Can You Buy A Car Before Filing Bankruptcy?

Last week I posted about whether you can transfer a car title before filing bankruptcy. On a related note, many clients often inquire if they can purchase a new car before filing bankruptcy, thus incurring new debt right before filing bankruptcy. As a bankruptcy attorney I am prohibited from advising clients to incur new debt before filing bankruptcy. However, bankruptcy attorneys are allowed to help their clients with exemption planning to ensure that all potential bankruptcy exemptions are taken advantage of.

Specifically, Section 526(a)(4) of the bankruptcy code prohibits a debt relief agency (which includes bankruptcy attorneys) only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose. In my opinion, I would say that whether you can purchase a new car on the eve of filing bankruptcy depends on whether a new car is a necessity.

If an individual filing bankruptcy is purchasing a new car just prior to bankruptcy in order to obtain better credit terms or to ensure financing, I would suggest against it as the case may be dismissed or a discharge may not be granted. On the same note, I would not advise a client to purchase a new car and assume car payments in order to satisfy the means test to qualify for Chapter 7 bankruptcy.

However, if an individual filing bankruptcy does not have a car or their current car requires extensive repairs or is high-mileage, I would suggest that purchasing a new car shortly before filing bankruptcy would be acceptable if the car is a necessity for transportation to work and/or school, etc., which would be a "valid purpose" in my opinion.

Each individual's situation is unique. Therefore, I would suggest you consult with a bankruptcy attorney. I offer a free initial consultation and can help you file bankruptcy in Kansas or Missouri. Any questions or comments are welcome. Thanks for reading!