When you’re in the midst of bankruptcy and suddenly find yourself in need of a car, all hope is not lost! It is possible to get a car loan during bankruptcy — both Chapter 13 and Chapter 7 — although one is easier than the other. Let’s see.
Which bankruptcy are you in?
There are processes to getting a car loan while in active bankruptcy. However, the convenience and chance of success will change depending on which chapter you submitted. In general, it is easier to get approved for a car loan during Chapter 13, the reorganization bankruptcy, than in Chapter 7, the liquidation bankruptcy.
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If you own your vehicle for free and clear or have a well-managed loan and equity in your car, you’re more likely to lose it in Chapter 7, where your trustee can sell your assets to pay back your creditors. In Chapter 13, your trustee sets up a repayment plan for you to follow so that you have time to pay off your debts, including a car loan.
No matter what chapter you’re in, if you’re in active bankruptcy and need a car, you’ll need to get permission from the court to take on new debt.
Getting a Car Loan in Chapter 7 Bankruptcy
In some cases, you can get a car loan in an open Chapter 7 bankruptcy, but it depends on your lender, not all of them work with people who are in pending bankruptcy proceedings. When they do, they’re like a subprime lender — a lender that can work with borrowers in unique credit situations.
Even if you find a lender that allows car loans for bankruptcy, you still need to get your trustee’s approval and make sure you have completed your 341 creditors meeting. In many cases, lenders prefer not to work with people in Chapter 7 because the process is so short, usually four to six months. When lenders make a loan to someone who is bankrupt, they run the risk of selling the vehicle to repay other debts, which could lead to a loss; Not all lenders are willing to take this risk.
If the lender is willing to risk it with you, the process is similar to: getting a car loan with bad credit.
Financing a Vehicle During Chapter 13 faillissement Bankruptcy
Getting a car loan in Chapter 13 is a very different process from that of chapter 7. To begin with, chapter 13 is a long process that takes three or five years to complete. Because of the time frame, lenders and the courts understand that things happen and you may need a different form of transportation during that time.
There is a process that allows foreclosure borrowers to apply for financing while their application is open. The first step is to talk to your trustee and let them know you need another vehicle. Then you need to find a lender that works with bankruptcy. Once you’ve done that, start filling out a sample buyer’s order with the dealer.
In this paperwork, the dealer must list all the details of the vehicle and the loan, including the words “or similar” in the car description, and the highest possible interest rate that you qualify for. The “or similar” designation avoids having to start the process all over again if the vehicle you’re viewing is sold before you get court approval to proceed with the purchase.
Once you have completed the paperwork, take it to your trustee, who will then file a claim in court. This procedure can take some time, so you may not know right away whether you can finance another car or not. If you’re approved, you can go back to the dealer with the paperwork proving you’re safe and take delivery of the vehicle.
Ready to find a Bankruptcy Auto Dealer near you?
If you find yourself in need of a newer ride but don’t know where to go due to bankruptcy, look no further. Bee Auto Credit Express, we partner with a large network of dealers across the country who assist borrowers who have had their credit tarnished, including those in active bankruptcy. Let us do the work for you by connecting you to a dealer near you.
To get started from the comfort of your home or on the go, all you need to do is follow our quick, free car loan application form.
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