When you are in the middle of bankruptcy and suddenly need a car, all hope is not lost! It is possible to get an auto loan in bankruptcy (Chapter 13 and Chapter 7), although one is easier than the other. We will take a look.
What bankruptcy are you in?
There are processes in place to obtain an auto loan in the event of active bankruptcy. However, the ease and likelihood of success changes depending on the chapter you filed. Generally, it is easier to get approval for a car loan in Chapter 13, reorganization bankruptcy, than in Chapter 7, liquidation bankruptcy.
If you own your vehicle for free or have a well-managed loan and equity in your car, you’re more likely to lose it in Chapter 7, where your bankruptcy trustee can sell your assets to pay off your creditors. In Chapter 13, your trustee sets up a repayment plan that you must follow, giving you time to pay off your debts, including a car loan.
No matter what chapter you are in, if you are in active bankruptcy and need a car, you need to get court clearance to incur new debt.
Getting a Chapter 7 Auto Loan on Bankruptcy
In some cases, you can get a car loan in an open Chapter 7 bankruptcy, but it depends on your lender, not all of them work with people who are in open bankruptcy. If they do, they are like a subprime lender – a lender who can work with borrowers in unique credit situations.
Even if you find a lender who authorizes auto loans in bankruptcy, you should still get permission from your trustee and make sure that you have completed your 341 creditors meeting. In many cases, lenders prefer not to work with Chapter 7 people because the process is so short, usually four to six months. When lenders give a loan to a bankrupt person, they risk selling the vehicle to pay off other debts, which can put them at a loss; not all lenders are willing to take this risk.
If the lender is willing to take the risk with you, the process is similar to obtaining a bad credit auto loan.
Financing a Vehicle During Chapter 13 Bankruptcy
Getting a Chapter 13 auto loan is an entirely different process than Chapter 7. For starters, Chapter 13 is a long process that takes three or five years. Because of the delay, lenders and the courts understand that things are coming, and you may need alternate transportation during this time.
There is a process in place that allows bankrupt borrowers to apply for financing while their file is open. The first step is to talk to your trustee and let them know that you need another vehicle. Next, you need to find a lender who works with bankruptcy. Once you’ve done that, you begin the process of filling out a sample buyer order with the reseller.
In these documents, the dealership should list all the details of the vehicle and the loan, including the words “or similar” in the description of the car, and the highest possible interest rate you may be entitled to. The âor similarâ designation saves you from having to start the process over from scratch if the vehicle you are considering sells before you get court approval to make the purchase.
Once you have completed the documents, you take them to your trustee, who then files a petition for debt with the court. This procedure can take a little time, so you may not know right away whether you can finance another car or not. If you are approved, then you can return to the dealership with the documents proving you are in order and take delivery of the vehicle.
Ready to find a car dealership near you?
If you need a new vehicle but don’t know where to turn due to bankruptcy, look no further. AT Auto Express Credit, we work with an extensive network of dealers across the country who help borrowers who have damaged their credit, including those in active bankruptcy. Let us do the legwork for you by matching you with a dealership in your area.
To get started in the comfort of your own home or on the go, simply complete our quick and free auto loan application form.