The Short Answer
Yes, you can get a newer vehicle while in an active Chapter 13 bankruptcy — but you must get the court's permission first by filing a Motion to Incur Debt. Going out and financing a car on your own without court approval can seriously jeopardize your case. The process involves getting pre-approval terms from a dealership, submitting that paperwork to Duncan Law, and waiting for a court hearing, which typically takes about a month. If you're without transportation and can't wait, we may be able to request an expedited hearing.
If you are currently in a Chapter 13 bankruptcy and want to purchase a new vehicle there are several things that must be done. The information below is extremely important to the success of you being able to get a new vehicle so read it very, very carefully. It is critical that you get the court’s permission before going and incurring any debt (loans) on your own. To make the process as clear as possible we have broken it up into five different steps.
Step 1: Get Information From the Finance Company
Go to a dealership and get paperwork showing tentative pre-approval of financing. We suggest that you shop around and look at several different dealerships and possible finance companies. This should go without saying but obviously make sure you are shopping for a reasonable vehicle. The court does not believe someone within a bankruptcy should be driving a Hummer or some other large gas-guzzling vehicle without an extremely good reason.
You should explain the people you are speaking with at the finance company or car dealerships that you are currently in a Chapter 13 bankruptcy and you need to get pre-approved for financing. Some dealerships may tell you that they need something from the Court or Trustee first. That is not correct. They will have to have something from the Court or Trustee to finalize your financing but do not need that to provide the initial terms of your financing. This pre-approval financing is what we will present to the Chapter 13 Trustee and the bankruptcy court.
It is extremely important that your pre-approval paperwork include information on each of the following:
– Type of vehicle you are looking to purchase (year, make and model)
– Name of finance company
– Amount to be financed (must be $25,000 or less)
– Interest rate (must be less than 20% but shop around to get it as low as possible)
– Monthly payment (must be less than $550 per month)
– Length of repayment (must be 72 months or less)
– Amount of down payment, if any
Step 2: Provide Information to Duncan Law
After you have the necessary paperwork from the finance company you should immediately email or fax that to your attorney at Duncan Law.
Additionally, you will need to provide a written statement to our office, explaining why you need the new vehicle. If you need the vehicle within a certain period of time then let us know that as well. The whole process usually takes about a month so if you are without transportation then let us know and we can possibly do an expedited hearing to get in front of the bankruptcy judge sooner.
Also, if you are looking to release or get rid of a vehicle that currently has a loan on it then let us know that as well. We need to know the type of vehicle, the VIN #, the company who is financing that vehicle and how much is currently owed on the vehicle.
We also need the last 60 days of pay stubs or income statements (profit and loss) for all sources of income in the household.
Finally, we need you to complete a new budget showing your income and expenses for bankruptcy. (Click on the red link to download a copy of the budget that needs to be filled out.)
Step 3: Motion to Incur Debt Filed by Duncan Law
After we review the information you provide and determine that you can afford the new car payment, we will file the Motion to Incur Debt with the bankruptcy court. Once that motion is filed the court will set a hearing date about a month after the motion is filed. You are generally not required to attend that court hearing.
Step 4: Court Hearing Held By the United States Bankruptcy Court
The court will have a hearing to determine if the vehicle is necessary and reasonable. The information you have provided us in Steps #1 and #2 will allow us to show the court why the vehicle is necessary to the success of your Chapter 13 bankruptcy. That is why it is critical that you provide us with all of the information above. If you do not provide this information and we cannot show the court this newer vehicle is necessary to the success of your plan, they will deny our motion.
Step 5: Court Signs and Files Order Approving the Motion to Incur Debt
If the Bankruptcy Court and the Chapter 13 Trustee believe it is necessary for you to obtain a newer vehicle then the court will grant an Order approving our Motion to Incur Debt. About a week after the hearing date you will receive the Order and can take that with you to the dealership or finance company to officially get the financing necessary for your newer vehicle.
It’s important to know that this process takes some time. By following each of the five steps above you will improve your chances of being approved for a new car loan. If you have questions be sure to let us know!
Key Takeaways
- You must file a Motion to Incur Debt and receive court approval before signing any vehicle financing agreement during a Chapter 13 bankruptcy.
- The court requires that the loan terms stay within specific limits — $25,000 or less financed, under 20% interest, payments under $550 per month, and no more than 72 months to repay.
- Get tentative pre-approval paperwork from a dealership first, including the vehicle year/make/model, finance company, loan amount, rate, payment, and term — then immediately forward it to Duncan Law.
- You will also need to submit a written explanation of why you need the vehicle, your last 60 days of pay stubs, and a completed updated household budget.
- The entire process typically takes about one month, but an expedited hearing can be requested if you are currently without transportation.
- If you're trading in or surrendering a vehicle that still has a loan on it, you must provide the VIN, lender name, and current payoff amount to your attorney before anything is filed.
Attorney Insight
The mistake I see most often is clients who go to the dealership, get excited about a vehicle, and sign financing paperwork — all before calling our office. That single misstep can put your entire Chapter 13 plan in jeopardy, because incurring debt without court authorization is a violation of your bankruptcy obligations. The trustees here in the Middle and Western Districts of North Carolina will catch it, and dismissal of your case is a very real consequence. Get the pre-approval terms, stop, call us — that's the order of operations.
