A Complete Guide to Bankruptcy and Vehicle Purchases
Bankruptcy debtors, like all other people, periodically need new cars. Most vehicles start wearing out after about 150,000 miles. Soon after that point, maintenance costs get so high that it’s cheaper to replace the vehicle. Therefore, bankruptcy debtors who drive used cars must often replace them either while their cases are pending or almost immediately after judges close them.
A Chicagoland family quite simply must have reliable private transportation that fits their needs. A family of five cannot function with a small pickup or compact car. A Chicago bankruptcy lawyer helps keep debtors on the road and deals with any negative fallout that accompanies a vehicle purchase, or the need to purchase a vehicle. A lawyer is a partner who helps a debtor through the entire bankruptcy process, both in court and out of court.
Before Bankruptcy
Depending on the circumstances, a pre-filing replacement vehicle purchase could be a very good idea or a very bad idea.
If a vehicle is approaching the end of its usable life, a replacement purchase before filing probably heads off the need to buy a car during bankruptcy. As outlined below, this process is rather complex.
Additionally, in a Chapter 7 liquidation bankruptcy, a monthly car payment usually increases the debtor’s Schedule J monthly expenses, which is usually a good thing in Chapter 7.
However, most vehicle purchases involve large down payments. If a debtor makes such a payment within ninety days of filing, the judge could label that payment an illegal preference (instead of responsibly paying off your credit cards, you irresponsibly bought a car).
Furthermore, a higher car payment could compromise the ability to make a Chapter 13 monthly debt consolidation payment.
During Bankruptcy
If a debtor must replace a vehicle during Chapter 13, which lasts up to five years, a Chicago bankruptcy lawyer must ward off the aforementioned preference argument. This process usually involves three steps.
First, the debtor must go on a scouting mission to find a proper replacement vehicle. The vehicle must not be an upgrade, but for the reasons mentioned above, it can’t be a significant downgrade either. The debtor must also learn the purchase price, interest rate, and other financial nuts and bolts.
Next, a lawyer must ask the bankruptcy judge for permission to buy the car. If all the ducks are in a row, most judges grant this permission.
A Chapter 7 usually involves a vehicle note reaffirmation agreement. A Chicago bankruptcy lawyer can renegotiate key terms, such as the interest rate, which could save the debtor thousands of dollars.
After Bankruptcy
Usually, bankruptcy filings remain on credit records for seven or ten years. Shopping for a new car during this waiting period is surprisingly easy, if the former debtor has realistic expectations, finds the right lender, and has changed.
Bad credit buyers have smaller selections and pay more. That’s the way it works. Some lenders don’t work with bad credit lenders as a matter of policy. A former debtor must find a seller who’s amenable in this area.
Finally, most banks don’t care much about bankruptcy filings in the distant past. If a debtor has any slow pays, chargeoffs, or other negative information in the last three or six months, they care a lot.
Work With a Thorough Cook County Lawyer
No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.
