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Can you buy a car while in bankruptcy?

This is a common question debtors have the answer is generally yes. A Chapter 13 bankruptcy most often takes 60 months to complete. During that 60 month period, it is common for vehicles to break down or be involved in an accident and the debtor will need a replacement car. A debtor will have two main options for purchasing the replacement vehicle: pay cash, or obtain a loan.

The simplest way to purchase a vehicle is to pay for it with cash. If a debtor can save enough money to pay cash for a less expensive vehicle that is reliable enough to get around, that is the best and easiest route to take. However, saving enough cash can be difficult, and sometimes that may not be an option.

If a debtor needs to obtain a loan to buy a vehicle, he or she must first get court approval. This process typically will start with the debtor finding a vehicle to purchase, and obtaining the financing terms - the interest rate, and length of the loan. With this information in hand, the attorney will file a motion asking for court approval to obtain the loan. Generally, the court will look at the following factors to determine whether or not to approve the loan: (1) the financing terms cannot be too extreme, meaning the interest rate cannot be absurdly high and instead must be reasonable, given the circumstances (2) does the debtor need the vehicle to get around and to work or does he have other adequate transportation already (3) the vehicle cannot be an overly expensive luxury vehicle, and (4) the debtor must show that he has the income to make the monthly payments that would be required for the loan. As long as the circumstances meet these criteria, the motion will often be approved and the debtor will be allowed to purchase a vehicle with credit.

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