Buy A Car Prior to Filing Bankruptcy?

               If I told most people that it sometimes makes sense for a person who is going to file bankruptcy to buy a car first they would look at me as if I had two heads.  But, in some situations it can make sense for a soon-to-be debtor to take out a loan for a car just before filing Chapter 7 or Chapter 13 bankruptcy.

              First of all, it is important to keep in mind that the entire point of bankruptcy is for a debtor to receive a fresh start so that they are able to restart their financial life.  At Halcomb Singler we take this seriously and attempt to advise people in a way that will help them stay out of debt and on a great financial track for the rest of their lives.  I try to point out potential future financial pitfalls such as a single mother who has no life insurance, a client who has 4 different 401(k)s with old employers and has no idea how the funds are doing or when a client is paying WAY too much for car insurance.  When I see these problems I try to point my clients toward another professional who is qualified to help them.

           Something else that I typically think about when assessing the overall financial health of a client prior to a bankruptcy filing is that if he or she works then he or she will need a car that is able to provide them transportation to and from work in order to be successful financially after bankruptcy.  Many of the potential clients that I meet with at my Carmel law firm have been doing everything they can think of to avoid bankruptcy, so it is not uncommon for that person to own a very old vehicle with very high miles that they spend a fortune repairing.  If that person files bankruptcy the last thing I want to happen is for them to have a very high repair bill just after they file bankruptcy because then they are already back in a financial hole just after filing.  Many of the people I meet with could afford a reasonable car payment of approximately $300-$350.00 over 48 months if they weren't spending every extra dime on credit card bills, personal loans or old medical bills.

            Many people think that buying a car and taking out a loan on it just prior to filing bankruptcy would be considered fraud and that the bankruptcy trustee would be very mad!  Certainly, one should not go out and use their credit cards after deciding to file a bankruptcy.  Nor should one who is going to file bankruptcy buy a vehicle that they cannot afford after review of their post-bankruptcy budget (remember if you are financing for more than 48 months you can't afford it).  However, for those who truly need a more reliable vehicle to get to work and fear that without a newer vehicle that they will be drowning in repair bills it is not unreasonable to purchase an affordable vehicle.  In addition, this should only be done if it is the debtor's intent to reaffirm on the vehicle (to keep it and to continue making payments on it during and after bankruptcy).

            In addition to helping a debtor with his or her fresh start because the debtor will have reliable transportation, another benefit of obtaining a loan to buy a vehicle is that it will be an additional deduction on the bankruptcy means test.  This means that the debtor will have a better chance of qualifying for a Chapter 7 bankruptcy and if he or she is in a Chapter 13 bankruptcy it is likely the monthly trustee payment will be lower if a vehicle is financed.  While this is certainly not the only reason I would ever advise a client to buy and finance a vehicle, it is a factor to consider.

             If you live in central Indiana/Indianapolis area and would like to discuss whether or not bankruptcy could give you a fresh financial start click here to get started or just give me a call at (317) 575-8222 x 12....yes, I do tend to answer the phone myself....don't be surprised!

Halcomb Singler, LLP, is a debt relief agency.  It helps people file for bankruptcy under the bankruptcy code.  No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so.  The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.