Negotiate Directly With The Lender
A few lenders will work with you and lower the balance to the fair market value without you needing to redeem the vehicle. Credit unions are the most likely to offer this service. Most lenders do not, but it is worth inquiring with the lender once you file.
Before and after filing, you must keep your car payments current unless you intend to surrender the vehicle.
Keeping The Car Outside Of Bankruptcy
The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act eliminated drive through car loan agreements for bankruptcies. Before the act, consumers and car lenders could continue with whatever agreement they wanted, ignoring the bankruptcy. While drive-throughs are now against bankruptcy rules, it still happens and courts rarely enforce it. When no intention to reaffirm, redeem or surrender the car is filed by the deadline, a car loan is dropped from the bankruptcy. In many cases, the car owner and lender continue to do business and always, and courts rarely enforce it. Of course, this only works for the car owner if theyre making payments on time.
Since this option is counter to bankruptcy law, its not necessarily something youd want to pursue, and it provides a lot less protection than going with one of the routes allowed by law.
Monitor Your Credit Score And Fix Your Credit Report
This third of our bankruptcy recovery steps is one that many people miss. Youll want to keep a closer eye on your credit score than you probably ever did before filing bankruptcy. You have to be able to see this score and how it changes in order to know what youre doing is making a difference. This means looking at your credit report and score more frequently than the free annual check to which everyone is entitled. You should be looking at your score and report on a monthly basis. One way to do this is by signing up for a free credit monitoring service. One of the big 3 credit bureaus, Experian offers free monthly access to your credit score and report, as does for the other two credit bureaus . This monitoring will help you stay on top of whats happening with your credit score, but its up to you to identify and fix errors on your credit report.
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How Is A Guarantor Different Than A Cosigner
Unlike a cosigner who is equally responsible for each payment, the guarantor usually is only liable on the loan if the borrower fails to fulfill the payment obligation. For instance, a creditor can pursue a cosigner at any time. But with guarantors, creditors usually must attempt to collect from the primary borrower first before going after the guarantor. The guarantor must make the lender whole if the borrower can’t do so.
The distinction can be important because although a cosigner might be able to step into the borrower’s shoes and make the monthly payments, a guarantor will likely be on the hook for the entire balance.
Keeping A Car You Own Free And Clear
If you own your car free and clear, the next question you have to answer is âhow much is my car worth?â The answer – the carâs fair market value – determines whether you risk losing the car in a bankruptcy.
How much is your car worth?
If you sold your car today, as is, whatâs the most someone would pay you for it? Thatâs the value that matters. It doesnât matter how much the car cost when you bought itâ¦ thatâs old news. If youâve had your car for a few years, itâs no longer in the same condition as when you bought it. How much it cost then doesnât tell you how much itâs worth today.
It also doesnât matter how much you ended up paying for it by the time the car loan was finally paid off. That amount includes the interest you paid and depending on the interest rate on your auto loan, that can be quite a bit more than the car was ever worth.
Find out how much you can protect with an exemption
Filing a bankruptcy case is meant to give you a fresh start. Bankruptcy exemptions exist to make sure everyone filing a bankruptcy case can keep their most basic possessions. Depending on the state youâre filing in, and how long youâve been there, you may be able to choose between the federal bankruptcy exemptions and the exemptions granted by your state law.
Getting additional protection by claiming a wildcard exemption
What if my carâs fair market value is greater than the exemption amount?
Chapter 13 bankruptcy can help, too!
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Buying A Car After Completing A Chapter 7 Is Definitely Possible And Not Uncommon
From the Upsolve Bankruptcy Community on Facebook!
The longer that you can wait to make a large purchase after receiving your discharge, the better off you will be. While a bankruptcy does stay on your credit report for 7-10 years, it also erases most of the other dings on your report and allows you tostart rebuilding almost right away.
Following the above suggestions can help ensure that you get the best deal possible. Remember that buying a used car and/or obtaining a car loan that you can afford without financial strain will help to build back up your positive credit after a bankruptcy and help maintain your financial health moving forward.
When You Need To Finance A Car In Spite Of Bankruptcy
Day One Credit helps people find a bankruptcy car loan, which is often the best way to finance a car purchase when you have an active or recently discharged bankruptcy on your credit report. You can fill out our quick online application that we will then share with our strong network of top lenders who are willing to work with bankruptcy customers. We go the extra mile to help anyone find a bankruptcy car loan if they meet our basic eligibility criteria. The bankruptcy car loans we find for you often require little or no money down at all. A bankruptcy care loan may also be an effective way to begin rebuilding your credit during and after bankruptcy when many lenders wont give you the time of day. If you have questions about how all this works, please visit our Common Questions page to see if your answers are there, but also feel free to give us a call at 855-475-4725. Were here to help you understand your options for getting the car you need!
A question people often have is what happens if they need to file bankruptcy more than once? Many people just assume declaring bankruptcy is a once-in-a-lifetime last resort action they can take only once. In reality, there is no legal limit to how many times you can file bankruptcy. There are, however, very strict rules Continue readingHow Many Times Can Bankruptcy be Declared?
Borrowing money from friends and family.
Stopping payments to some creditors while keeping up others.
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You Can Wait For A Discharge But Why
If your car dies while you have an open bankruptcy, the answer to the question is clear. You cant wait for your bankruptcy discharge because you need a car now, unless you can manage to get by on public transportation or asking friends and family for rides everywhere you need to go. Thats not going to work for most people, so waiting for a discharge wont even be an option in those cases.
Another basic assumption here is that youll need to finance your purchase. Most people with an open bankruptcy obviously dont have thousands of dollars lying around to buy a car. This is what makes buying a car during a bankruptcy tricky. Many lenders wont give you the time of day with an open bankruptcy, which is why you might need help finding a bankruptcy car loan.
But what if you could wait to buy your next car. Should you? Is there any advantage to waiting for your discharge? Now the answer becomes maybe. The only advantage to waiting is if you can realistically save up money for a bigger down payment as you wait for your discharge to happen. But thats the only reason. Otherwise, there is literally no reason to wait.
Filing Bankruptcy With A Car Lien
In some situations, an outstanding car loan and, therefore, a lien on your car can be helpful if you are filing for bankruptcy. Having an obligation to make car payments may allow you to presumptively qualify for Chapter 7 or reduce your disposable income so that you have a lower monthly payment under a Chapter 13 filing.
Lets take a look at bankruptcy and car liens and what happens to car liens when filing for bankruptcy.
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You Recently Became Entitled To An Inheritance
This one involves some really tricky timing, so pay close attention. Lets say youre under financial stress from too much debt and are considering or preparing to file for bankruptcy. Then lets say someone dies who leaves you money or other assets in their will or a trust. Its going to take some time for all that to be processed. This is definitely a situation when bankruptcy is not a good idea! If you file for bankruptcy and then you receive the inheritance, the bankruptcy trustee can take it away from you. In fact, even when you file bankruptcy, if you become eligible for an inheritance with 180 days of filing, that money or those assets can be seized to pay your creditors, but then youre still stuck with a bankruptcy on your credit history.
Can I Wipe Out A Car Title Loan In Bankruptcy And Keep The Car
Bankruptcy expert Leon Bayer answers real-life questions.
My car was paid off, but I recently took out a car title loan. I am current on the loan, but the payment is a hardship. I dont want to lose my car. If I file for bankruptcy, can I wipe out the car title loan without losing my car?
The short answer: In Chapter 7 bankruptcy you will lose your car if you fail to make the payments. However, there are other options that might help you keep the car.
How Security Interests Work in Chapter 7 Bankruptcy
The lender took a security interest in your car when it made the loan to you. Your car serves as collateral for repayment of the loan if you dont pay, the car title loan lender can repossess the car.
While Chapter 7 bankruptcy will discharge your personal liability to repay loan, it doesnt get rid of the lien or security interest that the lender has in your car. That means that if you dont make the payments, the lender can repossess.
Redeeming the Car
One option is to redeem the car in Chapter 7 bankruptcy. You do this by paying the car title loan lender the current market value of the car. For example, if you owe $8,000 to the lender, but your car is only worth $3,000, you can redeem the car for $3,000. If you do that, the car becomes yours. The remaining $5,000 that you owe the lender becomes unsecured debt and can be discharged in your bankruptcy case.
Filing for Chapter 13 Bankruptcy
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Getting Approved For A Car Loan After Bankruptcy Is Difficult But Its Not Impossible With A Little Extra Work You May Be Able To Finance A New Set Of Wheels Sooner Than You Think
If youve filed for bankruptcy or are considering this option, you may find yourself having trouble getting approved for credit, including a car loan.
Lets take a look at how filing for a Chapter 7 or Chapter 13 bankruptcy could affect your ability to get a car loan, and steps you can take to help increase your chances of loan approval.
What Type Of Debt Is A Car Loan
Unlike credit cards and many personal loans, a car loan is a secured debt. Secured loans require collateral. In the case of an auto loan, the collateral is the vehicle itself.
When borrowers are unable to afford their auto loan payment and fall into default, lenders can legally repossess the collateral on the loan . Generally, lenders arent required to give advance notice of repossession if your loan is in default. If your repossessed car is sold, the lender may apply the proceeds toward your outstanding loan debt.
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Be Reasonable When Choosing A Car
If you are granted permission to purchase a vehicle before your bankruptcy is discharged, and you find a lender willing to provide a loan for the vehicle, you should be very selective about the type of vehicle you purchase. The lender that makes the loan will probably require that you purchase a vehicle that is priced low enough where the lender has sufficient collateral in the vehicle to completely cover the amount financed. If you want to purchase a more expensive type of vehicle, you’ll probably be required to come up with a substantial down payment. If you have the money for a large down payment, the judge or trustee may refuse to allow the deal and require that you use the money to pay off existing debt.
The Reason Waiting For A Discharge Doesnt Help
At this point, you might be scratching your head, wondering why waiting for a discharge doesnt help. You think if the bankruptcy is over, more lenders will be willing to give you a car loan, right? Wrong, unfortunately. Its a scenario many people find out the hard way, and it goes like this. Youve patiently waited to finally receive your bankruptcy discharge because you want to buy your next car. You find the vehicle youre interested in and go to your bank or credit union to find out what kind of loan you can get. But the lender rejects you because of your bankruptcy. They say you wont be considered for a car loan until two years have passed after you received your discharge. Needless to say, this is very disappointing and frustrating for the people who have been waiting for their bankruptcy discharge thinking it would help them get a car loan.
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Can You Sell A Car With An Existing Loan
Itâs possible to sell your car when you still owe money on it, but youâll need to deal with the lenderâs legal claim on the car first. When you have a loan on a car, your lender is a lienholder with a legal interest in your vehicle. They may appear on your carâs title or may even hold your title so you canât sell the vehicle to a buyer without first paying off the loan or addressing the lien. The easiest way to deal with the lenderâs claim is to pay off the auto loan. This will simplify the sale process a lot.
To pay off your auto loan balance, you could get an unsecured personal loan, take a loan from your retirement account, use a tax refund, or borrow money from friends or family. Each of these options has its pros and cons. For example, a personal loan will probably have higher interest than your auto loan, but it may be easy to get if your payoff amount is small.
If you canât find the money to pay off the loan, you still have a few options. You may be able to have the buyer take over the loan or you may be able to roll the amount you still owe on the loan into a new car loan if you trade in at a dealership.
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Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and reviewed by subject matter experts, who ensure everything we publish is objective, accurate and worthy of your trust.
It’s why over 100 million people not to mention top publications such as The New York Times, Wall Street Journal and CNBC depend on Bankrate as a trusted source of financial information every year.
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If Your Car Is Repossessed You Could Be Responsible For Paying Back A Deficiency Learn How To Get Rid Of A Deficiency By Filing For Chapter 7 Or 13 Bankruptcy
Updated By Cara O’Neill, Attorney
When you can’t afford to make your car payment, the lender has the right to recover the vehicle, sell it at auction, and apply the sales proceeds to the loan. Sometimes the auction amount isn’t sufficient to cover the entire balance you owe, leaving a “deficiency.” In this article, you’ll learn:
- whether you’re responsible for paying a repossession deficiency balance
- the steps the lender must take to collect the deficiency balance, and
- how you can get rid of a car loan deficiency in bankruptcy.
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