We’ve talked in the past about options for clients with cars as they enter bankruptcy. But what happens if you are proceeding through a Chapter 7 bankruptcy and want to buy a car. What do you do?
The first issue is timing. The Bankruptcy Court and Chapter 7 Trustee do not need to grant you permission to incur new debt (borrow money to finance) but it may be easier for a lender to offer a loan if you have successfully completed the bankruptcy and have received a discharge of debts. Why? Because bankruptcy laws that went into effect in 2005 only allow a Chapter 7 discharge of debts once every 8 years (and a Chapter 13 discharge following a Chapter 7 after four years). This is an ideal time for a lender to take a risk – because the odds of returning to a bankruptcy and eliminating the debt are so small.
The second issue is whether you should finance a car or buy with cash. We don’t have a hard and fast rule, but we do note that both Missouri and Kansas are very stingy with protecting cash, money in bank accounts, and future tax refunds. In states with more generous protections (or for the debtors who are allowed to use the federal bankruptcy exemptions on property), you could file AND have some cash on hand at the time of filing for a down payment or a cash purchase of a car. Unfortunately, our clients rarely have that luxury. So if you wanted to buy a car, you would either have to use your post-bankruptcy wages, get help from family and friends, or buy a very cheap car.
Before we file your Chapter 7 bankruptcy, you can speak with us about your goals, including if you want to buy a new (or newer) car. We can even list a proposed car payment in your budget. After that, it all depends on what means you have available. But we all recognize the need for reliable transportation to get to work, make money, and get a fresh start. Contact us today for a free consultation.