Question: I am in a chapter 13 bankruptcy and my car is in need of significant repairs. Sometimes I think I bought a “lemon.” Since I am making my payments for the car under my chapter 13 plan, please tell me my options to get another vehicle.
N.H. in Cumming, Georgia
Answer: As far as the process for the bankruptcy court and the trustee, there are a couple options. All options, however, are subject to an objection by the trustee or creditor.
Surrender the car
The first would be to "surrender" the vehicle to the auto lender through the court. You would then seek approval from the trustee to finance a new vehicle and you would make payments directly to the new creditor for the remainder of the case.
Get permission to sell the vehicle
The second option would be to get permission to sell the vehicle to use those funds to "pay off" as much of the remaining balance on the loan as possible. Any remaining funds would most likely be available for you to use towards the purchase of a new vehicle (this too would need to be approved). You would then need to get approval for financing the new vehicle like I have described above.
The Deficiency balance
In both of these options, we would request that the deficiency balance that remains after either the sale or surrender of the vehicle be included in your bankruptcy case.
Make sure the new car has a reasonable payment
The new vehicle payment would need to be a reasonable payment for a reasonable vehicle, by the trustee's standards. Ideally, this would be a payment around $300 per month. We have seen the most success of approval with clients who obtained a slightly used vehicle, although it is certainly possible to obtain new car if the trustee finds the payment to be reasonable.
The bankruptcy trustee needs to agree
Prior to obtaining the financing, the trustee would need to sign off. However, we will need the details of the financing to present to the trustee in a motion that we will file with the bankruptcy court. It would be best for you to try to find a few vehicles that you are interested in and see what sort of financing you would be able to obtain. Let us know the details (name of lender, amount, interest rate, duration, and payment) and we will put together the motion to submit.
If you surrender the vehicle
If you decide to surrender the vehicle, we will need to file a motion to modify your plan. If you decide to sell the vehicle on your own to see what price you may be able to get for it, please let me before you sell it as the trustee will need to approve of the sale.
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