Buying a New Car Before Filing for Bankruptcy
Considering filing for Arizona bankruptcy? Need a new car? These two things may seem odd to do together, but for many bankruptcy filers, it makes sense to buy a new car before filing for bankruptcy.
One reason is that once you file for bankruptcy, it will be difficult to get a loan at all, and especially on decent terms, for the short term. So it is a good idea to plan ahead, and make sure your car will make it through this period. If it won’t, it is not a bad idea to consider getting a new car before you file.
Another reason many people buy a new car pre-bankruptcy is to pass the Chapter 7 Means Test. Under the Means Test, you need to have disposable income below a certain amount in order to qualify to file for Chapter 7. If you do not have a low enough disposable income, you will be forced to dismiss or change your case to Chapter 13.
Disposable income is calculated by taking your income and subtracting permitted expenses. One such expense is the cost of car ownership. The Supreme Court has just held that, in order to take this expense, you must have a payment on the vehicle. This means that just owning a car outright will not qualify you to use the exemption. But if you have a car payment to make every month, you can deduct a certain amount from your income. This could bring your disposable income low enough for you to be able to file for Chapter 7.
Each case is different, and your situation may be more complicated. If you are considering filing for bankruptcy, talk to a qualified bankruptcy attorney who can help you make your next move.
Stephen M. Trezza