One of the biggest misconceptions I hear from people considering bankruptcy is this:

“I guess I have to keep driving my old car until after everything is over.”

Fortunately, that simply isn’t true.

In many cases, it is perfectly acceptable to purchase a replacement vehicle shortly before filing Chapter 7 bankruptcy or soon after your case is filed, especially if you intend to surrender your current vehicle.

In fact, many of my clients do exactly that.

Why Would Someone Replace Their Vehicle?

Life doesn’t stop just because you’re filing bankruptcy.

You still have to get to work, take the kids to school, go to doctor’s appointments, and live your daily life.

There are many legitimate reasons someone may want to replace a vehicle before or after filing Chapter 7 bankruptcy:

• Their current vehicle payment is simply too expensive.
• They want a lower monthly payment that better fits their post-bankruptcy budget.
• Their vehicle has high mileage and is becoming unreliable.
• The car has been involved in an accident.
• Major mechanical repairs are looming.
• They need a safer or more dependable vehicle.
• They simply want to downsize to something more affordable.

None of these reasons are unusual.

In fact, bankruptcy is often the perfect time to improve your overall financial picture—including your transportation.

Can I Keep the New Vehicle and Surrender the Old One?

Yes.

Assuming you qualify for financing and the numbers make sense, many people purchase another vehicle and then surrender the older vehicle as part of their Chapter 7 bankruptcy.

If there is a loan balance on the vehicle being surrendered, that debt is generally discharged in the bankruptcy, provided there is no reaffirmation agreement and no other unusual circumstances.

This can eliminate a burdensome payment while allowing you to drive a vehicle that better fits your current financial situation.

Should I Buy Before Filing or After Filing?

Every situation is different.

Some clients purchase a replacement vehicle before filing because they have better financing options while their credit report has not yet reflected the bankruptcy filing.

Others prefer to wait until after the bankruptcy is filed.

There is no one-size-fits-all answer.

The best timing depends on your income, credit history, existing vehicle loan, and overall financial goals.

That is why we discuss vehicle issues during your bankruptcy consultation before any decisions are made.

Don’t Be Surprised When the Mail Starts Arriving

Many first-time bankruptcy clients are surprised by what happens after their Chapter 7 case is filed.

Within days—or sometimes even sooner—you may begin receiving advertisements from automobile dealerships and lenders offering financing.

Why?

Because your bankruptcy filing is a matter of public record, and many lenders know that once your unsecured debts are discharged, you may be in a better position to afford a vehicle payment.

While some people find these advertisements annoying, they also serve as a reminder that many lenders actively finance individuals who have recently filed bankruptcy.

Some Dealers Will Sell Immediately

Many dealerships specialize in helping customers who are in an active Chapter 7 bankruptcy.

Some lenders are willing to finance a vehicle the same day your bankruptcy case is filed.

Others prefer to wait until you receive your Chapter 7 Discharge Order, which is typically entered approximately 60 to 90 days after your Meeting of Creditors, or about three months after your case is filed.

There are many financing programs available, and each lender has its own underwriting guidelines.

Be Careful About Interest Rates

Just because someone is willing to finance you does not mean it is the best deal.

This is where I encourage clients to slow down.

Some post-bankruptcy vehicle loans come with very reasonable interest rates.

Others come with rates that are much higher than necessary.

Before signing anything:

• Compare offers from more than one dealership or lender.
• Ask for the annual percentage rate (APR), not just the monthly payment.
• Pay attention to the length of the loan.
• Read the entire financing agreement.
• Avoid focusing only on whether you can afford the monthly payment.

A lower monthly payment spread over seven or eight years may actually cost thousands more in interest.

The goal isn’t simply to get approved.

The goal is to obtain reliable transportation at a fair price.

Bankruptcy Is About Building a Better Financial Future

Chapter 7 bankruptcy is designed to give honest people a fresh financial start.

Sometimes that fresh start includes replacing an unreliable or unaffordable vehicle with one that better fits your budget.

If done properly, purchasing another vehicle before or shortly after filing bankruptcy can be a smart financial decision.

The key is planning ahead.

Every bankruptcy case is different, and the timing of a vehicle purchase should be discussed with your bankruptcy attorney before you sign any purchase agreement.

We Can Help You Plan

At the Law Offices of Walter Metzen, we discuss vehicle issues with our clients every day.

If you’re thinking about replacing your vehicle, lowering your monthly payment, or surrendering an existing vehicle in your Chapter 7 bankruptcy, we’ll help you understand your options before you make a decision.

A little planning today can save you thousands of dollars tomorrow—and help ensure that your fresh start includes dependable transportation that fits your budget.