Car loans while in bankruptcy
by Steve Cypher on Tuesday, June 3rd, 2008Getting a car loan after bankruptcy usually means applying for a bad credit car loan through a subprime lender. But what happens if you need reliable transportation before your bankruptcy has been completed? In order to answer that question, we first need to look at the kind of bankruptcy you’re in.
What types of bankruptcies are there?
Here at Auto Credit Express, we want our customers to be educated about getting car loans after bankruptcy as well as while they’re in bankruptcy. That means being educated about the different types of bankruptcies. That being said, for most individuals, there are basically two types of bankruptcy – a Chapter 13 and a Chapter 7.
The Chapter 13 filing establishes a court-appointed trustee. The trustee sets up a payment schedule that must be adhered to during the length of the bankruptcy – normally three to five years. The dollar amount of the monthly payment and the length of time payments are to be made is determined by a number of things including the amount of property involved as well as the individual’s income and expenses. As part of the Chapter 13, you may have a choice as to whether or not you want to “cram” a loan. This involves the court forcing the lender to reduce the amount owed on the loan. “Cramming” not only reduces the payment, it also reduces the amount the lender receives when the secured asset is paid off.
The Chapter 7 filing liquidates a debtor’s assets and distributes the proceeds to the unsecured creditors. Secured assets can be repossessed and returned to the secured creditor. Unlike a Chapter 13, a Chapter 7 can only be done once every 8 years. While most debts under a Chapter 7 can be discharged, certain obligations, such as spousal support, taxes and student loans, are exempt and cannot be discharged. This type of bankruptcy also allows the filer to “reaffirm” a debt. In other words, you can inform the court that you don’t wish to include a portion of your debt, such as a car, in the bankruptcy. By doing this, you retain the property, but you also must continue making payments on the loan.
Your ability to secure car loans during bankruptcy
Since a Chapter 13 bankruptcy can last for years, while a Chapter 7 lasts for little more than four months, lenders approach both types differently.
In a Chapter 7 bankruptcy, the first step is the means test. It’s this step that determines whether or not you qualify for this type of bankruptcy. If the means test is passed, the next step is what is known as the 341 meeting. This is where the court appointed trustee affirms the value of your assets and the accuracy of the information contained in the schedule of debts.
The 341 meeting in a Chapter 7 bankruptcy is important, because lenders will not consider a loan if this meeting hasn’t taken place. While many lenders want a Chapter 7 to be discharged (due to the short length of time), there are also some lenders who will consider someone in a Chapter 7, provided the 341 meeting has taken place.
A Chapter 13 bankruptcy is entirely different. Just as in a Chapter 7, the court appoints a trustee. Because of the time involved, the duties of a trustee in a Chapter 13 bankruptcy are expanded. In order to apply for a car loan during a Chapter 13, you need to petition the trustee for an order to incur additional debt. This order allows you to take out a new loan while still in bankruptcy. Without this order, you are not allowed to apply for any loans during the bankruptcy.
Since a bankruptcy appears on your credit report, all banks that review your credit file, before they will even consider a loan, will ask for the court order that states you are allowed to take on additional debt. The order will also specify the maximum amount the court will allow you to borrow.
The Bottom Line
Here at Auto Credit Express, we specialize in helping customers with bad credit (including bankruptcies) get a car loan and begin the process of reestablishing their car credit. Our web site, www.autocreditexpress.com, will walk you through the process of applying for a loan by using our secure car loan application. With pages devoted to research as well as FAQ’s, we will try and answer all your questions. If you can’t find the answer on one of these pages, we have customer service representatives that are more than happy to assist you during normal business hours (8:30am – 5:30pm Eastern Standard Time).
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Good Day,
Question is can you get a loan where you may go out of state to purchase a auto
as long as it is from a dealer? I have found the type of auto we are wanting within 200 miles for alot less then I can get it for here, and it is not just from one dealer it is from several.
Travis,
There is certainly no problem buying a car out of state. I did the exact thing two years ago. Most national lenders such as GMAC and Ford Motor Credit will finance you in any state. The one issue that may come up is sales tax. Depending on the situation, you may pay sales tax in the state in which the vehicle was purchased and then, depending on your local rate, you will need to come up with the difference when you register the vehicle in your home state. My situation was different. When I purchased the vehicle in Iowa, I was not charged any sales tax at the time of delivery. Instead, I received an in-transit permit good for 30 days – the time alloted to bring it back to Michigan, pay the sales tax, and register the vehicle in my home state. Since I didn’t want to come up with the cash for the sales tax, I had the dealer include it in the price of the vehicle. They then cut me a check for the amount of the sales tax and I brought this check with me when I had the vehicle registered to cover the tax that they collected at that time.
Hello!
We are in the situation that we gave up one of our cars in the chap 13, them knowing that we needed to get another vehicle. So they should allow us to get a replacement, correct? Also, I spoke to my lawyer about trading our Trailblazer as well due to the rising gas prices. We can no long afford to just run to the store for diapers because we live in the country. She said that we will be able to do it, and now that we have found a vehicle, she will no longer return my phone calls, which is very frustrating. Do you see a probelm with either of these situations? We DO need 2 vehicles because my son has a disability and I have to be able to get him back and forth to his doctor appointments. Sorry if this seems like an odd question… : ] Thanks in advance.
My bankruptcy will not be final until Dec. 5th, 2008,if it possible for me to trade in my car and get another one?
Ann,
A chapter 13 bankruptcy would require an order to incur additional debt from the trustee before you could get a loan. If you are in a Chapter 7, there are a few lenders that would consider a loan, provided there are no pending claims against your account on the PACER website. You would have a much better chance, and many more lenders would consider you, after the December 5th discharge.
My chapter 7 has been in meeting already, i have been waiting for my discharge paper for over 3 months and am in dire need of a newer truck. Is it possible for me to trade in my reaffirmed truck in on a new one, without having posation of my discharged papers?
John,
It may be possible. First of all, you need to be upfront with the dealer about your situation. If the court records are on the PACER site and the dealer can print a copy of the records and send them to the lender, then there are some lenders that will consider your application. The lender may also need to print the records from the PACER site, as well.
If the court records are not on the PACER site, chances are you will have to wait for the discharge papers before applying for a loan.
The second issue is your reaffirmed vehicle and how much equity you have in it as well as how much cash you have for a down payment on a new vehicle.
That was a great blog. Most blogs are not even worth reading.
In am in a chapter 13 right now and my question is while in chapter 13 is it possible to trade the car i have now that is under my charpter 13 now for a new car. If so will this new car put put under my chapter 13 or will it be something I have to pay out of pocket.
Kevin,
Under a Chapter 13, you are only allowed to take on additional debt with a court order which includes the approval from the trustee. Using your current car as a trade in would mean paying off whatever balance the court determines that you owe on it. Since the new car was not part of your original filing, it cannot and will not be included under your chapter 13 and you will be required to pay for it outside of the bankruptcy (providing you can find a lender).
I don’t have a comment, but I have a question related to this topic. I filed for Chapter 7 bankruptcy (pro se) about two months ago. On my statement of intention, I indicated “reaffirmation” as it pertained to my car loan. At the time I filed, I was a month behind on my payment. I did intend to rectify the default to bring the loan current, but a day after my 341 meeting, the creditor filed a motion to lift the automatic stay. In an attempt to slow down any potential repossession attempts (yes, I’ll admit it), I drafted my own reaffirmation agreement and sent it to the court, the creditor, and the creditors’ attorney. They’ve since filed an objection to the reaffirmation (go figure…), and the hearing is scheduled for the end of the month. I realize the agreement in unenforceable because the account is in default (now by three months). Here is my question – what do I do? I know that if I have any chance to hang on to the car, I need to bring my account current, but it’s almost impossible to come up with three months’ worth of payments at once. Would the creditor accept anything other than one lump sum payment to bring my account current (i.e., a partial payment per week)? Does anyone have any experience with this? I have an older (but nice) car that has a retail value of about $6,000 (actual value of about $3,000), so I’m fairly sure the creditor isn’t exactly anxious to send the repo man out after a 10 year-old vehicle of that value. Does anyone have any experience with this type of situation? Any advice would help! Thank you!
I need a letter of approval from the court to purchase a car in ch 13 case. The dealers will not even give me a “deal” without the letter and the court will not give me a letter without seeing a deal. Chicken or egg? it is getting frustrating.
I want to file chapter 7 bankrupty as soon as possible…But i really need a car. also all i have is mostly credit card debt…and a a small student loan which i am paying back. my questions are: After filing when and where can i get a used car loan? and how soon can i start receieving credit again? How long will creditors take to allow me credit again?
Yulanda,
Once your bankruptcy is discharged (completed) you should be able to get a car loan and you can also start reapplying for other credit at that time as well. Normally, a Chapter 7 bankruptcy takes about three or four months to complete from the time you file. Your other choice would be to apply for a car loan now and reaffirm that loan during the bankruptcy (meaning you make payments on it while you are going through the Chapter 7). That way, you will have the car after your bankruptcy has been completed. Most courts will allow you to do this, depending on your current situation.
I agree with the previous emailer whon referenced the “chicken or the egg” philosophy. The dealers wont give you a deal without a letter and the trustee wont give you a letter without a deal. The dealer wants to see how much he can gouge for and the trustee wants to keep as much money as possible in the case. The chapter 13 system is set up to fail and most people do not make it to the end….its sad.
Excellent site. Good information
My husband and I have filed a Chapter 7 bankruptcy, and have since received our discharge. We did not reaffirm the vehicles, but have continued to make payments and maintain possesion. I would like to reduce my monthly auto loan payments… Is it possible to trade our vehicle(s) in (w/out an affirmation) on a new auto loan, or would it be best to surrender the current vehicle(s) and attempt to take out the new loan in it’s entirety?
i filed bankruptcy and i have already went to my 341 meeting. i need another car because i did the reaffirmation on my current car and i have never been late but in the agreement my car note went up to 444.68 a month and i bought the car with 86 thousand miles on it. Car dealerships have been calling me wanting me to participate in their bankruptcy program where they have been given 1.2 million dollars to help people in this situation. I wanted to know if anyone has done this before and could you purchase a car before you discharge papers are issued.
Jewelene,
If you have reaffirmed your vehicle that means that you kept the vehicle and did not include it into the Bankruptcy. If the bankruptcy was discharged and you still have the vehicles you are still responsible for the obligation to those payments. If you allow the banks to take the vehicle back it will reflect a repossession on your credit and you will still owe the money to the bank. This can have a huge negative impact on your credit. Thus in essence negating the effect of a “clean slate” after your bankruptcy. You will have a difficult time in getting another loan. It would be best to trade the vehicles in or continue to pay until they are paid off.
Dear quo,
If you have the vehicle and are making payments to it, the vehicle is not included in the bankruptcy. Thus you are responsible for paying it off through payments or trading it in. There are special finance lenders who will work with you and give loans out once you have had the “341”. There are opportunities for you to trade in your vehicle and have it paid off while getting a new one. Your rate will be higher due to the bankruptcy but the opportunities are still there.
I filed chat 7 may 2 and wanted to no if the time start then r after the 341 meeting for discharge. I was told after the meeting but I called a local dealership and they gave me a number to and the automatic service said may 2. Canu help me figure this out.
Smith,
The way to find out when the time starts on your Chapter 7 is to either contact your lawyer or contact the bankruptcy court. Both will be able to give you that information.
Will autocreditexpress financeme a car. One of the requirements it to have the 341 meeting complete and my meeting is complete but just awaiting discharge. Still have the car that is n bankruptcy and they will come pick it up and just don’t want to be without a car.
Smith,
I understand how you feel about not wanting to be without a car. We are not a lender but we do work with a nationwide network of dealers that are experienced in all credit situations. you can begin the process by filling out an application on our web site.
I filed for chapter 7 in july of 2009. Did all the meetings way back then…Just now the trustee sent in his final paper work to the judge according to the Pacer website. Well its Aug 2011- and the case has not been discharged… What the hell is going on?