You must get an approval letter from your trustee before making any major new purchase during the three to five years that you make payments on a Chapter 13 bankruptcy plan. But what if a Chapter 13 trustee won’t approve a loan for a vehicle?
You would have to talk with your trustee and send a request letter to buy a car in this case. Your trustee will probably give you an approval letter if you can demonstrate that you need the vehicle and you can afford to pay for it.
What Is Chapter 13 Bankruptcy?
Not everyone can file for Chapter 13 Bankruptcy. You can only use this option if you earn regular salary or wages, or you're self-employed and a sole proprietor. You should have filed your tax returns correctly for the tax periods that end within four years of the date you file for the bankruptcy.
You would be expected to propose a plan on how you intend to repay your debts. Typically, you would be expected to repay your creditors within three to five years. The people to whom you owe money are not allowed to begin or continue debt collection activities against you during this period.
One of the major advantages of this type of bankruptcy filing is that it enables you to save your home from foreclosure if you agree to pay your debts over time. You can also extend your repayment period. You can also consolidate your loans and send your payments to the designated Chapter 13 trustee who will then distribute them to the various creditors.
The trustee in question is also responsible for monitoring your progress. You're not allowed to take on more debt without consulting your trustee because of the potential that it would affect your ability to pay off what you owe.
Factors That Affect Getting a Car Loan
Several factors can increase your chances of getting a car loan after you've filed for Chapter 13 bankruptcy.
Your Need for a Vehicle: Chapter 13 bankruptcy trustees will generally only approve a car loan if you can demonstrate that you truly need a vehicle. Your trustee is more likely to approve your purchase of a new vehicle if your car breaks down beyond repair and there's no public transportation in your city. Approval is much less likely if you want to purchase a second vehicle or you just want a more modern car.
The Type of Vehicle: Trustees are more likely to approve a modest vehicle than a luxury vehicle. Luxury cars tend to be more expensive, and your trustee may question whether you need such a vehicle if a less expensive car will meet your transportation needs just as well. Your trustee might not provide you with an approval letter even if you can find a way to afford a high-priced vehicle because he doesn't see the expense of a high-end vehicle as an allowable expense.
Whether It Fits Into the Budget: You must demonstrate that you can afford the payments on your new vehicle as well as continue to make payments on your Chapter 13 bankruptcy plan. Draw up a budget before approaching your bankruptcy trustee. Determine how much you can afford to spend per month on a new vehicle and include this amount in your budget. Having a budget will demonstrate financial responsibility and that you put thought into this purchase. You're not practicing poor financial habits.
How to Get a Car Loan Approval Letter
Make an appointment with your bankruptcy trustee if you want to purchase a vehicle while you're under Chapter 13 bankruptcy. Bring your budget and a list of potential vehicles to your meeting.
Show all your documentation to your trustee and explain why you need to purchase the vehicle. Answer any questions your trustee has. They'll make their decision then mail you the letter if they decide to approve your request. Your trustee may take several weeks to provide a letter after your meeting.
Jack Ori has been a writer since 2009. He has worked with clients in the legal, financial and nonprofit industries, as well as contributed self-help articles to various publications.