Sometimes when we get ourselves into deep financial water, bankruptcy is the only way out. If you’re wondering whether you can get a car loan or auto loan while in bankruptcy, your best bet is to find out more about the type of bankruptcy you’re filing (or have already filed) to see whether it’s even possible. As a first time car buyer check out our LTV calculator, amortization chart to get all the detailed information you need.
Most people know there are two main types of bankruptcy for individuals and families: either chapter 7 or chapter 11. There are other chapters, but they don’t apply to people’s personal finances. If you’re considering filing, or have already filed, you probably already know which type you’ve chosen.
Chapter 13 is kind of “bankruptcy lite.” It allows you to restructure your assets so you can pay them off. If you’re still working, still have a regular income but your finances have just gotten out of control, this is probably the type of bankruptcy you’ll choose. With this type of bankruptcy, a trustee is appointed to help you come up with a payment plan to fulfill all of your obligations. As long as you make your payments, you’ll still be able to keep your important assets like your house and car(s). If you need an auto loan while in bankruptcy, and you chose chapter 13, you’ll have to get prior permission from your trustee, who will decide whether you’re able to undertake a new loan or not.
A chapter 13 bankruptcy will stay on your credit report for 7 years.
Chapter 7 is a “straight bankruptcy,” or a “complete bankruptcy.” Any secured assets like a car or truck or home are repossessed by the companies that financed them. Any other property is liquidated (sold off) and the proceeds are split among your other creditors. If you’re needing used car loans and you’re doing the chapter 7 process, it’s unlikely that you’ll be able to do anything until the bankruptcy is discharged. Once it is, though, you basically have a fresh start. You’re able to enter into new contracts and loans at this point, though hopefully with a bit more caution.
A chapter 7 bankruptcy stays on your credit report for 10 years.
Regardless of which type of bankruptcy you go with, you’ll still need to find a lender that is willing to work with people who used bankruptcy as a tool to wipe the slate clean. If you need bankruptcy car loans, many lenders (such as banks and credit unions and captive dealer finance companies) just won’t talk to you. They may not understand the process, or they may just not want to take the risk. So you’ll probably have to find a specialty lender who understands how it all works. But when you need an auto loan while in bankruptcy, these lenders are always happy to help.