Is it possible to finance a car while you are in Chapter 13 bankruptcy?
YES.
In Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229, the Supreme Court specifically found that “advice to refinance a mortgage or purchase a reliable car prior to filing because doing so will reduce the debtor’s interest rates or improve his ability to repay is not prohibited, as the promise of enhanced financial prospects, rather than the anticipated filing, is the impelling cause. Advice to incur additional debt to buy groceries, pay medical bills, or make other purchases ‘reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor’s similarly permissible.” Id. 130 S. Ct. at 1339 n.6. Furthermore, the Court held that, although an attorney cannot advise a client to incur more debt for an impermissible purpose, “a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.” Id. at 1337-1338 (citing ABA Model Rule of Professional Conduct 1.2 (d) (2009)).
As long as the client requests to purchase a vehicle in good faith and is in a position to proceed, the Bankruptcy court will allow the debtor to purchase another vehicle.
One of our clients owned a 1999 Cadillac Escalade and wished to purchase a used 2006 Chevrolet Monte Carlo instead. The 1999 Escalade had failed multiple emissions and was breaking down. However, execution of any sale is contingent upon the Bankruptcy Court entering an Order allowing sale of the subject property. Our firm proved to the Court that debtor would be selling her vehicle for fair market value, which would allow her to pay for a new vehicle outside of her Chapter 13 Plan and still maintain a feasible budget. Her motion was granted and she was able to purchase a new car.
We had another client whose car was impounded as a result of accumulating post-petition parking tickets. The Debtor had insufficient funds to pay the impound fees, which necessitated surrendering the vehicle. Yet, she still needed a new vehicle to get to work. We were able to persuade the Court that the Debtor’s disposable income was sufficient to afford a car payment outside of her Chapter 13 plan, and the financing was granted.
Incurring additional debt or purchasing a new car is perfectly allowed as long as we can show the Court that client is in a position to do it, requesting it in good faith, and the existing Plan is still feasible.
