Purchasing a Vehicle in Chapter 13 Bankruptcy

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When you’re in Chapter 13 there are three basic ways to purchase a vehicle.

First, the cheapest option is to purchase a car for cash on craigslist. You would save up a $2,000 or $4,000 dollars by purchasing a car for cash. You wouldn’t have a car payment and the Chapter 13 trustee’s office won’t be involved.

The second option is for a friend or family member to finance a car in there name and there good credit and then you would make the monthly payment on the vehicle. In essence, you would be “renting” this vehicle from your friend or family member. Although, this won’t help rebuild your credit as the loan is not in your name, your friend or family member will usually get a much lower interest rate, meaning your “car rental payment” will be a lot less than if you were purchasing the car yourself. Like the first option, if you go this route, you do need the trustee’s approval to “rent” a vehicle, as you are not incurring a new contractual debt obligation yourself.

The third option is for you to finance a car in your name and your own credit. If you pursue this option the loan will be at a high interest as the lender will see that you’re in a Chapter 13 and have poor credit. The interest rate could typically be 20% or higher. Also, since you’re incurring a credit obligation we have to obtain the Chapter 13 trustee’ s written approval before you are allowed to purchase a vehicle. The trustee requires that a Vehicle Purchase Request form (VPR) be filled out showing the year, make and model of the vehicle, the purchase price and interest rate of the loan and finally what the monthly payment will be. In other words, you’ll have to find the vehicle you want to purchase and make sure you can obtain financing before the trustee will give his written approval for you to purchase the vehicle. In Oregon, the current guidelines require that the total purchase price must be less than $14,000 and that the monthly payment be less than $400.00 a month. You’ll also need to indicate on the VPR form why the purchase of the vehicle is necessary for your household.

The trustee also requires that we file amended budgets with the Court, showing the new monthly car payment. In order to prepare these our office will need the households most current paystubs. You can submit the paystubs to our office at the same time you submit the vehicle purchase request form. It will take a few days for the request to be considered by the Chapter 13 trustee, but usually it takes less than a week for them to respond. When approved you will be free to sign the vehicle contract and take possession of the vehicle. This new vehicle payment will be your responsibility to make and will not be part of the Court Ordered Chapter 13 Plan payment. It will show on your credit report and may help improve your credit score over time.

Our office is always here to assist to help you in purchasing a vehicle. Please feel free to email your paralegal or attorney if you have questions.