Pictur...

English: Chapter 13 end fleuron from en:Picturesque New Guinea, by John William Lindt (1845–1926) (Photo credit: Wikipedia)

Many of you visiting bankruptcy forum websites continually raise the question about whether or not to purchase a new car prior to filing a Chapter 13 bankruptcy. A Chapter 13 is a type of bankruptcy where you, as a wage earner, makes a 3 or 5 year plan to pay back part or all of your unsecured debt with disposable monthly income. Five years is a long time to successfully operate a plan when you have vehicles you depend on getting you back and forth to work that are not reliable.

As an example, consider this bloggers question recently raised on a bankruptcy forum website: “We are planning to file Chapter 13 in the coming months. Our car situation is as follows:

  • Car #1 has 110,000 miles on it, we owe $3400, it will be paid off in a year, and our son drives it to and from school;

  • Car #2 has 115,000 miles on it, we owe $3000, it will be paid off in a year, and it is my wife’s commuter car; and

  • Car #3 has 160,000 miles on it, it is paid for, and it is my commuter car.

I’m not sure if mine and my wife’s car will make it through a 5 year plan. Can we trade in both my wife’s and my car for newer cars? Or should we keep the cars and hope they make it through or deal with it in the 13 if they don’t make it?”

There is really not many advantages for keeping your old car during a Chapter 13 payback plan. Here are some advantages for buying newer vehicles before you file:

  • The newer vehicles will be more reliable. Unexpected mechanical events occur to vehicles in use. It is common sense that older vehicles usually are more prone to have major mechanical problems. One of the many causes for Chapter 13 dismissals is where unexpected events occur, like major mechanical auto issues, that cause you to miss payments on the plan.

  • Once you file for bankruptcy protection, your credit scores will take a hit making it much harder for you to get a car loan. Buying a newer car or cars prior to filing a Chapter 13 may enable you to get better loan circumstances.

  • In buying newer vehicles, the payments can be viewed as part of your normal living expenses and instead of paying this money back to your unsecured creditors in your plan, you will be directly receiving the benefits of the money. In the case of the example provided, the man and wife might justify buying newer cars for themselves because they both use them in commuting to work.

Only about one third of Chapter 13 bankruptcies succeed. Most bankruptcy trustees are interested in your success because that is how they make their income. There is no need making a Chapter 13 any harder than it has to be for success. Having a reliable vehicle during a Chapter 13 is one of the most important things you can do in order to give you a chance to succeed.

Choosing an experienced bankruptcy attorney is another thing you can do to give yourself a chance to succeed. We can help you find an attorney in your area.

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