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Buying a car before bankruptcy may have advantages

Contrary to what some may believe, bankruptcy filers can often keep many of their assets. In Kentucky, bankruptcy filers can exempt certain assets from bankruptcy proceedings and keep them even after the case is discharged. For example, debtors are often able to exempt vehicles. However, the bankruptcy court will be suspicious of any car purchased just prior to filing.

While it's generally good to avoid incurring new debts prior to bankruptcy, a person who doesn't own a car might consider buying one before filing. Such a purchase carries advantages for the petitioner, which is why the bankruptcy trustee will require proof that the vehicle was purchased for reasons of necessity.

The trustee will look at the vehicle purchase to make sure that it was made in good faith. If the petitioner already had a reliable vehicle, or if the one purchased is unduly expensive, the trustee has the power to reverse the transaction. If the vehicle is an affordable used car, on the other hand, the trustee may exempt the vehicle from the bankruptcy case.

The bankruptcy trustee will want to know if the vehicle was purchased with cash or with an auto loan. Purchasing a car with a loan may help some petitioners pass the Chapter 7 Means Test. However, the purchase must be made in good faith. Individuals who have questions about the bankruptcy process might want to talk with an attorney. A lawyer with experience in bankruptcy law may help a debtor evaluate their options. If necessary, the attorney could initiate a Chapter 7 or Chapter 13 bankruptcy action of behalf of the client.

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