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The Truth About Getting Bankrupt Auto Loans

bankrupt auto loan

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What Are Bankruptcy Auto Loans?

These are car dealers who deal with bankruptcies to help you get a reliable car after you’ve been through bankruptcy.

Tired of trying to find a bad credit car loan? Just apply with us today and we’ll get you instant acceptance with our trusted network of lenders. 

Bankruptcy Automobile Loan Requirements

Improve your credit score for a better car loan after bankruptcy

Defaulted debt lowers your credit score.

Consider taking time to rebuild your credit so that you can get your financing approved at a lower interest rate.

To begin your debt recovery, you may need a credit-builder, have a secured credit card, or become an authorized user on a family member or a friend’s credit card. 

Save for a down payment for a car loan after bankruptcy

Having a considerable down payment increases your chances of getting a  loan and could decrease your interest rate.

There may not be a set amount put down for a car purchase, but it’s recommended to have a 10% down payment on your next purchase.  

Shop around for car loan after bankruptcy

When you think you’re ready to purchase a motor vehicle, check local lenders around to ensure that you get the best offer. 

We make it easy to check all the best lenders near you. Just apply online today and get instant acceptance fast!

If I file for bankruptcy what happens to my car?

What happens to you when you file depends on the option you’ve taken when filing it. The two major options are choosing between chapter 7 and chapter 13 to file for bankruptcy. You may need the assistance of an attorney if it’s your first time doing it. They will help you choose an option that will best suit you.

Chapter 7 bankruptcy

This is also referred to as liquidation or straight bankruptcy.

In this option, if there are significant non-exempt property or assets, they are liquidated to pay your debts in the bankruptcy. Exempted properties and assets in this option include your house since you need a place to live and your car as it will be necessary for commuting to work. After liquidating non-exempt assets any remaining qualifying debts are wiped away. 

This is the best option for people whose income is limited such that there’s basically no way they would be in a position to repay the qualifying debts. 

So, what happens to your car when you choose this alternative?

Here are three options that you can choose in this chapter.

  • Surrender – You may choose to give up your car to the lender and include the auto loan as you file this bankruptcy. You may walk away , even if the outstanding balance is more than your automobile’s worth. 
  • Retain and pay – In this case, your car loan is included as you file.  Your lender will not come after your set of wheels, but you’re still obligated to monthly payments. Of course, there will be a lien placed on the car, but you keep driving it as long as you make payments. This lien will be removed after clearing all outstanding amounts.
  • Reaffirmation – As earlier mentioned, with reaffirmation you will promise to make loan payments and have the agreement with your lender approved by court. Hence, you remain liable for the debt and failure to make agreed payments will have the car repossessed.

Chapter 13 bankruptcy

This option is best considered when your income is high enough, and you just need some time to clear the debts. You make some negotiations with your creditors through collaboration with the bankruptcy court to ensure that you set up a reasonable payment plan.

With this in place, the creditors are restricted from starting or continuing any actions meant for debt collection.

What happens to your car?

When you file this bankruptcy, you get to retain your ride, but some adjustments on your payment are made. They include;

  • Interest rate reduction – You may be struggling because the interest rate on your financing is quite high. This rate can be reduced by as much as 4-6%.
  • Arrears catch-up – If you have not made the payments for a few months, then you can take the total overdue amount and stretch it out over the course of your Chapter 13  over 3-5 years.

Bankruptcy Auto Loans FAQ’s

Can you file bankruptcy if you have a car loan? 

You can file for bankruptcy when you have an auto loan.

There are three major options for you.

  1. The first one is to stop making payments after your debt gets discharged and give the lender permission to repossess your car.
  2. The second option is that you can have a negotiation with the lender and have a new payment plan to retain your motor. This is what is referred to as reaffirmation.
  3. The third alternative is you can offer the lender to buy out your car through paying a vehicle’s actual value or the outstanding loan balance. This is a favorable option when your loan balance exceeds the vehicle’s worth, usually referred to as redemption.

Your credit lender has the right to sue you if they don’t recoup the outstanding loan balance after selling your automobile.

An advantage that you get after filing for bankruptcy with an existing car loan is that you don’t have an obligation to pay the deficiency balance, your lender will just take your truck, sedan, saloon, etc.

When you choose reaffirmation, you will have an agreement with the lender for you to keep your car, and you will have to submit an agreement to the court for approval. Nevertheless, reaffirmations are usually done at the same rate as the original financing deal. 

Is it hard to get a car loan after bankruptcy?

Getting financing is difficult but not impossible. You will, however, need to do a little extra work to get a new or used car because bankruptcy lowers your credit score.

Can I keep my car if I go bankrupt?

Yes, you can keep your car after going bankrupt, but again this depends on the type you’ve filed for.

Consider your financial situation, and seek services of a qualified attorney to assist in selecting the best option. If it’s expensive, your attorney will help you get a good car loan after bankruptcy.

How long after chapter 7 can I buy a car?

It usually takes four to six months to complete this process. After completion, you’re given discharge papers as proof of clearance. If you intend to get subsequent auto financing, lenders require a copy of the discharge papers to begin the process. 

How long you should wait after receiving this paper is dependent on how fast you will rebuild your credit score. 

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