Being overwhelmed by debt and no reasonable way to pay your bills every month is no way to live. If you have decided that you want to file for bankruptcy and get a fresh start, that is certainly an option. In some circumstances, although bankruptcy needs to happen, there might be a need for a vehicle for the work and other necessities. That said, you might be wondering if you can buy a car before filing for bankruptcy. Bankruptcy laws vary from state to state, but there are a few loopholes in the law, some of which many people take advantage of. As you weigh the answers to this question and scenario, you will have to decide for yourself whether or not buying a car right before filing for bankruptcy is a good idea.
Is Buying A Car Possible Before Filing For Bankruptcy?
In some states, you can buy a car before filing for bankruptcy. You can even open several more credit card accounts. If you do not list these on your bankruptcy papers as assets and debts, the court, as well as the creditors of your bankruptcy, do not know that you have them. This is not honest, and it could get you into a lot of trouble if you are found out (some creditors may do some digging around about your finances to see if you can pay them back), but it is a dishonest approach.
The alternative is that you do buy a car, and do not open any more credit card accounts, and you do put the car on your bankruptcy papers as an asset. At least this way you are being honest with the court that you have this new car and you are already creating more debt before coming to court. However, most courts would consider a new car a necessity, so long as it is not in excess of any vehicles you (and your spouse) already own and it is not a luxury car.
You Car Purchase Can Signal Different Things To The Court
If you purchase vehicles in excess or luxury vehicles it signals to the judge that:
- You may be hiding money or other assets you could liquidate to pay your debts.
- You are racking up debt that you hope to cancel out on your bankruptcy.
- You now have extra vehicles which you can sell or liquidate to pay some of your debts.
As such, the judge may just decide to have you sell and/or return the extra or luxury vehicle to pay some of your bills rather than grant you a full discharge of your debts. It’s a gray area, at best, and you are taking your chances by buying a new car if you do not really need it.
Additionally, if you pay for the car in full, the judge may want to know how you were able to do that while not managing your debts. If you trade in an old car and buy a used car cheap, then pay for it in full, the judge may not blink twice about that because you did not buy (and pay for) a brand new car outright. In fact, this is the best approach overall, since you get a “new” car, do not have an additional debt to show the judge, and you can keep the car because you gave up the old one.
States Where A Purchase Is Not Feasible
You may be perceived as someone with impulse control issues or an inability to manage your finances properly when you buy a car right before bankruptcy or during the filing process. The judge may think you are trying to escape your financial responsibilities just to get more material goods, and that you may not be thinking of the consequences of your actions.
For these reasons, you may be denied the right to buy a car, especially if you already have a functional vehicle. Since a bankruptcy filing with the courts automatically places it on the public record, even when you have not had a hearing on it yet, the car dealerships can and probably will deny you financing. Be sure to ask your bankruptcy lawyer about these laws and situations in your own state.