What Happens If I Buy A Car Before Filing Bankruptcy?
Can I buy a car before filing bankruptcy? I get this question a lot. Potential clients are worried about how bankruptcy will hurt their chances of getting a car loan, so they want to get a car loan before they file bankruptcy.
My answers depends on whether or not someone buys a car with or without a loan. If a filer buys a car without a loan and gets the title when they buy the car, there shouldn’t be a problem as long as the value of the car is within the current Colorado vehicle exemption amount. The exemption amount is currently $15,000 or $25,000 if the filer is older than 60 or disabled.
If a filer takes out a car loan before she files bankruptcy, the bankruptcy trustee may be able to sell the car free and clear of any claim the lender has and use the proceeds to pay other creditors (and keep some for his work). That means you lose the car, including any money you may have put down when you bought it.
What Should I Do If I Need To Buy A Car Before I File Bankruptcy?
Wait.
That’s usually the best advice I can give someone who needs to buy a car before filing bankruptcy. Either wait to buy the car or wait to file bankruptcy.
Buying a car after filing Chapter 7 or Chapter 13 bankruptcy is ridiculously easy. If I file your Chapter 7 bankruptcy today, your mailbox will be full of offers from car dealerships within a week. They’re eager to offer you a loan, because you just filed bankruptcy. The bankruptcy won’t include the new loan, and you won’t be able to get the bankruptcy court’s protection for four (by filing Chapter 13) to eight (by filing another Chapter 7) years. If you default on the new loan, they’re going to get their car and their money.
If you absolutely can’t wait to get a car, then you’ll want to wait to file your bankruptcy. To be safe, you should wait 91 days after you register your new car. That’s when you get your license plates. The 91 days doesn’t start when you buy your car, it starts when you register it.
Will The Car I Have Be Protected When I File Bankruptcy In Colorado?
If you file a Chapter 13, you don’t have to worry about your car. The bankruptcy court does not take any assets in Chapter 13.
If you file a Chapter 7, your car will be protected as long as it is worth $15,000 less than what you owe on the car. That is the current vehicle exemption amount in Colorado. That’s the rule that protects vehicles in bankruptcy. The amount is $25,000 if you’re over 60 years old or disabled.
If your car has more than the vehicle exemption amount, the bankruptcy trustee could sell it, give you the exemption amount in cash, and use the rest to pay your creditors. However, the trustee will often agree to allow you to “buy” the unprotected amount. Let’s say your car has $2.000 more in equity than can be protected. The trustee isn’t really interested in the car. He wants that $2,000 and will usually allow you time to pay that amount. If you don’t perform according to the agreement, then he will sell the car.
Talk To A Top-Rated Denver, Colorado Bankruptcy Attorney About Buying A Car Before Filing Bankruptcy
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