Buying a Car During Chapter 13 Bankruptcy

Chapter 13 bankruptcy consists of a 3 or 5 year plan that has been submitted to, and approved by, the bankruptcy court. During this time period, you are making regular monthly payments to the bankruptcy trustee to pay off anywhere from 10%-100% of your unsecured debt, as well as any secured debt or arrearages you are paying through the plan.

Debtors often wonder, because their financial lives are in active bankruptcy protection for that time period, how they go about making regular financial decisions, particularly if they need to purchase a new car. In a Chapter 13, a debtor will need to seek the bankruptcy court's permission to buy a new car, in what is called a motion to incur debt.

This motion will include as an attachment a proposed sales contract for the new car. The court will then weigh whether the debtor has the ability and need to pay for the new car and if it will have any impact on their ability to pay their trustee payment or have any adverse impact on the protection of unsecured creditors. Most of the time, your bankruptcy attorney will have discussed this with you before the filing of the motion and will have made a judgment call as to whether such a motion will succeed or not. Most of the time, if the purchase is fair an reasonable, there will be no issues. It is comforting to debtors to know that they can likely buy a new car with the court's permission, but it is something that needs to be discussed with your attorney ahead of time.