Bankruptcy courts are swamped with people trying to keep their car or get a NEW car loan with an OPEN BK-Chapter 13 Bankruptcy. Many people do not understand the difference between a Chapter 7 and Chapter 13, when it comes to cars. The simplest way to explain the difference is, you either can afford to keep your existing car at the current payment, your attorney can TRY to get the monthly payment reduced by the bank, the bank says NO to the revised payment offer and they repossess the car, and now you need another car. However, the Chapter 13 Bankruptcy means you are on a court-approved re- payment plan, and any major purchase, like a car, must be approved by the Judge. Here is the MYCARLADY 13 simple steps, well simple but still work, to getting the court and the bank to approve a car loan. This is often called second-chance financing, but actually, this process is much harder and more time consuming than a second chance loan, because the Chapter 13 Trustee and Bankruptcy judge are involved. The CAR LOAN for an Open Chapter 13 Bankruptcy process works like this…
- 1. Find a reputable dealer/broker/car buying service that will work with you throughout the process.
- 2. Determine the maximum budget the household can support as a car payment.
- 3. Determine how much cash down-payment is available, without raising the interest of the trustee/judge, that you have been withholding income from your creditors. (The down-payment money can come from family members as gifts, i.e. X-mas, b-day)
- 4. The dealer then determines which vehicles are eligible for a bank loan based on the cash down and the monthly payment at an interest rate of typically 24.95% (in some states the maximum allowed for usury is 21.95%)
- 5. The key factors determining the car submitted for bank policy and trustee/court approval are: a car less than 5 years old and having no more than 60k miles. The bank will charge a special fee for accepting this type of risk; however that fee come out of the dealer’s profit as a portion of the value of the car.
- 6. Once a suitable vehicle is found, the dealer prints a vehicle purchase order with the information on the buyer (you) and the car.
- 7. A copy goes with the prospective client, and one is faxed over to the attorney or trustee for the Chapter 13 buyer.
- 8. Some Bankruptcy attorney’s will charge the client an additional fee for submitting this document, but really, they are getting a fee for the Chapter 13 process, so it shouldn’t be extra.
- 9. The trustee will review the documents and the case file, and submit their “opinion” to the bankruptcy judge.
- 10. The decision to approve the vehicle purchase, offer a condition or determination other than that of the car submitted. As in, less car payment, could take up to two months, in today’s heavy court calendar.
- 11. Once the trustee mails or faxes the court decision to the client’s attorney, the individual returns to the dealership to secure a car. The actual car submitted is usually long since sold; however, the approval is all the bank needs to make a loan on a like and kind vehicle, as long as the circumstances and purchase details have not changed significantly.
- 12. The bank offering the car loan will submit the loan information to the court, for their records.
- 13. The bank will also submit the loan payment history to the credit reporting agencies, which helps to get you started back on the road to credit recovery.