Since Chapter 13 bankruptcy lasts for three to five years, there is a chance that your life might change throughout the course of the plan. For example, you might find yourself in need of a new car at some point during your bankruptcy. It’s not impossible to buy a car when you’re in bankruptcy, but there are a few things you should know. Consider these tips before you head over to the car dealership.
1. Avoid Buying Without Permission From the Court
Avoid buying a car without getting permission from the court. You generally are not allowed to take out a new loan when you’re under a Chapter 13 plan. However, you can ask permission from the court to take out a car loan.
Whether or not you will be given permission will depend on a few things, including the amount of the car loan that you want to take out and whether or not you’ve been making your Chapter 13 plan payments on time. Consult with an attorney to find out about the process of asking the court to take out a car loan.
Realize that the loan might take some time to get approval from the court, if you’re able to get approval at all, so it could be a while before you’re able to buy a vehicle.
2. Be Prepared to Pay a Little More in Interest
There are car lenders that will work with people who are in active bankruptcies. You may have to pay a higher interest rate on your car
loan if you go through one of these lenders, though. But if you need to buy a car, paying the higher interest rate might be worth it.
Just make sure that you carefully look over the contract and interest rate before signing the dotted line so that you know what you’re getting yourself into. And later on, you may be able to refinance the car loan if your credit score improves.
3. Consider How Bankruptcy Can Help Your Credit
A Chapter 13 bankruptcy can help you start out with a clean slate. Many of the negative listings on your credit report might have been
removed since you filed bankruptcy. However, the bankruptcy itself impacts your credit score.
By taking out a car loan and making on-time payments each month, though, you can help improve your credit score after filing bankruptcy.
4. Make Sure You Can Afford Your Monthly Payment
Your Chapter 13 bankruptcy plan payments might take a large chunk of your income each month. Consider the cost of your plan payments when determining whether or not you can afford to buy a car.
It’s important to write up a budget and make sure that you can comfortably afford your car payment while still making your Chapter 13 payments on time. You may need to buy a slightly more affordable car, or a used car, to help make sure that the payments aren’t too high.
5. Make Your Payments on Time Each Month
If you are in Chapter 13 bankruptcy, then you might have had trouble managing credit in the past. Make an effort to be responsible with
your new car payment. Always make your payments on time, or your credit could be negatively affected.
Additionally, focusing on making your payments on time each month will help prevent you from getting into another bad financial situation after filing bankruptcy.
It is possible to buy a car while you’re under a Chapter 13 bankruptcy plan, but there are some challenges. Contact us at Phoenix Law today if you have additional questions about Chapter 13 bankruptcy.