A Chapter 13 bankruptcy is a payment plan whereby the debtor is repaying certain debts. It is very common, for example, for vehicle loans to be paid through a Chapter 13 bankruptcy.
But what happens if the vehicle you are paying for through your Chapter 13 dies on you and you need a replacement vehicle? This happens quite often actually because Chapter 13 can take as long as five years to complete … and a lot can happen in five years, including a vehicle just no longer being able to run or being totaled in an accident.
So, what does the debtor do under those circumstances?
One option would be to just simply “surrender” the vehicle in your bankruptcy plan and try to purchase another vehicle outright (maybe with a 401k loan or with the help of family members).
However, many debtors will need to take out another loan. In fact, that is what happens most of the time. Before you can take out such a loan you must first obtain permission from the bankruptcy judge. You obtain “permission” to take out another vehicle loan by filing a “Motion to Incur New Debt” with the court. We would also need to amend your Schedule J (Expenses) to reflect the new monthly vehicle payment, which you would make directly to the lender and no longer through the trustee.
If the judge thinks the loan terms (total amount, monthly payment, interest rate, length, etc.) look reasonable then the judge would likely grant the Motion to Incur New Debt and then you can finalize the loan with the lender. The process can take a couple of weeks to obtain the order approving the Motion to Incur New Debt so the sooner the debtor knows he/she needs another vehicle the sooner the Motion can be filed.
If you are in the above situation then please contact one of our attorneys to guide you through the process to get you into another vehicle as soon as possible.