Law Office of Rick Morin, PC

Chapter 13 bankruptcy cases are considered “reorganization” bankruptcies. The case will last between 3 and 5 years, and during that time the debtor will repay at least a portion of that debt. Chapter 13s are great for many debtors, but they can be cumbersome because many large life decisions require court approval.

For instance, if you want to obtain a new car loan during Chapter 13, you must first seek court approval. Here is how it works. 

Let’s say that your existing car dies or you just decide that you need something different. Outside of bankruptcy, you would go to a car lot and make a deal. You might obtain financing on your own or through the dealer. In any event, the transaction will take a few hours.

During Chapter 13 bankruptcy, you are not allowed to incur new debt without court approval. In Sacramento, the car buying process isn’t so easy.

You first have to make a deal on a specific car and arrange for financing. You literally do all of the paperwork up to the point where you would sign and drive away with the car.

You then take these final details to your Chapter 13 attorney. The attorney then has to seek court approval. The process is called a “Motion to Incur Debt.” The court rules here in Sacramento typically require at least 14 days notice between when you file your motion and when it is approved by the court. During that 14 days, your car might be sold to someone else! Most car dealers won’t hold the vehicle.

Because you’re in bankruptcy, your credit might not be very good. I’m finding that clients aren’t able to obtain loans on their own with terms that the court will accept. That’s right — the court reviews the car loan details to make sure that it is appropriate for your case.

Judges here in Sacramento are loath to approve car loans with high interest rates. On the one hand, this makes perfect financial sense. High interest rates on car loans are very predatory and take advantage of people with bad credit. However, it can be frustrating to have the court deny your request to purchase a vehicle on credit, especially if your previous car died or is no longer running.

To get around these requirements, some bankruptcy filers find a credit-worthy consignor, or even have a family member take out a loan in their name. These aren’t always good options, but some creativity might be needed to get yourself out of a jam.

I am a Sacramento Bankruptcy Attorney. I help many people with Chapter 13 reorganizations. Please call my office at (916) 333-2222 if you have questions about Chapter 13 in Sacramento.