Driving is a ubiquitous activity and something most Kentucky residents take for granted. However, should a person file for Chapter 13 bankruptcy, and then need to purchase a vehicle during the repayment period, they may wonder if they even qualify for financing to do so.

In order to finance a vehicle during the Chapter 13 repayment period, a person will need to first locate a lender willing to provide the person with financing. Traditional lenders usually will not provide auto loan financing to those whose credit has taken a hit.

However, subprime lenders may be willing to work with those whose credit rating is temporarily poor. Subprime lenders, in general, are indirect lenders, so they will only loan money through auto dealerships who serve as their agents.

Second, a person will need to obtain a sample-financing contract from the auto dealer. This contract will contain the information on the automobile being purchased, including how much it will cost, what interest rates will be charged, how much the person will owe each month and more. The dealership should make sure to add the phrase “or similar” by the automobile the buyer is selecting and should include the highest possible interest rate the person could incur on the loan.

Once this is done, a person will need to take that sample-financing contract to his or her bankruptcy trustee. The trustee will take into account the amount of the auto loan and determine how it will affect the person’s Chapter 13 repayment plan. The person will need to prove to the court that obtaining a vehicle is necessary. The trustee could make changes to the person’s Chapter 13 repayment plan, if necessary, and will then decide if the proposed transaction should go through.

If it is approved, the trustee will then submit to the court a petition to take on additional debt. A person’s creditors will be given the opportunity to object to the petition. Finally, the court will decide whether to approve the petition.

As you can see, while it is not impossible to obtain a car loan during the Chapter 13 repayment period, it is not a straightforward process. Therefore, those who find they need to purchase a vehicle after filing for bankruptcy should make sure they understand the legalities that must be met to achieve their goal.

Source: Auto Credit Express, “Steps to Buying a Car During Chapter 13 Bankruptcy,” accessed Feb. 25, 2017