Each year, hundreds of thousands of Americans file for bankruptcy in the U.S. People have many different reasons for needing to file bankruptcy, but ultimately, they want a clean slate with their credit. They want to start fresh and to have a chance to build up better credit to receive better opportunities. Some of the reasons people may file bankruptcy are divorce, expensive medical bills from disability or illness, poor financial management related to student loans, car loans, mortgage loans, reduced income or job loss, and unexpected emergencies, such as the car breaking down or a natural disaster.
Is it possible to get a car loan after bankruptcy? The short answer is, yes - kind of. Though it may be more difficult to find lenders willing to work with you, there are lenders out there who will work with people with bankruptcy on their credit reports. It is likely, however, that your interest rate would be higher. Filing for a Chapter 7 or a Chapter 13 bankruptcy can affect your ability to get approved for any kind of credit, including a car loan. After filing bankruptcy, some things you may have to deal with are difficulty getting approved and high-interest rates.
Chapter 7 and Chapter 13 are the two kinds of bankruptcy that individuals can file. Which type an individual chooses is a major factor in the ability to get a car loan. Another concern is the amount of time that has passed since that person has filed.
In Chapter 7 bankruptcy, some possessions and property can be liquidated to repay outstanding debts, and some debts may be discharged. This type of bankruptcy can take anywhere from 80 to 130 days to complete the process from the initial filing to the discharge of debt. Chapter 7 bankruptcy can stay on your credit report for 10 years.
With Chapter 13 bankruptcy, the individual filing can repay the debts on a schedule. This is also known as a wage earner's plan. The filer can participate in a plan that allows him or her to repay all or part of the debt within three to five years. It usually involves paying a fixed amount to a trustee on a regular basis, which is either biweekly or monthly. This type of bankruptcy can remain on your credit report for seven years. If the individual were to try to buy a car before filing bankruptcy, it may be seen as fraud and could potentially cause problems for your filing. Your car can also get repossessed and sold unless it qualifies for an exemption.
Once you have filed for bankruptcy, it may be difficult getting a car loan if you do not yet have proof that your bankruptcy has been discharged. Experts recommend consulting with an attorney before applying. Chapter 13 bankruptcy makes it much more likely that you'll be able to keep your car once you have filed bankruptcy. As long as the creditors agree to an affordable amount of payment and permission is received from the court, you will likely be able to keep your car or even purchase a new car.
Overall, before beginning to apply for car loans, you'll want to make sure your bankruptcy has been filed. After a Chapter 7 bankruptcy, it is possible to apply for a car loan immediately after you file. New Roads Auto loans uses the motto "File Today, Drive Tomorrow" A bankruptcy case will generally last about three to five months from the date the claim is first filed to the day the debt is discharged.
Even after being discharged, there is still the issue of high-interest rates. In fact, there is no specific time limit for when it is possible to get a car loan after bankruptcy. Some lenders just want the claim to be completed and discharged. Therefore, however long that takes is how soon a car loan could be obtained. Since a Chapter 13 bankruptcy takes more time to complete, many lenders are willing to finance an individual who has permission from the court to obtain a car loan.
The effect of bankruptcy on your credit will be determined by how good or bad the credit was before filing for bankruptcy and how well did you maintain your credit after your filing. If the individual filing for bankruptcy had high credit scores and a good credit history before filing, there will most likely be a significant drop in the credit scores upon the bankruptcy filing. However, if the individual's credit was already poor, there may not be much of an impact on his or her credit scores upon the filing. Another factor is the number of accounts included in the bankruptcy. If you include a lot of accounts, the hit to your credit scores will be bigger.
One thing to take into consideration upon applying for a car loan after filing for bankruptcy is how difficult it would be to get approved. While many lenders might be hesitant to give a person with a past bankruptcy a car loan, some financial institutions specialize in working with individuals who have bankruptcies on their credit reports. There are lenders who are considered "guaranteed" or who are "no credit check" lenders, and the lines of credit are known as "buy here, pay here" loans. These loans, while convenient for those going through an emergency and needing a vehicle but also having bad credit, usually come with much higher interest rates. In the worst-case scenarios, it is possible to end up with a car loan worth more than what the vehicle is worth. The high interest rates that will likely be hard to get away from are another thing to consider when applying for a car loan after bankruptcy. This can be even higher than 23%.
There are specific steps that can be taken after filing bankruptcy and having it discharged that will assist an individual in getting a car loan. First, getting a copy of your credit reports will allow you to be aware of anything your lender might find, along with giving you the opportunity to get ahead of any blemishes that may have made their way to your credit report after the bankruptcy was discharged.
Next, it is important to save for a down payment so you can get the price of the vehicle down and have a more workable car note. Including a trade-in will not only take more money off of the final price, but it will also allow you to get monetary compensation for another vehicle that you likely were not going to drive anymore after getting your new one.
Shopping around is a good way to see what is out there before setting your mind on one dealer. Avoiding bad loans will ensure that you are able to get the most for your credit without putting yourself into a hole. Finally, having a co-signer might allow you to get a better loan or better vehicle when the co-signer has a better credit score than the primary borrower.
While a car loan cannot cause the bankruptcy to be completed and discharged, having a car loan line of credit can help the payer's credit score increase as long as it is being paid on time. Even if you agree to continue paying the car note and to make the payments on time, it is not guaranteed that the filer will be able to keep his or her property under a Chapter 7 bankruptcy. In order to make your car a non-exempt item of property when filing Chapter 7, you could reaffirm your debt to repay the loan or redeem the debt by paying the market value to the lender in a lump sum.
Another option, which cannot help finalize a bankruptcy, can help the filer build up good credit. This step toward finalizing the bankruptcy is to buy a low-cost car. Going this route will make it more feasible to get a lower interest rate and to manage a car note.
A little research will unveil that there are a few lenders out there who will finance individuals who have had to go through bankruptcy. We here at New Roads Auto Loans are also among the lenders on that list. We are an online auto lender that finances individuals who have filed bankruptcy. The bankruptcy can be an open or a discharged Chapter 7 bankruptcy and can be a Chapter 13 bankruptcy with trustee approval.
We have been financing bankruptcy customers since 1991. We know that getting a car loan after bankruptcy can be a complicated, seemingly impossible process. New Roads Auto Loans can help bankruptcy filers regain peace of mind with guaranteed bankruptcy auto loans. We work with our customers to find a payment that they can afford and that fits into their realistic budgets. We have even been able to give zero down payment auto loans to many customers who have bankruptcies on their credit history. Our aim is to get our customers in their choice vehicles while allowing them to keep as much money in their pockets as possible. With New Roads Auto Loans, we make the impossible, possible!