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Can You Buy A Car In Bankruptcy

Pros And Cons Of Getting A Car Loan After Bankruptcy

Can You Buy a Car During Your Bankruptcy?

In order to determine whether getting a car loan subsequent to your bankruptcy, it is important to assess the pros and cons of taking on a car loan.


  • Building your credit score: After filing for bankruptcy, your credit will be severely damaged. The only way to repair this is to access credit and use it to rebuild your score. When you make your scheduled car payments in full and at the predetermined time, you can efficiently rebuild your credit score.
  • Affordable payments: While alternative lenders tend to have higher rates of interest than traditional lenders, like major banks, you can get a loan with a term thats longer. Which means that you will have lower regular payments.
  • Owning the vehicle: Another advantage of car loans is that, once it is paid off, you will own the vehicle free and clear. Not only does this mean you wont have to continue with the regular payments, but it also means that you now have collateral for a future loan. The car becomes an asset held under your name and, paired with your improved credit score, can be very helpful in reaching your next financial goal.


Take The Statement To Your Trustee

Next, you need to take your sample financing statement to your court-appointed trustee. They will measure how much debt you’re taking on against the potential impact it will have on your Chapter 13 repayment plan.

You will be asked to complete some paperwork for the trustee. Most of it will deal with the reasons why you need a vehicle. You need to be able to show the court that getting the car is necessary.

Your trustee will determine if the transaction is acceptable or not. Also, he or she could potentially make adjustments to your repayment plan if needed. Then they’ll take it to court.

How Does Bankruptcy Affect Credit

Both forms of bankruptcy can severely damage your credit for many years to come, so filing isn’t an action that should be taken lightly.

Chapter 7 bankruptcy stays on credit reports for 10 years, while Chapter 13 bankruptcy sticks around for seven years. This means even nearly a decade after filing, potential creditors, lenders, landlords, utility companies and others legally allowed to view your credit will be able to see the bankruptcy on your report. Having bankruptcy in your history can cause you to be denied for new applications, such as for loans or credit cards. If a lender or creditor does approve you, you may face sky-high interest rates or fees.

During this time, though, you can help rebuild your credit by making wise financial decisions. If you pay all of your bills on time, avoid overspending, and use a secured credit card responsibly, you can slowly nudge your credit score back up.

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Considerations With A Car Loan After Bankruptcy

Your credit reports are a history of how well youve managed your finances. Unsurprisingly, bankruptcy will lower your credit scores.

The effect on your scores depends on your credit before bankruptcy. If you had high credit scores and a good credit history, youll likely see a significant drop in your scores. But if your credit wasnt strong to begin with, the impact to your scores may not be as big. Another factor is the number of accounts included in your bankruptcy the more accounts included, the bigger the hit to your credit scores.

These changes to your credit can pose some problems as you try to qualify for an auto loan.

When Bankruptcy Is Not A Good Idea

Can I Buy A Car After Chapter 7 Bankruptcy?

What are your options when your debts are on the rise relative to your income and you feel like youll never be able to pay them back or need a new plan to get caught up? Filing for a Chapter 7 or Chapter 13 bankruptcy might be your best bet. But it might not be. In fact, there are a number of situations when bankruptcy is not a good idea. Well outline those in this article so you have a better understanding of what you can do about your debts.

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The Types Of Debt You Have Dont Quality For Bankruptcy

This comes as a surprise to many people who dont know much if anything about bankruptcy, but not all debts qualify to be included in your bankruptcy case. Read the list below carefully as there are exceptions to some of them. Here are a number of types of debt that typically cannot be included in a bankruptcy filing:

Child Support: If youve fallen behind on court-ordered or court-approved child support payments, those are debts you have to make good on. Child support debt cannot be included in a bankruptcy filing.

Alimony: Similar to child support, if youve fallen behind on court-ordered or court-approved alimony payments to an ex-spouse, that debt also cannot be included in your bankruptcy case.

Taxes: Most taxes cannot be included in your bankruptcy, especially state and federal income taxes. There are exceptions to this, though rare, so be sure to go over the details of any tax debts you owe with your bankruptcy attorney. Any tax debts from recent years will definitely not be included in a bankruptcy, but it may be possible to include some that are older than three years.

The Trouble With Buy Here Pay Here

But consumers don’t like hearing “no,” and feeling like they’re being judged, he says, so they may be inclined to take the first offer they receive. That’s thrown open the doors for “buy here, pay here” auto dealers, where shoppers arrange financing and make payments at the dealership. These dealers, in particular, can be “very aggressive in marketing to people with credit problems,” Kukla says. But that could be disastrous.

Katie Moore, a financial counselor with the nonprofit GreenPath Debt Solutions, says dealers who offer to sell cars with no credit check and no money down “are really preying on consumers who are uneducated about the process.”

They’re likely to offer sky-high interest rates and lengthy loan terms on older vehicles in order to keep the monthly payments low. But it’s not uncommon for the car to break down, while the buyer is still paying on the loan, Moore says.

Kukla says these kinds of dealerships tend to sell vehicles that have 100,000 miles or more on their odometers. The dealerships typically buy the cars at auction, put a bit of money into them and then sell them for two to three times more than their cost.

The dealers then require a down payment of 25-30 percent of the price. “It’s a huge down payment on a very unreliable car,” Kukla says.

Kukla says about one-quarter of those vehicles end up being repossessed, and then can be sold to the next buyer facing a credit crunch.

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Find A Car Dealer Who Deals With Bankruptcies

Next, you need to get a sample financing statement to bring to the court. To get one, you need to find a dealership that can get you approved. Car dealers who deal with bankruptcies are sometimes referred to as special finance dealerships, and they work with subprime lenders that are experienced in financing consumers in difficult credit situations like an open bankruptcy.

At the dealership, you should be up front about your bankruptcy and talk with their special finance manager about the situation. Using your budget and the dealer’s help, you can identify vehicles at the dealership that you can comfortably afford.

Then, you can choose a vehicle that best fits your needs and have them write up the sample buyer’s order. Make sure this lists the year, make, and model of the car loan amount loan term interest rate monthly payment and all other relevant information.

Pro tips: Have the dealership include the maximum interest rate on the statement because your motion with the court can be ruled invalid if you only qualify for a rate that’s higher than what’s listed. Also, have them include the words “or similar” next to your car choice. This process can take a few weeks to complete, but this stipulation allows you to finance a similarly priced vehicle if the one you chose is sold in the meantime. You may be forced to start over unless you include these two measures.

Why Should You Be Able To Buy A Car During Chapter 13 Bankruptcy

Buying a Car After a Bankruptcy

Chapter 13 Bankruptcy typically lasts between 3 and 5 years, which is long enough for a car to become unreliable.

One of the understandable fears about filing for Chapter 13 Bankruptcy is that your car might break down, and you cant get to work.

But because you are still in an active bankruptcy, no car loan company will be willing to work with you for a new loan.

How would you get to work and make the money necessary to pay off the Chapter 13 without a car or truck?

Luckily the Minnesota Chapter 13 Bankruptcy Trustees and many car loan companies recognize that people might need to replace their vehicles over the life of the Chapter 13 Bankruptcy, and so people can buy a new car during Chapter 13 Bankruptcy.

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Chapter 7 And Chapter 13

There are two types of personal bankruptcy in the United States, and each type has ramifications for a potential vehicle purchase. In a Chapter 7 bankruptcy, the court liquidates your assets and distributes them to your creditors, and your debts are essentially expunged. Quite often, certain assets are exempted from the liquidation up to a certain value. A vehicle can be one of those assets, because bankruptcy courts generally recognize that one needs a car to get and keep a job. The entire Chapter 7 process is relatively short, typically less than six months. After receiving your Notice of Discharge, you will be debt free, but you will also have a bankruptcy on your credit report, where it will stay for 10 years, Teets said. This will typically drop you into the riskiest and most expensive end of the car-loan pool: subprime.

Chapter 13 bankruptcy is substantively different than Chapter 7. In a Chapter 13 bankruptcy, debt is restructured, not discharged. The good news is that you save your assets rather than seeing the vast majority of what you own liquidated to pay off debt. The bad news is that it is a lengthy process that can take up to five years. During that multiyear period, taking on substantial additional debt isnt your decision alone it also requires the permission of the bankruptcy court. One thing the bankruptcy trustee will consider is whether a car should be regarded as a necessity or a luxury, Teets said.

Rebuilding Credit After A Chapter 7 Bankruptcy Discharge

One of the benefits of filing a bankruptcy is that it gives you an opportunity to rebuild your credit. Yes, the bankruptcy itself will lower your credit score. However, it also reduces your debt-to-income ratio and distances you from a history of missing payments, interest, and penalties. Because you no longer need to pay off large credit card or medical bill balances, you can use the months after your Chapter 7 bankruptcy discharge to demonstrate a consistent payment history and rebuild your credit. This will allow you to borrow money and buy a car more easily after your bankruptcy is over.

At John A. Steinberger & Associates, P.C., we understand how hard it can be to get around without a car while you wait for your bankruptcy to be complete. We can help you decide whether to buy a car before, during, or after your bankruptcy discharge, and will help petition the court to approve your purchase if you simply cannot wait. We are a full-service bankruptcy law firm in Southeast MI. We serve debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities. Call us toll-free at or contact us online to schedule a free initial consultation.

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How Can I Get A Car Loan After Bankruptcy

I just finished bankruptcy proceedings, but I need a car to get to work. Is there any way for me to get a car loan after going into bankruptcy? If so, how can I get one?


you can get a car loan after bankruptcyget a car loan after bankruptcy

  • Save up for a big down payment, so whichever lender you find will assign you a lower monthly rate.
  • Search for a cosigner to ensure you get the best possible deal.
  • Shop around for a lender with relatively reasonable terms whoâs willing to work with you.
  • Review the terms and interest rates the lender proposes.
  • Either accept or reject the offer.

request a list of approved lendersusers save an average of $879 a year

Lowering Your Current Monthly Payment

Buying a Car after Bankruptcy

One of the simplest ways to lower your current monthly payment is to speak with your lender or auto loan servicer. Theyâre often willing to work with. If youâre having a temporary financial hardship, the lender may defer or lower your next few loan payments. This is especially true if your financial situation is expected to improve soon. The longer you make timely payments on your current loan, the more money your auto loan servicer makes. So itâs in their best interest to keep their relationship with you and other borrowers in good standing.

If you canât make your payment, your lender can repossess your car. But repossession and other collection activities are expensive and time-consuming for lenders. Most lenders want to avoid that, which is why theyâre willing to defer payments or lower a few monthly payments to help you get back on track with your loan payments. Staying in contact with your lender and promptly notifying them of any financial issues you are facing can go a long way.

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How Car Buying In Bankruptcy Can Help Your Financial Status

It is not the act of simply buying a car that benefits you while in bankruptcy. What helps is that you replace your current car with a more affordable model, and start rebuilding your credit. Choosing to replace your car while in a bankruptcy case is a great way to begin re-establishing your credit and improving your financial situation. Unlike re-affirmation or redemption, which do nothing to improve your credit rating, replacing your current car can help your credit. Replacing your auto while in bankruptcy can have the following benefits:

  • Help you get a car with better gas mileage, which saves you money
  • Boosts your credit score almost immediately
  • Establishes a positive credit profile on all 3 major credit reports
  • Eliminates negative equity in your current vehicle

How Long After Bankruptcy Can You Buy A Car

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Bankruptcy is a difficult process and a huge hit to your credit score, but it isnt nearly as bad as it used to be. You might think its impossible to go out and make a big purchase like a car shortly after bankruptcy, but its not!

Even though there might be a few bumps in the road, and youll have to take certain steps to get started, you can certainly still purchase a car on reasonable terms. This process can be complicated and overwhelming to some. Luckily, youve come to the right place. CoPilot will walk you through everything you need to know regarding how long after bankruptcy you can buy a car, getting you on the road as soon as possible while saving some money to boot.

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Buying A Car After A Chapter 13 Bankruptcy

Similar to a Chapter 7, you can usually buy a car as soon as your Chapter 13 bankruptcy has been discharged. However, unlike a Chapter 7 bankruptcy, you may be able to purchase a vehicle while the bankruptcy is still open.

This option is only available during a Chapter 13 bankruptcy because the process takes either three or five years. Lenders understand that your transportation needs may change during such a long time period.

The process of getting an auto loan during an open Chapter 13 bankruptcy can take a while. You have to find a dealership that can get you approved and get a sample financing state from them. Then, you have to take that to your trustee for them to file a motion to incur additional debt with the court.

If the court approves the motion, they’ll issue you an order to incur additional debt. You can take this back to the dealer to complete the process.

Buying A Car After A Chapter 13

Advice on How to Purchase a Car during a Bankruptcy

Just like a Chapter 7, you can immediately go to a dealership once you receive your bankruptcy discharge papers. But because subprime lenders understand the time it takes to complete a Chapter 13 bankruptcy, many are willing to finance someone who has permission from the court for a car loan.

In a Chapter 13 bankruptcy, whether or not you should wait to buy a vehicle depends on your situation. Because a Chapter 13 is a repayment bankruptcy and takes three or five years to complete, its possible to finance a car while the bankruptcy is open. If you dont need a vehicle immediately, you can also wait until its discharged.

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Head Back To The Dealership To Complete The Process

You can then take the order to incur debt back to the dealer to complete the financing process. They can legally get you funded with their lending partners once you provide them with the order. You can complete the necessary paperwork, provide any other documentation they need, and take delivery of the car.


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