Auto Purchase before Bankruptcy can be High Risk

As part ofbankruptcy preparation it is not unusual for people with older vehiclesto consider thepurchase of a new vehicle. A new vehicle willbe needed soon in any event and obtaining serviceable transportation before bankruptcyoften makes sense.Clearly, a post-bankruptcycredit score will not support a vehicle purchase.

Sensible or not, this has become a high risk behavior. Bankruptcy Trustees do notlike this practice. They have been checking to see if the new car loan lien was properly perfected at least 30 days prior tothe Bankruptcy filing. If not, a Bankruptcy Trustee can take the vehicle and sell it. This is bad enough, but it can get worse. The new carloan may not be dischargeable because it was incurred just prior to filing bankruptcy. There isthe potential forgreat hardship here.The new car is gone but the new car loan must still be paid and, somehow, replacement transportation must be quickly found.

This is an extreme result for indulging in what otherwise would be known asprudent planning.Such a purchase is still feasible but, obviously, extra care must be taken to avoid an extremely bad result.

When considering such a plan, it is critical to accomplish the new vehicle purchasein such a way so as to minimize risk. It is oftendifficult for a buyer to know whenan auto lienhas beenperfected. Theprocess is out of the buyer’s control. Because of this uncertaintly, we recommend thatany new vehicle purchase be discussed withyour bankruptcy lawyerwellin advance and that your lawyer be involved in thedecision making process.

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  1. That makes sense. There’s no possible good outcome by purchasing a car before filing for bankruptcy.