Should you buy a car before bankruptcy?

Tara Baukus MelloQuestionDear Driving for Dollars,
I might have to file for bankruptcy and I'm wondering about my car, which I own outright but it's on its last leg. Should I purchase a new car before I file, or can I do it after? I need a car to be able to get to and from work, so I can't be without one.
-- LaVerne

AnswerDear LaVerne,
Buying a car after you file bankruptcy is going to be a challenge, but keeping a car loan out of the bankruptcy by reaffirming it can also present issues, depending on the car's value, how much you owe on the car loan and your ability to make the payments. In addition, by getting a car loan, you'll be adding to your debt when you are already having financial trouble.

Talk to a trusted mechanic to see if there's anything you can do to prolong the life of your current car. Perhaps you have a friend or relative with a car you can borrow long-term if your car dies. If there really is no other alternative than a car loan for a new car, consult a bankruptcy attorney before you need to buy a new car and before you file for bankruptcy so you can be sure you don't lose the new car when you do file.

If you opt to buy a car, the interest rate on your car loan will definitely be lower if you purchase the car before you file bankruptcy. Lenders consider those currently in bankruptcy as a higher risk and therefore, they charge higher interest rates.

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If you have a car question, e-mail it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories.

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