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Replacing Your Old Car After Filing Chapter 7 Bankruptcy

replacing car after chapter 7 bankruptcyYou filed for Chapter 7 bankruptcy and are waiting for a discharge to be issued. Unfortunately, your old car isn’t so patient – it dies, and you’re left without wheels.

If only the clunker had waited until after your Chapter 7 was over.

Sadly, most cars do not run forever. In fact, when I was younger I went through three cars in as many years; they were all used when purchased, and gave up the ghost shortly after registration of the title in my name.

Had I been in a Chapter 7 bankruptcy, I would have thought twice before buying a replacement vehicle.  And if I was in a Chapter 13?  It would have been far tricker.

In a Chapter 7 bankruptcy, it’s important to know that most property you acquire after the filing of the case is considered off-limits to the trustee and your creditors. There are exceptions, but for the most part you’re not going to be required to hand over the keys to the new car you get after the case is filed.

For most, however, it’s not the getting of the car that’s the problem – it’s the financing of the darn thing.

Financing A Car During An Active Chapter 7 Bankruptcy Case

Most people can’t afford to buy a car outright during – or soon after – bankruptcy. Finding a reputable lender, however, isn’t going to be a simple matter. You may want to look into the option of borrowing from your pension plan if you’ve got no choice (I don’t usually recommend doing this, but desperate times call for desperate measures) or perhaps getting some help from a friend or family member.

If you can find financing immediately after the case, read the fine print carefully. It’s not unusual for lenders to prey on people who have just gone through bankruptcy, charging 20% or more for a used car loan. I know you need a car, but be reasonable.

Finding a good rate on a car loan after Chapter 7 bankruptcy gets easier as the case fades into the past, but for the first 18-24 months you’re going to have a tough go at it.

Replacing Your Old Car During A Chapter 13 Bankruptcy Is Trickier

In Chapter 13, the world is different. Depending on the terms of your Plan, any property you obtain during the course of the case may be considered to be property of the estate. In addition, you’re likely going to need to obtain court permission to take on new debt. Whatever happens, you really need to have a chat with your lawyer before you step into a tough situation.

Buyer Beware

When you’re in bankruptcy – Chapter 7 or Chapter 13 – every move you make needs to be reviewed with your lawyer before you take a step. Don’t run the risk of losing property or compromising your case. It’s just not worth it.

Image credit:  superterrific

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By |January 4th, 2012|

About the Author:

I’ve been a consumer protection lawyer since 1995, working to help people end their bill problems. I’m a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.

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