Tennessee residents may be wondering if it makes sense to buy a car before filing for bankruptcy. Those who are filing for Chapter 7 bankruptcy could actually benefit from such a purchase because the equity in their vehicles may be exempt from creditors. Paying for the vehicle with cash would potentially reduce the amount of money in a bank account that creditors may have access to.
However, a bankruptcy court will look at the transaction to ensure that it was done in good faith. If an individual bought a luxury vehicle just prior to filing bankruptcy, that may not be seen as in good faith. If an individual already had a vehicle that was in good working order, there may not be a need to buy another vehicle. Anyone who is thinking about buying a vehicle immediately prior to bankruptcy may be better served waiting to actually make the purchase.
Since bankruptcy can seriously damage an individual’s credit score, an auto loan may represent an opportunity to repair that damage. While a bankruptcy court might need to approve the loan, it is possible to obtain a car loan during a Chapter 13 repayment period. Debtors typically have three to five years to repay debts under a Chapter 13 repayment plan.
With a Chapter 13 bankruptcy filing, a debtor might be able to retain property during the repayment period. This may allow an individual to postpone foreclosure or repossession of property. An attorney could talk more about the other benefits of bankruptcy such as automatic stays of creditor collection actions. Legal counsel may also be able to help individuals learn more about how to file and any actions that must be taken before that can happen.