What Happens If I Owe Money On A Car I Need After Bankruptcy
Bankruptcy gives you some flexibility in how you deal with your car loan. The bankruptcy forms provide you with at least three choices for dealing with your car loan. You can surrender your car to the lender, redeem the car for its value, or reaffirm the car debt.
This article explores all 3 choices.
1. Surrendering the Car to the Lender
In many cases, surrendering your car to the lender is the best course of action for getting a fresh financial start. If you surrender your car:
- You can walk away from the car owing nothing
- You can reduce your expenses by giving up a costly car payment that you cant afford, or
- You can give up a leased car without having to pay for excess mileage or wear and tear.
The downsides to the surrender are you’ll need to find another mode of transportation. And if you buy a new car, it might be difficult to get financing, and, if youre able to, its likely that your loan will come with a high-interest rate because of the bankruptcy.
To surrender your car, youll let the court and the lender know of your decision to let go of the car when you fill out your Statement of Intention form. The lender must obtain permission from the court before repossessing the vehicle by either filing a motion asking the judge to lift the automatic stay or, by getting your agreement to do so. Otherwise, the creditor must wait until the case is over before repossessing the vehicle.
2. “Redeem” the Car for Its Value
For more information on redeeming your car, consult
Traditional Or Prime Insured Mortgage:
To qualify for a traditional mortgage, which may give you the best rate, you must meet the following requirements:
- have been discharged from bankruptcy for at least two years and one day
- have at least one year of re-established credit showing on two credit items usually with a minimum combined credit amount of between $2,500-$3,000
- have a minimum down payment of 5% for the first $500,000 of your purchase, 10% for any amount over $500,000
- if your down payment is less then 20% down you must have mortgage insurance available through Canada Mortgage and Housing Corporation
- your minimum LTV is 95%
- your maximum TDS is 44%
Bankruptcy And Your Credit Score
Unfortunately, if you file for bankruptcy, you cant avoid having that recorded on your credit report. And if you had good credit before the bankruptcy, youre going to take a hit and lose anywhere from 130 to 240 points, based on your pre-bankruptcy score.
If you had poor credit before filing for bankruptcy, the effect on your credit may be less dramatically negative, or it might even be somewhat positivethis could happen as many negative items on your report are replaced by the bankruptcy itself.
In any case, your bankruptcy will remain visible for seven to 10 years when potential lenders check your credit report. Even a slightly higher score might be offset by the fact that some lenders will be wary of providing credit, making it more difficult for those who have filed for bankruptcy to get a new mortgage during this time.
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Buying A Car Before Bankruptcy
When filing for bankruptcy under this chapter, debtors will liquidate some of their assets to pay back their creditors, but they are permitted to keep certain exempted items. Georgia bankruptcy law allows debtors to keep up to $5,000 in value of a motor vehicle, as well as $1,200 in wildcard exemptions.
However, be cautious about taking on new debt immediately prior to filing for bankruptcy. Big financial decisions, such as purchasing a vehicle or even retitling it into a family members name, may raise red flags and invite additional scrutiny from the bankruptcy court. These might be indicative of someone trying to keep more property than they would otherwise be entitled to. You should also know that, if your car is worth more than the motor vehicle exemption, you may need to sell it and buy another, cheaper, vehicle.
If youre considering pursuing either Chapter 7 or 13 bankruptcy in the near future, you should speak with a qualified bankruptcy attorney regarding the timing before investing in a vehicle in order to reduce the risk of being seen as a bad faith filer.
Make Sure You Understand Your Bankruptcy Situation
Step 1: Determine the type of bankruptcy you have filed for, and your obligations. Dont take any steps towards buying a car until you know what type of bankruptcy you have filed for and you understand your obligations to the creditor, so you can consider your best options before you make a purchase.
- Tip: You might want to consult with a credit specialist or financial planner to help you better understand your financial and credit situation at the beginning of your bankruptcy, and to help with future planning and goal-setting.
Step 2: Know your rights under your states Chapter 7 or Chapter 13 bankruptcy laws. The major deciding factor for what chapter of bankruptcy you file under is determined by your income level.
Your situation also varies based on what you owe to creditors and what type and how many assets you have.
In most cases regarding Chapter 7 bankruptcy, all your nonexempt assets will be liquidated to help pay your outstanding debt.
Nonexempt assets include non-essential items you have that might be worth something, including expensive jewelry and clothes, musical instruments, appliances, expendable cash, and any additional vehicles other than the one the creditors determine you need.
Under Chapter 7 or 13, if you have a reasonable vehicle you will most likely be able to keep it. But under Chapter 7, if you have a luxury vehicle you might be made to sell it, buy a cheaper vehicle, and use the leftover money to pay off debts.
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Can I Buy A Car After Bankruptcy
For many people, cars are essential to their everyday lives. Cars are a lot of peoples sole source of transportation. Its how they get to work, take their kids to school, go to the grocery store, and much more. That is why it is normal for people to express concerns about how bankruptcy might affect their means of transportation. We often hear the question: Can I buy a car after bankruptcy? The answer to which is its complicated. We know thats not what you want to hear, but there are many things to consider when attempting to buy a car after bankruptcy. In this post, our esteemed Louisville bankruptcy attorneys at OBryan Law Offices will answer your question of Can I buy a car after bankruptcy? and more.
Consider Refinancing Your Car Loan
Filing for bankruptcy doesnt mean you have to settle for an astronomical interest rate for the duration of the auto loan. By managing the loan and staying current on other debt obligations, your credit score will start to climb. At this point, it may be wise to look into refinancing the auto loan for a lower interest rate.
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Should I Buy A Car After Bankruptcy
The answer to this question depends on your financial circumstances and transportation needs. If you find yourself needing a car after bankruptcy, you should consider purchasing one thats affordable. Having a reliable vehicle is important if you need to commute to work every day or drive for a living.
However, if you already have reliable transportation, its best not to buy a car you dont need. That way, you can avoid taking on debt you cant afford to pay back.
You could use cash to pay for the car if you have enough saved. If you dont have enough money to pay for it that way, taking out an auto loan is another option.
What Is Bankruptcy And How Does It Affect My Credit Score
When individuals, couples, or businesses find themselves in a position where they cannot meet their financial obligations, bankruptcy is a legal option that helps them manage their debt through federal court. Its an alternative to debt consolidation if you cannot afford monthly payments. Depending on your income, you might have a payment plan, or your debt might be discharged.
There are several types of bankruptcy, referred to as chapters:
- Chapter 7: Liquidation bankruptcy requires the sale of your nonexempt property so funds can go to your creditors.
- Chapter 9: This is for municipalities, like airports, hospitals, school districts, and utility districts.
- Chapter 11: The most common chapter for businesses, this helps reorganize your corporate and small business debt.
- Chapter 12: This is used exclusively for family farmers and fishermen.
- Chapter 13: This allows individuals and couples to make payments on their debt for up to five years.
- Chapter 15: Very uncommon, this chapter is for foreign debtors that are typically filing for bankruptcy in other countries.
The two types of bankruptcies that impact individuals and married couples are chapter 7 and chapter 13 bankruptcies. Occasionally, you might experience chapter 11 bankruptcy, though thats generally only for business owners that are liquidating.
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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.
New Cars Vs Used Cars After Bankruptcy
When most people go to look at buying a vehicle, they check out the new car lots to see what’s out there. However, you may want to stick with a used vehicle if you have a recent discharged bankruptcy on your credit reports.
As time passes, a bankruptcy becomes less and less potent on your credit score, and you’ll be able to get approved for a bigger loan. However, if you’re looking at a car just a few months out of bankruptcy, you won’t be approved for as much.
Used cars are cheaper than new cars, and although they may cost a little more to insure, the difference in the price tag is usually enough to counteract the insurance difference.
At Auto Credit Express, we have a large network of car dealerships that accept people who have been through bankruptcy, and they have a large variety of late model pre-owned cars in good running condition.
You don’t have to buy the old junker sitting on the side of the road by your house. You can get a nice, good looking car that you’ll want to be seen in, and you can be sure it’ll get you from point A to point B without a problem.
Existing Leases & Bankruptcy
When you file for bankruptcy, you have a couple of options if you’re already committed to a lease contract for a new car. These include:
- Assume the existing lease.
- Reject your current lease.
If you decide to continue the lease, it won’t be included in the bankruptcy. You’ll continue to make payments as before and will be responsible if you miss any payments moving forward.
If you reject the lease, you’ll need to return the leased vehicle to the dealership. You will no longer be responsible for making payments. Keep in mind that because bankruptcy affects your credit, your ability to purchase a car or truck may be more difficult for the next few years.
What You Need To Know About Buying A Car After Chapter 13 Bankruptcy
Filing for a Chapter 13 bankruptcy can be a very complicated and emotional process. You are already in a very difficult situation. It could become even more challenging if you need a vehicle after filing.
However, purchasing an automobile is not impossible if you have this type of bankruptcy. It is possible for you to buy the car that you need if you meet certain requirements. Following several steps and working with the right auto lenders may allow you to get back on the road quickly.
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Waiting Periods After Bankruptcy By Mortgage Loan Type
Its important to remember that the waiting period begins on the date your debt is discharged, not the date the bankruptcy was filed. Discharged debt in a bankruptcy filing is made permanently unenforceable against you, which means you dont need to pay it. This generally occurs four months after successfully filing for chapter 7 and around one year after completion of the repayment plan for chapter 13.
When You Need To Buy A Car In Bankruptcy
We hope no one reading this will have to file for bankruptcy because of the pandemic-induced recession. But if you do declare bankruptcy and then discover you also need to finance the purchase of car, please know that Day One Credit is here to help you find the bankruptcy car loan you need. We work with top lenders who are willing to work with bankruptcy customers, whether your case was filed yesterday or was recently discharged. You can learn more about how we can help you by visiting Why Day One.
Although the economic impacts of the recession caused by the novel coronavirus and COVID-19 pandemic have varied widely by industry and even from person to person, everyone agrees its been severe. And yet personal bankruptcy filings in 2020 were the lowest theyve been since 1986! In fact, bankruptcy filings actually went down by nearly 30% Continue readingHave Bankruptcies Increased During the Pandemic?
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Getting A Car Loan After Bankruptcy
Automotive consumers in Halifax, Nova Scotia, looking to finance a vehicle after bankruptcy, have different needs. The finance specialists at Steele Hyundai are here to help ease the car buying process after bankruptcy. We can provide financing options for people with open, dismissed, or discharged bankruptcies.
If you have filed for bankruptcy, you are not alone. Many people in the Halifax area have been affected by the COVID-19 pandemic, forcing them to either seek Payment Relief or file for bankruptcy. Fortunately, our finance team at Steele Hyundai can help you find your way back to an excellent financial position while helping you get back on the road. The process of getting a car loan after bankruptcy in Halifax, Nova Scotia, can vary depending on which type of bankruptcy filing you made.
Taylor Kia Of Boardman Can Still Get You Approved
Buying a car after bankruptcy can be especially challenging the ripple effects of chapter 7 or chapter 13 bankruptcy will last for months and years, and you probably will not be able to wait until you have “recovered” to get a used or new car. Work continues, the kids still need to get to school, and you still have places to be.
If any of this sounds like you, call us about financing a car after bankruptcy. We are on your side, and we have lending partners that can work with you to get the car loan you need to make a reasonable purchase. Give us a call, email us, or stop by the dealership if you have any questions. We would love to work with you.
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How Long After Bankruptcy Can You Get A Car Loan
You can get a car loan immediately after filing bankruptcy. In fact, youâll probably get quite a few ads from auto lenders and car dealerships even before your 341 meeting takes place. The key is to be smart about it and if you can, wait before getting a new car loan.
Why does it make sense to wait?
You want to make the most of your fresh start and the best way to do so is by setting yourself up for best loan terms for your auto loan.
Getting better terms, like a lower interest rate, is hard with bad credit and a low credit score. Immediately post-bankruptcy, you likely have bad credit. As a result of your subprime credit rating, the loan terms youâll be offered for this new debt wonât be ideal.
Can I buy a cheap car for cash to get through the next 6 – 12 months?
The car you can afford now may not be pretty, but if it gets you around itâll be worth it in the long run because it buys you time to:
rebuild your credit , and
save up money for a down payment