Can I Finance a Car or Truck Loan
if I am Still in My Chapter 13 Case?
During the course of a three to five year Chapter 13 plan,
there is a reasonable chance that you will have the need to replace your
vehicle. Many Chapter 13 debtors are surprised to learn that the
Chapter 13 rules permit debtors to incur financing for a new or used
vehicle - even while their Chapter 13 is ongoing.
Qualifying for a car or truck loan while you are in your
Chapter 13 is exactly the same as any other finance qualification except
for two additional factors. First, your credit rating may be reduced
because of your bankruptcy and second, you will have to secure
permission from the Chapter 13 trustee prior to entering into a mortgage
loan contract.
The credit issue often turns out to be less of a problem
than you might think. Many banks and manufacturer finance companies
have programs that will qualify you for a vehicle loan while you are in
Chapter 13 if you can show two years of regular payments to the Chapter
13 trustee. It goes without saying that any other direct payment credit
you may have - such as an existing mortgage or a vehicle lease - should
be kept current as well.
Clark & Washington suggests that you speak to your bank
or credit union about vehicle loans before actually shopping for that
car or truck.
The second issue that you will face is the trustee approval
process. Each of the trustees has
his/her own outside loan application form for financing a vehicle. As a
rule, any outside loan should have a monthly payment of $250 or less.
You will be paying this note directly, rather than through your Chapter
13 plan. Also, the trustee will generally not consider an application
for a vehicle lease.
As you will see, the trustee requires a good bit of
documentation about your proposed loan. You will also need to reveal
where you got your down payment. Your trustee might also ask for
changes to your Chapter 13 repayment plan, including increasing the
payment or percentage repayment to unsecured creditors.
Clark & Washington suggests that you call our office
prior to beginning your vehicle loan process. We can advise you what to
expect from the trustee and help you decide if it makes economic sense
for you to secure a new loan while you remain in your Chapter 13 case.
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