Buying A Car During or After Bankruptcy

What should you do if you need to buy a car before you have finished repairing your credit, or while you still have payments to make in a Chapter 13 bankruptcy? If you are used to buying new cars straight from the dealership, be prepared to adjust your approach.

Did you know that a $20,000 car is worth a couple thousand dollars less the second you drive it off the lot? A used car in good condition is often just as a good as a new car, because part of what you pay for in a new car is merely the cachet associated with having something new. A best practice for avoiding financial pitfalls is to make rational purchases that conform to your spending ability. Lest those monthly payments come back to haunt you―the last thing you want after a successful bankruptcy!― it's time to think beyond credit traps.

If you find yourself needing to buy a car, why not pay cash for the total price? For a few thousand dollars, you can buy a perfectly good car that can carry you around for years; no credit check, no monthly payments, no worrying about repossessions. Look to make a private purchase from an owner; avoiding a dealership altogether can only save you money and pressure to spend beyond your means. If you need to buy a car while you're still making payments on a Chapter 13 bankruptcy, you may need to obtain permission from the trustee to do so; however, if you buy a sensibly priced (read: not exorbitant) vehicle, this shouldn't present a serious obstacle.

A good place to look for cars is the classified section of the newspaper, or, even better, on-line classified services like Craig's List (www.craigslist.org) where ads will generally contain pictures of the vehicle. Once you've gotten in contact with a seller, you should obtain the car's Vehicle Identification Number (VIN) and run a search on its records to discover whether the auto has been in any serious crashes or required major repairs. Fender-benders are no problem; serious front end crashes requiring reconstruction or electrical problems can spell major trouble. Searching the car's records is a good step, but you should also have a trusted and experienced mechanic examine the vehicle before you buy it. A mechanic will also help you to determine whether a used car will require major repairs. Ideally your car should require no more than tune-ups or perhaps a few inexpensive new parts. A new radiator for a Honda is pushing it at about $300; a new transmission can cost as much as $2000!

If you're just starting out, let a trusty used car do the job. In the meantime, work to rebuild your credit while avoiding interest payments on a rapidly depreciating asset. With careful work, you could save up to finance a new car in your future or even buy one outright! Still, when you get to that point, it might be a good idea to buy a car that's two or three years old―that way you get most of the benefits of a new car without paying for novelty.