Your Trustee Files A Motion With The Court
Your trustee files your petition to incur additional debt with the court. This is sent to the creditors and other parties involved in your Chapter 13 repayment plan. Therefore, they’re given the chance to object the motion.
After your motion is filed, you may or may not have to appear at a hearing. But if none of your creditors object, it’s possible you may not need to attend.
What You Can Do To Plan For Bankruptcy
First and foremost, the best thing you can do to plan for bankruptcy is start looking around for a reputable bankruptcy attorney who can help you determine if bankruptcy is the right option for you, what type of bankruptcy you should file , and what youll need to do file. See our previous article on Choosing a Bankruptcy Lawyer and be sure to check out our page of bankruptcy attorneys we trust in the greater San Diego area.
Its also helpful to know some of the main differences between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy in order to decide which one is right for you, although again your bankruptcy attorney will help you figure out which option is better for you. A Chapter 7 bankruptcy is where any significant non-exempt assets are sold off to pay back some portion of your qualifying debts, and what remains is entirely wiped away when the bankruptcy is discharged. A Chapter 13 bankruptcy is the kind where your debts are reorganized and/or reduced so you can get caught up over the course of a 3-5 year court-approved repayment plan. Because many of the bankruptcies that will be filed as a result of the pandemic-induced recession involve reduced income because of losing a job, the Chapter 7 option will likely be the most common type of bankruptcy filed. But again, follow the advice of a qualified, reputable bankruptcy attorney to help you choose which type of filing is right for your specific situation.
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.
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If You Dont Need Another Car
Planning is a lot easier if you dont need to get another car at all. In this case, you simply stop paying on the car loan. You should stop paying on the car loan once you have decided that you no longer need the car and once you have cleaned your personal belongings out of it.
You can stop paying on the car before your bankruptcy, during your bankruptcy, or after the bankruptcy. In each of those cases, your bankruptcy will take care of discharging the car loan, if you are filing a Chapter 7. If you are filing a Chapter 13, you may be repaying some or all of the car loan through your bankruptcy case, since Chapter 13 involves some level of repayment.
Can You Get A Car Loan In Chapter 13 Bankruptcy
The simple answer is yes, you can still get a car loan while you’re in a Chapter 13 bankruptcy. Because a Chapter 13 repayment plan lasts either three or five years, there’s a process in place for people to buy a car while the bankruptcy is still open.
The court system understands that three or five years can be a long time and a lot can change from when you originally filed for Chapter 13, such as if your vehicle breaks down and you need one to get to work.
However, you need permission from the bankruptcy court before you’re allowed to take on new debt. They want to look at the terms of any new car loan to make sure it fits within your repayment plan. This rule is in place to help you avoid any further trouble with your finances at a time when you’re working to eliminate your debt.
Here are the steps to take when buying a car during a Chapter 13 bankruptcy:
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Be Careful; Be Very Careful
There are unscrupulous car salespersons. They will try to sell a junk car at a high price with high interest rates.
Many lawyers have dealers who sell cars to Chapter 7 clients. These dealers have decent used vehicles at reasonable terms. I know our firm has a couple of places we refer clients.
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.
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Tips For Getting The Best Terms Possible
The last thing you want to do when you just get out of bankruptcy is to take out a loan thats bad for the budget. Putting your finances into a tailspin just to get a car is a recipe for disaster. So, you need to take as many steps as you can to get the best terms possible.
These tips can help you get better terms on your loan, for lower monthly payments and less interest paid over the life of your loan.
Helping You Along The Way
When you need a car loan, whether you’re in an open Chapter 13 bankruptcy or your credit is less than perfect, CarsDirect wants to help you find financing. We match consumers to local dealerships that are signed up with lenders who specialize in assisting consumers facing credit issues such as bankruptcy. We’ll work to point you in the right direction if you submit our secure auto loan request form.
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Howard Dvorkin Cpa Answers
In the three short sentences you wrote, Lorena, theres a lot to deconstruct. So lets dive right in
There are several kinds of bankruptcy, and each has different rules and consequences. For instance, Chapter 7 bankruptcy, often called straight bankruptcy, eliminates unsecured debt when you give up your assets. That kind of bankruptcy stays on your credit report for 10 years.
Meanwhile, a Chapter 13 bankruptcy stays on your credit report for only seven years.
Why is this important? Well, if youre trying to buy a car, and your Chapter 7 bankruptcy was in 2009, its still on your credit report and lenders will see it. However, if you filed for Chapter 13, its now eight years later and has disappeared from view.
This is crucial because lenders pull your credit report before giving you money. If youre buying a car and seeking an auto loan, a bankruptcy will make the terms of that loan more expensive for you.
OK, so thats how bankruptcy can affect your impending car purchase. The second;half of your question is about . Here again, there are several possibilities. In other words, when you talk about consolidating my credit card debt, that topic has several possible tactics within it.
Of course, the only way to get a low interest rate is to have a high credit score. If you declared bankruptcy in 2009 and its still on your credit report, this option isnt likely to work.
Consider it, Lorena.
Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our loans reporters and editors focus on the points consumers care about most the different types of lending options, the best rates, the best lenders, how to pay off debt and more so you can feel confident when investing your money.
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How Long After Filing Bankruptcy Can You Buy A Car
While the effects of bankruptcy hang around for 7 to 10 years on your credit report, thats not how long you must wait to borrow money. The impact of the penalty decreases each year, and its even possible to get a car loan within six months of your discharge.
But that might not be the wisest course of action. The longer you can go without buying a vehicle, the more time you have to improve your credit score, which increases the likelihood of getting a loan at an affordable interest rate. One option: Help yourself out by getting a free copy of your credit report and checking it closely for errors so they can be removed.
If you need a car now, do you have enough cash to buy an inexpensive one to get you through the first 6 to 12 months? It may not be something youll be proud to be seen in, but it will give you time to improve your credit score and save for a down payment, both of which will help you get better interest rates on your next car.
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.
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If Your Car Loan Lender Gets Court Permission It Can Repossess Your Car During Chapter 7 Bankruptcy But You Have Options To Avoid This
Updated By Cara O’Neill, Attorney
If you are in Chapter 7 bankruptcy, your car loan lender cannot repossess your car or otherwise try to collect its debt without first getting permission from the court. Read on to learn more about whether the lender can repossess your car during Chapter 7 bankruptcy and ways to avoid repossession.
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.
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Where To Look For A Good Car Loan After Bankruptcy
Immediately after a bankruptcy, it wont be easy to get a car loan. Your best bets:
- The bank or credit union where youre already a customer. Since your accounts are with them, they may treat you differently from someone walking in off the street.
- Bad credit auto lenders. Some car lending companies specialize in working with customers with bad credit. Again, you wont get great rates, but this can still work for you if it fits inside your budget. Check whether having a cosigner preferably one with excellent credit would lead to a lower interest rate.
- Swap leasing. This involves taking over someone elses lease and payments from them. You pay whats left on the car and they escape a loan that isnt working for them. Of course, read the terms closely and check out the vehicle before the exchange to make sure its worth buying.
Chapter 7 Followed By A Chapter 13 Bankruptcy: 4 Years
Because a Chapter 13 typically involves paying most if not all what you owe creditors, you can file a Chapter 13 after a Chapter 7 sooner than trying to do consecutive Chapter 7 cases. If you receive a Chapter 7 discharge, you are eligible to attempt a Chapter 13 bankruptcy filing if at least four years has passed from the previous Chapter 7 case.
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Reaffirm Your Current Car Loan
Lenders take one of two positions with a car loan in bankruptcy. The majority require that you complete a court-approved reaffirmation agreement. This is a legal, enforceable contract filed with the bankruptcy court and signed off by the judge. It states your promise to repay all or a portion of a debt that may otherwise have been subject to discharge in your bankruptcy case.
Some lenders demand that you sign this agreement and will not send you statements or report payments to the credit bureau without the court-approved agreement. In many instances, lenders consider it a breach of the terms of your loan and will repossess the vehicle if you fail to sign the agreement.
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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Getting A Vehicle During Chapter 13 Bankruptcy
The best way to keep your property and still declare bankruptcy is with a Chapter 13. This type allows you time to repay at least part of your debts and you get to keep your vehicle in most cases. But, what if something happens to your car while you’re still in a Chapter 13 bankruptcy and you need another?