Can I Buy A Car Before Filing Bankruptcy?
If you’ve been doing your research on bankruptcy, you know that as soon as you file your credit score is probably going to take a major dive (unless it’s already taken a hit by not being able to pay your bills). You probably also know that that won’t stop you from getting a car loan. It just might mean you’ll have to deal with an outrageous interest rate, but then again, it might not. I recently had a client call me from a car dealership on the day the bankruptcy court closed his case. He was buying a new car and needed a copy of his discharge order. His father co-signed the loan, and he got an interest rate of 5.25%. Not terrible.
When Buying A Car Before You File Bankruptcy Could Be A Bad Idea
If you’ve decided to file bankruptcy and need a new car soon, one issue to consider is how long after you buy you should wait to file. In Colorado, anyone with a secured interest in a car (when you use your car as collateral to get a loan, the lender has a secured interest), must make a record of that interest with the Department of Motor Vehicles.
If you file bankruptcy before your lender records its lien, the bankruptcy trustee could “avoid” the lien (which would essentially negate the sale of the car) and sell your new car and distribute the proceeds to your creditors, leaving you without a car. This is especially a concern if you’re filing Chapter 7 bankruptcy. The best course in this instance is to wait until we’re certain the lien has been recorded.
If you file your Chapter 7 bankruptcy before the lender records the lien, the trustee can sell your car without the lien and use the money from the sale to pay your creditors. Of course, he’ll get to keep some of that money for his work.
The better option might be to wait until you get through your Chapter 7 bankruptcy and then buy a car. You’d be surprised by how easy it can be.
Buying A Car Before You File Chapter 13 Bankruptcy
On the other hand, if you’re considering Chapter 13 bankruptcy, buying a car might be part of your pre-filing planning. You can deduct car loan payments from your monthly income, which will reduce how much you pay your unsecured creditors over the course of the three to five years you’re in your Chapter 13 plan. If your car is on its last legs, it’s possible that you’ll need to replace it in those three to five years, so it’s probably a good idea to buy before you file.
Of course, this doesn’t mean you shouldn’t think twice before you buy a new car before you file bankruptcy. It may not make sense for everyone. Talk to a mechanic you trust to see if your car is in as bad of shape as you think.
Talk To A Denver, Colorado Bankruptcy Attorney About Buying A Car Before You File Bankruptcy
If you have questions about whether bankruptcy is a good idea, we hope you’ll come in for a free, no-obligation consultation with an experienced bankruptcy attorney. We’ll talk about the entire bankruptcy process and what it means if you want to buy a house after bankruptcy. You can make an appointment using our online scheduling system or call 303.331.3403 to set a time that’s convenient for you.