Recovering financially after you’ve declared bankruptcy can seem so daunting that you may feel as many other people do and be tempted to give up on the process. However, you have to go on living your life as normally as possible and that includes replacing an old or damaged car. You may fear that you’ll have to resort to buying an aging clunker of a car for the little bit of cash you can scrounge or borrow, but you’d be wrong. Using a loan to purchase a car can be one of the best initial steps you can take to reestablish your credit. You need to do it correctly, though.
Whether you’ve filed for either of the two types of bankruptcy, Chapter 7 or Chapter 13, there are some steps you should take to begin rebuilding your credit worthiness. If you aren’t careful, you may quickly find yourself in just as much financial trouble as you did when you were forced to file for bankruptcy, if not more.
Don’t take on debt you can’t repay
If you’re given the green light to finance a car, it should be one that meets your financial needs as well as your transportation requirements. Financing an expensive sports car won’t be a good choice if you can’t make the monthly payments. A “new to you” vehicle is often your best option. It will require some comparison shopping, but you can find a car that fits your needs, although it usually won’t be the latest model with all the extra features.
Remember, too, that you’ll have to prove that you carry insurance on the car. A lender wants to know that if your car is damaged it can be repaired so that you can continue driving it. Lenders understand that, unfortunately, borrowers are sometimes reluctant to continue paying money for an unusable vehicle even though the loan is still outstanding. Insurance can be expensive for people in bankruptcy, so you’ll want to shop for the best rates possible and include them in your loan calculations.
Choose a car that you can afford
Although you understand that you can’t finance a high-end sports car, you may still be tempted to try to borrow enough money to purchase a car that realistically won’t fit your tight budget. Ignore that temptation and instead consider less-expensive cars, such as those that, for whatever reason, never really caught on with the car-buying public. Manufacturers and dealers alike are motivated to sell these cars, so you might be able to get a substantial savings on a model you can live with.
Certified Pre-Owned cars are often an excellent option for people who have credit problems. The cars usually come with a partial warranty on the vehicle in the form of a balance on the original warranty or an after-market warranty. Whether the car you’re interested in buying is pre-owned or new, you need to do research before making your final decision. Check the reliability and safety reports on the make and model you’d like to buy. Avoiding a car that has been shown to have safety issues or require an inordinate number of repairs will save you money you can’t afford to lose.
Consider making a down payment
It’s always a good idea to put some money down on a vehicle purchase you plan to finance. The only exception is when a manufacturer or dealer offers zero down and zero interest on the loan. Dealers are much more willing to talk with you, in spite of your bankruptcy, if you have ten to twenty percent of the purchase price in hand. Another option you may want to explore is using manufacturer’s rebates to your advantage. It will take some research on your part, because many rebates aren’t advertised. However, if you can find a good rebate deal, it could become part of or even an entire down payment.
Auto loans and bankruptcy
The timing of your car loan is just as important as the amount of money you’ll be paying each month. If you plan to finance a car after your bankruptcy has been discharged, you simply will need to present the paperwork to the lender and assure him of your ability to repay the loan. If you’re still going through bankruptcy proceedings and desperately need a vehicle and accompanying loan, the type of bankruptcy will have an impact on the kind of car loan you can get.
The major difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy is the amount of time each takes to complete. Chapter 7 bankruptcy requires you to liquidate your assets and pay your creditors with the proceeds, a process that usually takes several months. On the other hand, Chapter 13 bankruptcy can take between three and five years to discharge since you work out a repayment plan with your creditors with the help of a bankruptcy trustee. Getting a car loan while you’re in Chapter 7 bankruptcy is fairly straightforward. You simply search for a lender or car dealer that will give you a loan even while you’re in the bankruptcy process. Many companies and dealers specialize in these kinds of loans. The only drawbacks are that you’ll likely have to make a large down payment on the vehicle and the bankruptcy will result in a higher interest rate on the loan.
When you’ve filed for Chapter 13 bankruptcy, the process of getting a car loan is more complicated. Because you’ll be taking on additional debt while you’re in the repayment period, the bankruptcy judge handling your case must agree to allow the loan to go through. If you don’t get that agreement, you won’t be able to finance the car. Once you have the approval in hand, you’ll need to work with your court-appointed trustee and a lender to get a loan that meets the court’s requirements, which often include the maximum amount of interest that can be charged as well as the maximum total amount of the loan. Many financial experts recommend that, if possible, you wait until you’re in at least the second year of the Chapter 13 bankruptcy process before taking on a car loan.
The final word
Auto dealers and lenders are just as interested in getting you into a car you need as you are. If you do diligent research and remember not to make money mistakes that could lead you back into a dire financial situation, you can drive home in a car that will meet your transportation needs at least until you find yourself on better financial footing. Even more importantly, when you conscientiously repay a car loan taken out during a bankruptcy proceeding, you’ll be well on your way to taking the first steps toward reestablishing your credit after bankruptcy.You Can Get an Auto Loan Even While You're In Bankruptcy by Jordan L Bourland