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Going through a bankruptcy lowers your credit scores, but it can also give you a fresh start, financially. Once finished, you may think that it is next to impossible to get approved for credit again, but usually that is not the case. At Federal Auto Loan, we specialize in helping people get connected to local dealerships who know how to work through your unique credit situation. Many of our network dealers have loan options for all types of bad credit situations, including bankruptcy. With the second chance you need, you can get back on the road and on the way to rebuilding your credit.
Following a setback like this, it can be difficult to build your credit back up, but getting a car loan after bankruptcy is possible. A bankruptcy car loan is actually a good way to help your credit recover once you’ve received a discharge. The process of getting a car loan following a discharged bankruptcy is fairly simple.
Just as you would with any other type of bad credit auto financing, you need to meet the lender’s requirements to qualify. Along with meeting the income, employment, and residency requirements most lenders look for, there are a few tips to keep in mind:
To be sure you don’t get turned away, make sure you bring your bankruptcy discharge paperwork with you when you visit a dealership: it could be a no deal if it hasn’t been reported to the credit bureaus yet. Another way to come up short with a car loan after bankruptcy is by trying to apply following a dismissal. If your bankruptcy isn’t complete, getting approved for a car loan typically has to wait until your credit has recovered by other means or the dismissal drops off your reports: which could take up to seven years.
If you’re in an open bankruptcy and need an auto loan, it’s still possible to get one, but the process is far different from getting a car loan after discharge. Depending on whether you’re in a Chapter 7 or a Chapter 13, you’ll have to follow a different set of rules.
A Chapter 7 bankruptcy is considered a liquidation bankruptcy. This means your nonexempt personal assets can be seized and sold in order to pay off your debts and provide you with a fresh start. A Chapter 7 bankruptcy is relatively quick, and typically lasts only three to six months before being discharged, but, unfortunately, the bankruptcy filing stays on your credit reports for up to 10 years.
Getting an auto loan with an open Chapter 7 bankruptcy is not impossible, but it is rare. You are able to apply for a car loan once the 341 meeting with your creditors has taken place, but the chances of approval will not be high. Because lenders know an open Chapter 7 bankruptcy lasts for a relatively short amount of time, they’ll advise that you to wait until it’s been discharged.
So, when is the best time to finance a car when dealing with a Chapter 7 bankruptcy? The best time would be once it has been discharged. Lenders wait until this point because they want to make sure the car loan won’t be included in the bankruptcy. It’s a good decision to wait anyway, because adding more debt may put you in a bind, financially. So, before you head to the dealership to apply for a subprime auto loan, make sure you have the official discharge papers on hand.
If you file for Chapter 13 bankruptcy, you set up a repayment plan, of either three or five years, in which you pay back all or part of your debts. This happens under the court’s protection, so you pay a fixed amount, monthly, to your bankruptcy trustee, which is then distributed amongst your creditors. The biggest advantage of this type of bankruptcy is that you have the opportunity to retain your property and assets. A Chapter 13 bankruptcy filing stays on your credit reports for up to seven years, but there are auto loan options that you can explore both during and after it.
Unlike a Chapter 7, lenders are typically more open to Chapter 13 bankruptcy auto loans. The payment plan lasts for three to five years so it’s not uncommon to need a vehicle before the repayment plan is up, which is why there’s a process in place for you to follow. Here are the steps to getting a car loan during an open Chapter 13 bankruptcy:
The Chapter 13 bankruptcy auto financing process is more streamlined when you have your discharge papers in hand. All you have to do is apply with a dealership that is able to assist car buyers after bankruptcy. They’ll send your loan application to a lender (or lenders) for a loan decision. Similar to bad-credit car loans, these lenders set the acceptable terms of your loan, and you’ll be able to select from vehicles in the dealership’s inventory that you qualify for.
Your privacy is very important to us.
Your information is carefully secured by GeoTrust. And we’ve received excellent ratings with the Better Business Bureau.
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