6 Steps on Getting a Car Loan While in a Chapter 13 Bankruptcy Case

Man ScreamingOkay, there you have it!! I will start screaming if I hear about another car salesman telling one of my Chapter 13 clients that “all you need is a letter from the Trustee saying the car loan is approved”.

News Flash to All Car Salesman of Western Pennsylvania: the Chapter 13 Trustee doesn’t issue letters like that. Don’t ask them. They won’t do it.

Here’s why: the Court Rules in the Bankruptcy Court for the Western District of Pennsylvania require that the debtor seek approval from the Judge in their case. So, it’s my job to do this for my client.

Here are those steps:

1) first, go to a dealership and see what types of cars suit your needs and are affordable;

2) be honest with the car salesman and tell them that you are in a Chapter 13 bankruptcy case. They’ll find out anyway when they run your credit report;

3) tell the salesman that you need to provide your attorney with the hypothetical monthly payment, interest rate and total amount to be borrowed;

4) get me that information, because I will need it in the court motion that I have to file with the Court. By the way, it will take about 2 to 5 weeks for the Court to hear that motion. If you are truly in a state of emergency (let’s say that your car has just been totalled), then I can schedule the hearing as an “emergency” hearing and it might be scheduled within 2 to 3 weeks;

5) unless you are seriously delinquent with your existing plan payments or you are looking to borrow money for an unnecessarily-expensive vehicle purchase, then the Judge in your case will invariably approve your loan;

6) once the Judge signs the Order of Court which approves your loan, then you can return to the dealer to finalize the purchase. Another Local Rule in our Bankruptcy District however requires that all post-petition loans be paid through the Chapter 13 plans. So, we will have to amend your Chapter 13 plan in order for the new car lender to be paid through the Trustee’s Office. Not all creditors like this arrangement, because it will require them to wait approximately 3 months before being paid. Nevertheless, that is our Local Rule and unless you obtain a waiver from your Judge, you’ll have to pay the car loan through your new Chapter 13 plan.

Good luck and I never want to hear from another car salesman about a “letter from the Trustee”. . . .

9 Comments on “6 Steps on Getting a Car Loan While in a Chapter 13 Bankruptcy Case”

  1. Hi, Im in a chapter 13 and I do have a letter from the trustee. I reside in Detroit, MI. They have a big limitation and the car dealership people want $1500 down, but the trustee only approve $700 down and not to exceed over $8,891 also not to exceed monthly payment over $288. Where can I get this done here in Detroit.

  2. I’ve filed Chap 13 but haven’t had creditors meeting yet. My car is in the BK. I just wrecked it, they say it’s totalled. Now it isn’t a secured debt. What happens with amount I owe through BK on the car. Does percentage I pay go down to limit of other unsecured debts? Also, this car had been repo’d before I filed Chap 13. Will I be able to finance another car?

  3. Hi there! We are 4 months away from the LAST payment! WHOHO! We just bought a home with approval from the courts close to 5 months ago and now are in need of cars as our cars are now 7 & 8 years old. Course the rates are high because w are still considered a RISK. Since we both need cars and the payments will be $1000 together, how likely will the courts approve? Its driving us crazy how close we are to the end but cant wait!

  4. Erin, Congratulations on being so close to finishing. I’m not sure what part of the country you’re from. If you were in Western Pennsylvania, then the Court would need to approve both car loans, but since you’re in the final months of your case, the payments would not have to be added or included into your Chapter 13 plan. I don’t know the condition of your two cars, but much to the chagrin of my 13 year old son, my two cars are much older than yours, and they’re still going strong.  
    I have never asked the Court to approve two car loans at once, so I would think you’d have a better shot at one car loan request. See if you can conclude your case first and then you’ll likely get better car loan rates once you’re out of bankruptcy. Good luck!

  5. Shawn, 
    I was born in Pgh – miss it! Living in Az. Do you have any Buds here that handle BK 13. Work truck died before Xmas – can’t get much advise other than get permission from court.

  6. I’ve been in a 5-year Chapter 13. This will be paid off in August 2023. The vehicle I currently have was deemed totalled by the insurance company last month. In addition, the vehicle is 18 years old and has close to 200,000 on the odometer. I need another car like yesterday. The attorney has submitted the paperwork to the judge but the judge has not yet gotten back in touch with the attorney to set up a
    Hearing time in court. I was told yesterday I may have other options to get this approved quickly but didn’t go into detail. Can you please explain how I would be able to get this at a rapid pace? I start a new job in 9 days and I really need a car.

    1. Lisa,
      Thanks for your message. Yes, your attorney should contact the Judge’s chambers to ask for an expedited/emergency hearing date. Our court will permit this, but they require the attorney to also send copies of the motion and the hearing date notice to every creditor in the fax. Because it’s expedited, all of these requests will need to be done by fax. Also, your attorney should contact your Chapter 13 Trustee to see if they would be willing to consent to your motion request. This trustee consent is what I seek in every post-petition vehicle loan request that I do. The reason is that if the Trustee consents to your motion, then the judge is much more likely to grant it. Best wishes and hope you get your car soon, Shawn Wright

  7. Question does it take 2 to 5 weeks all together for a answer with the courts or 2 to 5 weeks after the trustee made their choice.

    1. Tonya, here in Western Pennsylvania, the rules are streamlined as follows. I will prepare the “Motion to Approve Vehicle Loan” and present it to the Chapter 13 Trustee. As long as the proposed monthly payment is less than $500 and the overall amount to be borrowed is less than $25,000, then the Trustee will agree to my request. And mind you, this is for any cases that is in good standing. IF it’s a Chapter 13 in which the Debtor hasn’t been making regular payments, then they will likely not agree to it. So, if the Trustee agrees to my request, then I file the paperwork with the Court and the Judge signs off on it without a hearing. All of this can be done in 3-5 days from start to finish, and then you can get your loan finalized at the dealership.

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