Can You Get a Car Loan in Chapter 13 Bankruptcy in Texas?
If you’re navigating Chapter 13 bankruptcy in Texas, specifically in the Houston and Galveston areas, you may be wondering whether it’s possible to secure a car loan during your repayment plan. The short answer is yes, but there are specific procedures you need to follow, and you cannot take on any new debt without court approval. Here’s a breakdown of what you need to know:
Court Approval is Required, But You Can Go Through Your Trustee
When you’re in Chapter 13 bankruptcy, you cannot incur any new debt without permission. However, in the Southern District of Texas (Houston and Galveston), the bankruptcy court has deferred this decision to your Chapter 13 Trustee. This means you don’t have to file a motion with the court or obtain a court order for a car loan. Instead, your Trustee will evaluate your request.
Unlike house loans, which require a formal court motion and specific documents like a HUD-1 settlement statement, getting a car loan is a more streamlined process in Chapter 13. You will need to follow the procedure set by your Trustee, who typically has a dedicated contact person for car loan requests. For example, you can visit David Peake’s or William Heitkamp’s websites for contact details specific to car loan inquiries.
Find Your Car First
Although it seems counterintuitive, you must first identify the car and its loan terms before seeking approval from your Trustee. The Trustee will need to review the car’s purchase price, loan amount, interest rate, and other details to ensure the loan is reasonable.
As many finance departments at major dealerships are familiar with Chapter 13 bankruptcies, it may be easier to secure a car loan through them. In fact, you may find that it’s easier to get financing for a new car rather than a used one, as dealers and manufacturers often have more incentive to move new inventory, and finance companies prefer newer cars with warranties over older used vehicles.
Submitting the Car Loan Permission Application
Once you’ve found the car and have the loan terms, you must submit an application to your Trustee for approval. This application will ask for:
- The type of vehicle
- Purchase price
- Loan amount
- Monthly payments
- Interest rate
You will also need to revise your bankruptcy budget to show that you can afford the loan payments. Your Trustee will review your ability to make the payments outside of your Chapter 13 plan.
There Are Loan Limits
Trustees typically set loan limits, usually approving loans of less than $25,000 with monthly payments under $450. While this may work for some, we recommend considering a gently used car priced under $15,000, with a monthly payment below $300. Remember, you are still in a Chapter 13 repayment plan, so it’s essential to ensure that you can afford the loan and your existing repayment obligations.
Giving Up Your Current Vehicle
If you currently have a vehicle in your repayment plan, you may be required to surrender it before your Trustee will approve a new car loan. In this case, your Chapter 13 plan will need to be modified to remove the old car and its loan from the repayment plan. It’s essential to discuss this with your attorney and file the necessary paperwork.
Once approved, your Trustee will issue a permission letter, which will allow you to proceed with finalizing the car loan paperwork with the dealership and lender.
The Car Loan Is Not Part of Your Repayment Plan
One crucial detail to keep in mind: The new car loan will not be part of your Chapter 13 repayment plan. Instead, you will make these payments directly to the lender, often referred to as a “direct pay.” Your Trustee will scrutinize your budget to ensure that you can handle the additional responsibility of these payments.
Expert Legal Help is Key
Navigating Chapter 13 bankruptcy, especially when it comes to securing a car loan, can be complex. For over 25 years, I represented debtors in filing over 4,000 consumer bankruptcy cases, including Chapter 7 and Chapter 13 filings. Now, as a creditor’s attorney, I focus on helping creditors secure what they are owed from Texas debtors. Whether you’re a debtor trying to navigate these waters or a creditor looking to recover debt, seeking the guidance of an experienced attorney is crucial to ensuring that your interests are protected.
If you’re in need of assistance with your Chapter 13 bankruptcy or a car loan request, or if you’re a creditor looking to recover debts from Texas debtors, don’t hesitate to reach out for expert legal support.