Buying a car during Chapter 13 is possible, but in most cases you need permission before you sign. Because new debt changes your budget and your plan, the trustee or the bankruptcy court usually has to approve the purchase first. Skipping that step can put the car loan, your plan and even your case at risk.
If your car has died and you need transportation to keep your job, call (415) 754-0115 to schedule your free consultation, or send a message through our contact page, and an attorney can explain the approval process before you visit a dealer.
Why buying a car during Chapter 13 needs approval
A confirmed Chapter 13 plan is built on a specific budget. Your monthly income, your listed expenses and your plan payment all fit together. A new car loan adds a payment and often higher insurance, which can affect whether the plan stays feasible.
Chapter 13 plans and local rules commonly restrict taking on new credit without approval, so your confirmed plan and the rules of the Northern District of California, which covers Alameda and Contra Costa Counties, are the starting point. In addition, Section 1305 of the Bankruptcy Code says that a claim for consumer debt incurred after filing can be disallowed if the creditor knew or should have known that prior trustee approval was practicable and was not obtained. Lenders know this, which is why many will not finance a buyer in an open Chapter 13 case without a written approval or court order.
Trustee approval versus a court order
How you get permission depends on the court, the trustee and the size of the purchase. Your attorney will know which route applies.
Trustee consent
Some trustees have a written procedure for routine requests, such as replacing a necessary vehicle. The request typically includes the purchase terms and an updated budget showing that you can afford both the car payment and the plan payment.
Motion to incur debt
In other situations, your attorney files a motion asking the court to authorize the loan. Creditors and the trustee get notice and a chance to object. Depending on local rules, the court may approve the request without a hearing if no one objects.
What the request usually includes
- Why the vehicle is needed, for example commuting to work in Pleasanton, San Ramon or Walnut Creek, or because the current car is beyond repair.
- The proposed price, loan amount, term, interest rate and monthly payment from a specific offer.
- Amended income and expense schedules showing the new payment and insurance.
- Confirmation that plan payments are current.
Paying cash or taking a loan: what changes
Paying cash avoids new debt, but it raises a different question: where did the money come from? Savings built up during the case, a tax refund or a bonus may be something the trustee expects to go into the plan, depending on your plan terms. Spending a large sum without checking first can lead to a trustee motion.
A loan, on the other hand, raises the feasibility issue. Lenders that work with Chapter 13 buyers often charge higher interest rates. A modest, reliable vehicle with a payment that fits your budget is far easier to get approved than a new luxury model, and it is far easier to keep paying for three or five years.
Some debtors are tempted to have a relative buy the car in their name. That can create its own problems, including questions about who owns the car and who is really paying for it. Talk with your attorney before using that approach.
Risks of buying without permission
Buying a car during Chapter 13 without the required approval can cause:
- A trustee motion to dismiss for violating the plan terms, especially if plan payments fall behind because of the new car payment.
- Problems for the lender's claim, because a post-filing consumer debt taken on without required approval can be disallowed in the case, which may lead a dealer or lender to try to unwind the sale.
- A plan that no longer works, leading to missed payments. Our article on missed Chapter 13 payments explains how quickly that can become serious.
If a car is already purchased without approval, do not ignore it. An attorney may be able to seek approval after the fact or adjust the plan, depending on the circumstances.
The Somal Law Firm handles Chapter 13 bankruptcy for individuals and families throughout the Tri-Valley and the wider East Bay. Attorney Bob Somal can prepare the amended budget and the approval request so the purchase is documented properly from the start.
Steps to take before you shop
- Call your attorney first. Explain why you need a car and when. If your current vehicle is unsafe, say so.
- Review your budget. Decide on a payment you can afford alongside the plan payment, insurance, fuel and maintenance.
- Get a written offer. Approval requests need actual numbers, so ask the dealer or lender for a written purchase and loan quote that is subject to court or trustee approval.
- Wait for written permission. Do not take delivery or sign final paperwork until the approval or order is in hand.
- Keep the car insured and keep paying the plan. A new car does not change your duty to stay current with the trustee.
If your car problem involves an existing loan rather than a new purchase, our guides on keeping your car in bankruptcy and modifying a Chapter 13 plan may help.
Frequently asked questions
How long does approval take?
It varies by trustee and court. A simple trustee consent may move faster than a motion that requires notice to creditors. Starting the process before your current car fails completely gives you more room.
Can I lease a car during Chapter 13 instead?
A lease is also a new financial obligation, so it generally raises the same approval questions as a loan. Ask your attorney before signing a lease.
Does it matter whether I am before or after confirmation?
Yes, the timing can affect how the request is handled and what the trustee wants to see. Either way, you should get guidance before taking on new debt.
Will buying a car change my plan payment?
It can. If the new expense reduces your disposable income, the trustee may review the plan, and in some cases a modification is needed.
Before you sign for a vehicle, call (415) 754-0115 to schedule your free consultation, or reach us through our contact page. We will review your plan terms, look at the offer you have and explain the approval steps for your situation.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.