The Bankruptcy Code does not set a time limit for getting a car loan after Chapter 7. Once you receive your bankruptcy discharge and order closing your bankruptcy case, you can manage your finances and property as you wish. Therefore, you can apply for a car loan the day your Chapter 7 case is closed.
However, a better question is, “How long after Chapter 7 will a lender give me a loan for a car?” Lenders have different requirements for car loans. Some lenders work with individuals who have poor credit and a bankruptcy on their credit report. Other lenders have internal timelines for how long a person must be out of Chapter 7 to get a car loan.
Chapter 7 Calculator
We built a free Chapter 7 calculator to estimate the fees and cost of your Chapter 7 filing, along with alternative options.
If you’re in a position where you’re still researching and would like to understand the pros and cons of each option, take the free Chapter 7 calculator below; this will help you understand if Chapter 7 is for you or if it may make more sense to explore an alternative.
Getting Approved for a Car Loan After Chapter 7
Finding a lender to give you a car loan may be difficult after Chapter 7. It may take some time and extra work, but getting a car loan after Chapter 7 is possible. The following four tips will help you improve your chances of being approved for a car loan after bankruptcy:
Check Your Credit Report
Obtain copies of your credit reports from all three major credit reporting agencies – Equifax, TransUnion, and Experian. You can get free copies of your credit reports once every 12 months.
Review each report to ensure the information is correct. All accounts discharged in bankruptcy should have a zero balance, even if the account is noted as discharged in bankruptcy. The creditors should have stopped reporting negative information about the accounts, such as late payments.
Report any mistakes to the creditor and the credit bureau. Filing Chapter 7 lowers your credit score temporarily. However, eliminating unsecured debt and stopping negative information from being reported on the accounts will help improve your credit score. The more time that passes, the more your credit score can improve.
Save Money for a Down Payment
A car lender is more likely to approve a car loan if you have a substantial down payment when purchasing a car. A good goal is to pay 20% down on a vehicle. A down payment also decreases your monthly payments and could result in a lower interest rate.
Rebuild Your Credit
If you can wait a year to finance a car, you may be able to improve your credit score significantly. A better credit score helps you get approved for a car loan at a lower interest rate. Tips for rebuilding your credit after bankruptcy include:
- Ask a trusted person to add you as a co-signer on a credit account. The downside is that you are responsible if the person defaults on the debt. However, if they pay all payments on time, you should benefit from the positive payment history on your credit report.
- Apply for a secured credit card. The company requires a deposit as collateral to ensure you pay the debt. However, your credit score improves as you use the card and make on-time payments.
- Check with your credit union about a credit builder loan, which is not really a loan but works in your favor. You place a small amount in a locked savings account. Over six to 24 months, you pay off the “loan” with on-time payments. When the “loan” is paid in full, the accumulated money is returned to you in total.
- Credit builder loans can be useful tools for improving credit scores after Chapter 7. If you do not have enough cash to deposit into a savings account, consider asking a family member or friend to help you.
- Ask your landlord to report rent payments to the credit agencies.
- Limit credit applications. When a creditor checks your credit report, it can “ding” your credit score.
- Pay all bills and debts on time. On-time payments are a critical factor in a good credit score. Ask your landlord and utility company if they can report your payments to the credit agency.
Creating a budget and sticking to it can help you improve your overall financial situation. A budget allows you to monitor your spending and adjust spending if necessary to avoid problems. Your bankruptcy course discussed how to create a budget, and many free online budget programs exist.
Shop Around for a Lender
Check with several lenders to find the best interest rate and terms. Some lenders are easier to work with when you have a Chapter 7 bankruptcy on your credit record.
What Can I Do if I Need a Car Loan Immediately After Chapter 7?
If you need a new car right now, you do not have time to improve your credit score. However, you may still find a lender willing to approve a car loan after Chapter 7. Some things to keep in mind include:
- Traditional Lenders – Traditional lenders are the safest lenders to work with because they are less likely to engage in predatory lending practices.
- Credit Unions – Consider opening an account at a credit union to become a member. Many credit unions offer more flexible lending requirements and work with members who have poor credit scores.
- Co-signer – Ask someone to co-sign the loan with you. A co-signer with good credit can help you qualify for a car loan with more favorable terms, including lower interest rates. Be aware that the co-signer is responsible for the entire debt if you default. Therefore, ensure you can make all payments on time to avoid harming the co-signer’s credit rating.
- Leasing – Leasing a car might be an option. However, leasing contracts can include numerous fees, limit your mileage per year, and include excessive penalties for wear and tear.
- Dealer Financing – Buy-Here, Pay-Here car dealers offer to finance the purchase of the car. You pay the dealer each month instead of a lender. Be careful dealing with these companies because they may charge high interest rates and fees. They may also repossess the vehicle if you miss one payment.
Regardless of the lender you choose, always read the fine print. Ensure you understand all terms of the loan before signing any documents.
Should I Purchase a Car Before Filing Chapter 7?
Some individuals consider purchasing a car before filing for bankruptcy. However, you must be careful. If you pay cash for a car and its equity exceeds the bankruptcy exemption, the Chapter 7 trustee could take the car and sell it to pay your creditors.
If you finance a car immediately before filing Chapter 7, you may be required to surrender the car to the lender or sign a Reaffirmation Agreement. The agreement states you agree to pay the debt as if you did not file bankruptcy. In other words, if you default on the debt, the creditor can repossess the vehicle and sue you for any money the creditor loses when they sell the car.
It is best to speak with a bankruptcy lawyer if you must purchase a car before filing Chapter 7. An attorney can help you determine the best way to handle the situation that results in the least risk of a problem with your bankruptcy case.
Do You Need Help Filing Chapter 7? You Might Be Able to File Chapter 7 Without Paying an Attorney
Fresh Start Finance provides easy-to-use bankruptcy software to prepare and file a Chapter 7 bankruptcy without paying an attorney. Our affordable software is user-friendly, and you can try it for free before deciding if it is right.
Or as mentioned above you can estimate your attorney fee payment of Chapter 7 by taking the Chapter 7 calculator below.
Leave a Reply