Getting an auto loan while in bankruptcy

My husband and I are in a Chapter 13 bankruptcy. We need another car but our credit union won't give us a loan. We have a small amount of money - about $1500 - saved for a down payment. What can we do??

Comments for Getting an auto loan while in bankruptcy

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Nov 15, 2010
auto loan and bankruptcy
by: Gerri

We posed your question to Kevin Chern, a leading bankruptcy attorney and founder of Here is what he said:

The debtor needs to bring a motion before the court to get approved to incur any debt during the Chapter 13. The motion has to allege, among other things, that incurring additional debt is necessary to successfully complete the personal reorganization. For instance, the debtor might allege that he works 20 miles from home, his present transportation is unreliable and in order to maintain his payments under the confirmed Chapter 13 plan, he has to finance a new vehicle.

Every person's situation is different so I can only respond generally. Generally speaking, credit unions will tend to be a bit more conservative and have less flexibility than some other lenders. I would try multiple lending sources, and in particular, work with the finance department at the dealership who is going to be motivated to get you financing. For those with distressed credit, the interest rate will likely be higher, but you can make payments for a while on the vehicle and then later go back and try to refinance it at a lower rate, just like you would with a home loan.

Further, look for a car that is a few years old and has some miles, but is reliable. By doing this, you have let someone else suffer the most dramatic appreciation and you won't be miserably "upside down" on the car seconds after you drive it off the lot.

Finally, don't blow the entire $1,500 on the down payment, particularly on a later model vehicle unless you have other funds set aside for repairs and other maintenance. That's how folks get in trouble with their credit; they fail to plan appropriately for unforeseen circumstances like car repairs and the like.

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