Harsh as its consequences are, bankruptcy also provides a financial fresh start. One way to get going (we are not making this up): Buy a car.
Bankruptcy filings can be a stressful, even life-altering, experience. But as hard as it is, bankruptcy needn’t slam the brakes on you plans to buy a car.
Yes, bankruptcy leaves your credit report dented like the survivor of a demolition derby. The key word: survivor. Scoring a car loan after bankruptcy is possible. You simply must work smarter before you can slide behind the wheel.
Before visiting a dealership or a car-buying website, perform some do-it-yourself ego repair work. With your obligations liquidated, discharged, or satisfied, as a post-bankrupt consumer you have a shot at financial renewal. So, your credit score is in the basement. Think of it as the foundation from which your future score will soar.
Time for a pep talk. You’ve been through the worst. Better times are ahead. Review the positives in your life: Your job, your courage, your determination, your resourcefulness. You have earned a fresh start, and you’re going to make the most of it.
If you need a car loan after bankruptcy, an upbeat attitude is key to scoring the best possible terms. You must have the confidence to be firm in your dealings, and walk away if the dealer or lender won’t budge.
Some lenders — we’re not naming any names — feast on bankrupt borrowers with woe-is-me attitudes, shackling them with scandalous terms that cause more financial woes. If you let them get away with it, some lenders will charge breathtakingly high interest rates even if you make a hefty down payment.
We’re not suggesting getting decent terms on a car loan during or after bankruptcy is all green lights and express lanes. But don’t let anyone tell you you’re trapped in the exit-only lane to Bad Deal City.
First up, review your circumstances based on which variety of bankruptcy you endured.
Impact of Bankruptcy on Buying a Car
Two types of bankruptcy are available for individuals to file. Your ability to get a livable car loan can be influenced by which version you chose.
Chapter 7, or straight bankruptcy, is by far the more popular choice. It’s relatively fast; it’s straightforward; and it’s clean.
Chapter 7 liquidates some of your possessions, assets, and property to repay outstanding debts; other debts may be discharged outright. From initial filing to the discharge of debt, the process takes roughly 80 to 130 days to complete.
A Chapter 7 bankruptcy stays on your credit reports for up to 10 years from the filing.
Buying a car before completing the Chapter 7 process is problematic. Even if you’re able to acquire new-to-you wheels, your bankruptcy trustee may force a sale to meet some of your outstanding debts.
Buying one when your bankruptcy has closed will be challenging, at minimum. Proceed with absolute caution.
In Chapter 13 bankruptcy, applicants with reliable incomes reorganize their debts in a three- to five-year repayment plan. A key consideration in Chapter 13: Debtors may be able to keep assets they would otherwise lose to repossession or foreclosure … vehicles included.
Upon filing, a meeting of creditors occurs, usually between 20 to 50 days. Within 30 days of filing, you’ll start making agreed-upon payments to your bankruptcy trustee, without respect to whether your plans haven’t been approved. Once the plan is firm, you continue through its completion. Whatever isn’t paid back at the finish can be discharged.
As long as you’re in the repayment-plan period, you need permission from the court to buy a car. Otherwise, like Chapter 7, you may want to postpone car and car-loan shopping until your debt is discharged.