While you are in the chapter 13, you are not allowed to incur ANY debt without permission of the Court. When it comes to a car loan however, the Courts in the Southern Distinct of Texas (Houston and Galveston) have deferred permission to your Chapter 13 Trustee. This means you only need to go through your Trustee. You do not need to file a motion with the Court nor get a Court Order. Compare this to getting a house loan. To get a house loan, you have to file a motion with the Court and attach the sales contract and HUD-1 settlement statement as exhibits.
Each Trustee in the Houston and Galveston divisions have a specific contact person in their offices that handles car loan requests. Go to David Peake’s website or William Heitkamp’s website for the phone number to call. Ask the operator to transfer you to the person that handles car loan requests.
It sounds oxymoronic that you would find the car first, but it’s true. The Trustee needs to evaluate not only the car you are getting, but also the car loan terms. As this Fox News article explains, most finance department at major dealerships have experience in dealing with Debtors in Chapter 13 bankruptcy. They will be familiar with your need to get permission first and the need to provide the car loan terms to your Trustee. In our experience, we have found that it is easier to secure a car loan at a major dealership. As the artice also explains, many times it is easier to finance a NEW car versus a USED car. There are many reasons for this, one is that the dealer (and the car manufacturer) has more incentive to move a new car in inventory than a used one. The other is that finance companies are more willing to finance a new car, with warranty rather than a used one without a warranty. Although a newer car is more expensive to fix, it is likely to have less problems. Once you have found the right car and been provided the car loan terms, it is time to provide that information to your Trustee.
Your Houston and Galveston Chapter 13 Trustee’s require you to fill out an application to get permission to get a car loan in chapter 13 bankruptcy. The application will ask for the type of vehicle, the purchase price, the amount of the loan, the monthly loan payments and the interest rate. This is why you have to identify the car first and get the car loan terms. Your trustee will also require you to redo your bankruptcy budget to show that you can afford the car loan
Each Trustee has limits for the loan that he will approve. Generally the requirement is that the loan be less than $25,000 and the monthly payment be less than $450.00 a month. Now, Busby & Associates recommends even if you can afford a new car loan, that you don’t go crazy. Remember, you are still in a chapter 13 bankruptcy repayment plan. You still need to be able to afford your car loan. We recommend a gently used car under $15,000 with a loan that is under $300.00 a month. Ultimately, you need to make sure you can afford it.
If you currently have a vehicle in your chapter 13 repayment plan, your Trustee may require you give that car up before he will approve you for a different car loan. The rule of thumb is one financed car per debtor and spouse. If you plan on surrendering or giving up your current vehicle and replacing it with the new one you are trying to finance, then your Trustee will require you to modify your current repayment plan. This modification will surrender or remove the current car and loan from your repayment plan. Talk to your attorney about this. Once you file the appropriate paperwork with the Court, then the Trustee will give you the permission letter. You will also have to let the car in the plan go back to the old lender.
if you’ve done everything correctly, your Trustee will send you, your attorney and the dealership the loan approval letter. At this point you will be able to finalize the appropriate paperwork with the dealership and lender to get a car loan in chapter 13 bankruptcy. Once it is all signed, and approved, you will be given the keys to your new car!
This new car loan that you just got will NOT be in your repayment plan., Remember that. Because you will be responsible for making those car loan payments outside your chapter 13 repayment plan. This is called a “direct pay.” That is why your Trustee really looks at your budget for affordability. make sure you can afford it because you will be making the payments each month.
Trying to navigate the Chapter 13 Bankruptcy process can be very confusing. That is why it is helpful to have an experienced bankruptcy attorney help you throughout the process. As we show in this post, it is possible to get a car loan in chapter 13 bankruptcy. However, there are a number of specific steps required to not only get the loan, but also to modify your chapter 13 plan (if needed). The law firm of Busby & Associates has helped a number of their clients get a car loan in chapter 13 bankruptcy. If you need help with this issue or if you need help with your debts, please give us a call.