Bankruptcy Auto Loans: Your Options
Post-Bankruptcy Auto Loan Advice
Getting a bankruptcy auto loan is very different from getting a regular auto loan. Whether you filed for bankruptcy under Chapter 7 or Chapter 13, you’re still a bad credit risk to potential lenders. Bankruptcy doesn’t have to stop you getting an auto loan, but it does limit your options. Your auto loan choices vary depending on your circumstances and the law in your state, but this page gives a brief overview of the situation.
If you already have a car, the bankruptcy court will probably allow you to keep it. Most bankruptcy settlements take into account the fact that you’ll probably need a car to keep your job and keep up payments to your creditors. However, this depends on the car’s worth in relation to your bankruptcy exemption. If the car is worth a lot, it may be taken away from you during bankruptcy. The figure you’re looking for is the car’s equity. Here’s how you calculate the equity: Take the value of the car, and subtract the amount you owe on it. If this figure is less than the amount exempted, you will probably get to keep the car. If this figure is a negative number, it’s almost certain you’ll get to keep the car. However, if you have a very expensive car that you own free and clear (in other words, a car with a lot of equity), you will probably not get to keep it.
Keeping your existing car is a good option for most people, especially if the equity is very low or negative. However, it’s not an option for everybody; for example, perhaps your car is a write-off, or it was taken in part payment of your debt. If you find yourself car-less, and a car is essential for you, the best option is to pay the full amount upfront if possible. This means looking for low prices in the second-hand market. However, don’t buy a car that will become a financial liability; avoid vehicles that guzzle fuel or require costly repairs. The area in which you have to compromise is appearance. Remember, you’ve filed for bankruptcy, so your days of flashy cars are over until you rebuild your credit rating and get back on your feet. So choose a cheap, ugly car over a good-looking mid-priced one. It’s not for ever.
If cash payment simply isn’t an option for you, it’s still possible to get a post-bankruptcy auto loan with which to purchase a new car. However, be aware that immediately after bankruptcy you will have a very low credit rating, and a low credit rating means less competitive deals. Expect to pay a lot of interest. You should also be aware that unscrupulous car dealers are more likely to attempt financing scams on people with bad credit, so you have to be extra vigilant in looking out for “fees” and “charges” on the contract. It’s best to hold off on your car purchase until you’ve begun to repair your credit rating. Ideally, you should wait three or four years if possible.
If you filed under Chapter 13 and you’re still making the payments, you will need to ask the trustee for permission before you buy a new auto. However, if your car purchase is important to your job security and you’re not planning to buy an expensive model, this permission is unlikely to be refused.