Should I wait to get an auto loan after bankruptcy?
Whether you have to wait for a car loan after bankruptcy, or whether you can get one while you are in open bankruptcy, depends on your situation and the bankruptcy chapter you are in.
Chapter 7 Bankruptcy: Easier to Expect
If you are in Chapter 7 bankruptcy, it is often best to wait until your bankruptcy is over before trying an auto loan. There are two main reasons for this:
- Chapter 7 is a short process, which lasts only a few months. Sixty to 75 days after your interview 341, the court sends you a written discharge of your debts if everything is done correctly. It is much easier to get approval for a car loan after your bankruptcy is over because you need court clearance to incur new debt during bankruptcy.
- Most auto lenders are reluctant to approve Chapter 7 bankrupt borrowers in the middle of their filing because there is a risk that the auto loan will be liquidated in the process (sold to pay off debts). Chapter 7 is called liquidation bankruptcy, which means that assets and properties are sold to pay off unpaid debts. Most lenders will likely tell you to wait until your bankruptcy discharge before you can be considered for vehicle financing.
Chapter 7 bankruptcy is usually over within a few months. Often, borrowers can keep a modest car or vehicle during the process, and once bankruptcy is successfully resolved, it becomes much easier to take on new debt.
Chapter 13 Bankruptcy: possible during or after
If you are in Chapter 13 bankruptcy, getting a car loan in the middle of your filing is much easier than Chapter 7. Chapter 13 bankruptcy is much longer, ranging from three to five years since the Chapter 13 consumer is working. to pay off his debts as much as possible.
However, it is still easier to get approval for a car loan after discharge from bankruptcy because you no longer need court clearance to incur new debt.
If you can wait until your bankruptcy is discharged, it is recommended that you do so. Once your bankruptcy is over and you get your discharge documents, you can immediately go to a dealership or auto lender. Chances are, a large chunk of your unsecured debt has eventually been paid off, freeing up income to pay for a vehicle and increasing your chances of getting approved.
However, if you can’t wait for the discharge date, here are the five basic steps to getting a car loan during Chapter 13 bankruptcy:
- Find a dealer or lender who is willing to work with you in the event of bankruptcy. Subprime lenders or in-house finance lenders are probably your best bet. Many traditional auto lenders do not work with active bankrupt borrowers.
- Pick a vehicle and get a buyer’s order from a dealership that has “or similar” next to the vehicle description.
- Also list your maximum interest rate and the terms of your loan.
- Take the buyer’s order to court and file a petition for new debt.
- If the court approves the petition, you can return to the dealership and complete the purchase process. The âor similarâ warning placed on the buyer’s order allows you to choose a similar vehicle in case the one you originally chose was sold while you were waiting for court approval. If this is the case and âor similarâ is not listed on your sample buyer’s order, you must start the process again.
- Take delivery and pay on the auto loan, and keep paying on your bankruptcy repayment plan. Missing either of these payments while you are in an open Chapter 13 bankruptcy can lead to consequences such as a rejected bankruptcy.
One of the most difficult parts of this process is finding an auto lender willing to help you get a car loan in bankruptcy. Bankruptcy also impacts your credit score, making it difficult to meet the credit score requirements of a traditional lender. However, subprime lenders often work with bankrupt borrowers, and internal finance lenders may skip the credit check altogether.
Auto loan connections in bankruptcy
Do you want to avoid the hassle of finding a dealer who can help you with financing a bankruptcy vehicle? So start now with Auto Express Credit. We have created a coast-to-coast network of Specialty Finance dealers equipped to handle many unique credit situations. Fill out our free auto loan application form to get started.