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Should You Buy a Car Prior to Filing Bankruptcy?



By:Mike Cibik

Buying a Car Prior to Filing Bankruptcy

Filing bankruptcy is not easy and cannot be done alone.  It is not a matter of just going to your bankruptcy lawyer’s office, plunking your money down, and signing a few documents. It involves planning. The right planning involves an experienced bankruptcy attorney to help you through this process.


The first step in filing bankruptcy is determining what chapter you should file under, which is typically Chapter 7 or 13.  However, in a few instances, it could even be Chapter 11. Second, you and your lawyer can then start to do some bankruptcy planning to ensure that you receive the best outcome for your case. One way to start planning for your Chapter 13 bankruptcy is by buying a vehicle.


Chapter 13 bankruptcy, if you are over median income (using the six-month average prior to filing), is a five-year process. If you have an older car, you are probably better off replacing it prior to filing. If it dies or begins “nickel and diming you to death” during your bankruptcy, you will need to file a motion to incur debt. You will have to make the case and explain as to why you need that newer vehicle.  It takes about a month to get an order entered for the car.  Overall, this process is a hassle, and it is one you probably will not want to deal with if your transmission just failed or the vehicle cannot be driven because of some major mechanical failure.


Besides the perks of getting a new car, buying one will also help you on the means test that you take when filing bankruptcy.  This test analyzes your income and expense information, and then determines how much you will need to pay to your unsecured creditors in your plan. No car note means no ownership allowance on the means test. That, in turn, means (pardon the pun) that you lose $517 on the means test. Therefore, you must be mindful of how the purchase will look to the Chapter 13 trustee and, more importantly, the bankruptcy judge.


Am I saying you buy the car to do better on the means test? No. But if you are in need of a car, it is best to take care that issue prior to filing for bankruptcy. As a result, if getting a new car can benefit your day-to-day life and on the means test, then so be it.  It is better to only help yourself in any way possible prior to filing.


I do not advise my clients to buy luxury brands, such as Mercedes, BMW, Lexus, and Audi.  The reasoning behind this is that in court, this does not back your case. I just do not like how this sounds: “Your Honor, the debtor purchased a BMW two months prior to filing this case.” Even if it is an ’06 with 70,000 miles, or perhaps you got it for a good deal, I cannot get over how it sounds to a judge.


Overall, I suggest buying a high quality used car, only if you are sure that you need to buy a vehicle. For example, I tell my clients that if you have a 2008 model vehicle with 60,000 miles on it that you just paid off, I would not advise you to buy a newer car prior to filing.  This is because your car is in good condition and you do not owe more money on it. In contrast, however, if you owned a 2004 with 120,000, I would because the car probably requires work to be done. This process may sound intimidating and confusing, but an experienced bankruptcy lawyer can help you through this.  


The dedicated attorneys at Cibik & Cataldo P.C. can help you throughout the process of filing for bankruptcy as well as give you legal advice. Contact our legal team today at (215)-735-1060 for a free consultation or if you have any questions regarding a case.


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