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Can I Apply for a Car Loan After Bankruptcy?
July 24, 2020

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Can I Apply for a Car Loan After Bankruptcy?

It sounds like a moot question, but it’s possible. It is a given that filing for bankruptcy is one of the worst options that could be reflected in your credit history. Buying a car after bankruptcy sounds just as bleak. But what is not commonly talked about is how you can gain advantage post-bankruptcy and increase the odds of getting your car loan application approved. Despite its evident backlash and harsh consequences, bankruptcy can actually mark a fresh start to your finances.

As much as you want to avoid this unfortunate scenario, bankruptcy is always in our midst. As a matter of fact, there was a slight increase in bankruptcy filings in 2019, proved by the statistics released by the Administrative Offices of the U.S. Courts. Bankruptcies totaled to 774,940 as compared to the previous year’s record of 773,481.

The leading cause of personal bankruptcy is the loss of income. In the midst of the pandemic, unemployment is also on the rise as several establishments are forced to close. Public transportation has become very limited in order to observe social distancing, calling for greater demands for private vehicles such as cars, and even more demand for loans to avail them. Thus, there is a pressing need for most Americans to seek a potential bankrupt auto loan.

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Buying a Car During Bankruptcy

Before you explore more information regarding available bankruptcy automobile loans, it is important to know how bankruptcy affects your chances of securing car deals, and how soon after bankruptcy you can buy a car. Bankruptcy can come in two forms: Chapter 7 and Chapter 13.

Auto Loans After Chapter 7 Bankruptcy

Chapter 7 is also known as straight bankruptcy or liquidation bankruptcy. From the name itself, this type of bankruptcy compels the debtor to liquidate non-exempt assets to pay off the creditors and be discharged of the debt.

Under this form of bankruptcy, creditors no longer have to restitute borrowers from paying their remaining balance. An unbiased trustee will be anointed by the court in selling the borrowers’ non-exempt assets that will serve as payments to the lenders. It takes approximately two months for a borrower to receive a discharge after meeting with the creditors.

It is not advisable to purchase an automobile loan during your proceedings. This can be perceived as a sign of fraud and can further hurt your financial credibility. Furthermore, there is a possibility that your trustee might sell off your newly purchased wheels to pay off your debt.

So “how long after bankruptcy can I buy a car,” you might ask. The ideal time to buy a car after Chapter 7 is about 3-5 months after your debts are discharged. This lessens threats of discrepancies and is less likely to affect your credit score. Availing loans during bankruptcy must be done with caution, and it is advisable that you consult your attorney or trusted debt settlement companies such as DebtQuest USA to ensure financial security in your auto loans.

Straight bankruptcies have been the most common filing since 2018, which tallied up to 461,897 filings. This is mainly due to the reduced income of the majority of borrowers. They opt for liquidation bankruptcy since it only takes a matter of months to be relieved of your debt.

Automobile Loans After Chapter 13

Chapter 7 requires borrowers to compromise part of their assets to gain debt relief. But if you want a win-win situation of releasing yourself from debt, and losing no asset subject to repossession or foreclosure, filing for Chapter 13 is a suitable option.

Chapter 13 allows debtors to modify their loans into a repayment plan that is 3 – 5 years long. This allows them to repay their auto loans over a longer time, so they would not have to liquidate their assets for debt compensation.

Upon filing for Chapter 13, it takes about 20 to 50 subsequent days for borrowers to set an appointment with their lenders. Within a month after filing for bankruptcy, borrowers will begin making repayments to their trustees, regardless of the approval or rejection of their submitted application. Once documents for repayment are completed and verified, the borrowers can be cleared of their debts.

With a stable flow of income and consistent repayments, your creditors may discharge you from debt and allow you to maintain possession of your car. Your ability to purchase car loans after Chapter 13 discharge mainly depends upon the discretion of the court.

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What Happens When I File for Bankruptcy With a Car Loan?

Successful bankruptcy filings relieve you from the obligation of paying both your secured and unsecured loans. Car loans are under unsecured loans. The lenders let you use the vehicle as collateral for the loan. That’s why, despite being absolved from paying your auto loans after bankruptcy, the lender still has the right to repossess your vehicle.

The borrower has three options in resolving a bankrupt auto loan, as delineated under Chapter 7. The first is not paying the remaining balance after the debt is discharged and letting the lender seize the vehicle. This is the simplest course of action but can be deeply dismaying since you do not get anything in return from your previous loan payments.

If you are still determined to keep your car, you can apply for either reaffirmation or redemption. Through reaffirmation, you can settle negotiations with your lender and keep your car through an alternative payment scheme. Although it is possible to renegotiate amounts, most cases of reaffirmation still require you to pay the same rate as your original loan. Once you and your lender have come to amicable terms, you will have to submit it to a court for validation.

Car dealerships that work with bankruptcies can also be achieved through redemption. By redeeming your car, you will have to pay either the remaining balance or the actual value of the car. This is ideal for clearing your debt while also maintaining your right to the vehicle. Like reaffirmation, you have to submit your terms to court for approval. However, redemption requires a large amount of lump sum, which may be difficult to pay outright. There are lending institutions offering redemption assistance programs but at high interest rates.

In refinancing auto loans after bankruptcy, it is ideal to consult debt settlement companies. They can assist you in making wise and efficient financial decisions, considering your financial situation.

Debt Quest USA renders debt relief services that aim to help consumers pay off debt from unsecured and secured loans such as car loans. Backed up by financial experts from Debt Quest, you can arrive at terms with lower interest rates and schemes that enable you to pay your debt in full amount at an earlier time.

Getting Your Auto Loans Approved After Bankruptcy

At the end of the day, it is still a matter of court decision whether you can access auto loans after bankruptcy. There are a number of factors you must consider to increase the odds of getting your application approved.

However, you must bear in mind that there is no quick fix for resolving financial issues when dealing with bankruptcy. Band-aid solutions also won’t do you any good and pose potential problems in the long run. You must be steady and consistent in rebuilding your credit score and profile in order to get back on track after being bankrupt.

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Recover a Good Credit History

Bankruptcy jeopardizes your credit history. But as many mistakes go, you can still redeem this and rebuild a reputable credit history that would ease your loan applications.

To establish a good credit history, you must make sure you never fall behind your regular payments. Lagging behind payments might put your credit to a deeper grave while doing otherwise can surely salvage it.

Another way is to become an authorized user. If you have a friend or a relative who is close to you and who has a good credit standing, you can ask them to enlist you as an authorized user to one or more of their credit cards. The account information of the other party will be reflected in yours, thereby boosting your credit score.

Bankruptcy greatly reduces your purchasing power. Hence, it is advisable to apply for secured credit cards. Despite filing for bankruptcy, you can still be legible to apply for several credit card subscriptions. This can help you cope through poor credit.

Finding a Co-Signer

With an already debilitated credit history, lenders tend to hesitate from handing you auto loans as they consider it a high risk. Having a co-signer or another person who is willing to take full responsibility for your loan can ease these doubts and heighten your chances of getting approved.

The co-signer does not need to have impeccable credit. A better credit score than yours will do. And make sure that your co-signer is someone whom you truly trust and vice versa.

Know Your Financial Capacity

In reflecting upon your financial standing, you can determine what type of auto loan you can afford even after bankruptcy. You may opt for a low-cost and low maintenance car as you recover from bankruptcy. Going cheaper does not mean compromising quality. It simply points to the importance of making cost-benefit decisions and tactical car dealerships.

Important Considerations in Car Dealerships

As all transactions go, ensure that the car dealership you’ll be engaging in is legitimate. You must be wary of red flags when it comes to dealers. You can opt to consult with your attorney or have DebtQuest USA assist you in choosing your creditors.

Do Auto Loans Incur High Interest Rates After Bankruptcy?

The stakes of getting an auto loan after bankruptcy are extremely low; thus, some dealers might exploit you with high interest rates. Standardized auto loan rates do not depend on your credit score. It is the degree of a judgment of the lender that would determine your odds of securing car loans. Make sure that the interest rate being offered to you does not exceed the average rate of around 5.3 percent.

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Length of Repayment

Your financial capability also determines the length of your repayment period. If you have extremely poor credit, then you can opt to stretch the term of your loan. Having an extended loan repayment period allows you to have lower monthly payments and help you stay within your budget.

However, having lengthened repayment periods can make you oblivious to the real and bigger costs that you are paying. You might wound up returning huge interest payments over the span of your repayment period. If you can, it might be better to apply for an auto loan that you can pay at an earlier time to reduce interest payments.

Protect yourself from sketchy deals and watch out for red flags such as:

  • Established deals, regardless of credit
  • Request for wire transfers
  • Baseless add-ons
  • Required upfront fees aside from down payment

Other Factors You Should Consider:

Aside from these considerations, it is also important to know the institutions that can offer you good automobile loans after bankruptcy. Findings reveal that most of America’s middle-class earners encounter great difficulty in affording car loans, and much more after filing for bankruptcy.

Reviews have rated the best bankruptcy auto loans that are currently available for grabs. Take note that loan terms vary, depending on the creditors’ decisions and your negotiations with them.

Thus, it is imperative to evaluate your financial capacity. When you find yourself lost in anxiety and unanswered questions, DebtQuest USA is always available to extend its expertise and guide you in recovering from poor credit and maintaining automobile loans in the phase of bankruptcy.

Having an expert and educated opinion is pivotal to securing your finances, especially when you are in the midst of a financial crisis or fragility. Financial burdens are immediately relieved when you know you have a knowledgeable team who got your back. This is testified by the company’s BBB rating of A+ and skilled, licensed employees under the accreditation of the IAPDA Service Center.

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