Bad Credit Car Loans in Bankruptcy
by Steve Cypher on Thursday, March 18th, 2010Applying for a bad credit car loan before a bankruptcy is discharged requires a different procedure for each type of personal bankruptcy.
Know what to expect
At Auto Credit Express our business is to match up our credit challenged customers, who have filled out our bad credit auto loan application, with dealers in our nationwide network that can help them get this kind of a loan. By doing this, applicants can not only reestablish their car credit, they can also raise their credit scores. We also want our customers to be educated about getting a second chance car loan while in bankruptcy.
Getting 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.
Types of personal bankruptcies
For most individuals, there are basically two types of bankruptcy filings that are available – a Chapter 13 and a Chapter 7.
The Chapter 13 filing establishes a court-appointed trustee. This 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 are 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 filed 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. The rules of a Chapter 7 also allow 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 at the same time, this means that you also must continue making payments on the loan, since a repossession that occurs after the bankruptcy has been discharged will most likely eliminate any chance you have of securing even a bad credit car loan.
Applying for a car loan in bankruptcy
Since a Chapter 13 bankruptcy can last for three to five years or more, while a Chapter 7 usually lasts a little over than four months, lenders approach each type of scenario differently.
In a Chapter 7 bankruptcy, the first step in the process 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 as well as the accuracy of the information contained in the schedule of debts.
The 341 meeting in a Chapter 7 bankruptcy is important, because no lender will consider a loan application if this meeting hasn’t taken place. While most lenders want a Chapter 7 to be discharged (due to the short length of time), there are still a few 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 will not be able to apply for any type of loan until the bankruptcy has been discharged.
Since a bankruptcy will appears on your credit report from the time that you file, any lender that reviews your credit file will, before they will even consider a loan, ask for the court order that states you are allowed to assume additional debt. The order will also specify the maximum dollar amount the court will allow you to borrow.
The Bottom Line
At Auto Credit Express we have helped thousands of people with bad, blemished, bruised and tarnished credit (including bankruptcies) buy cars and reestablish their credit at the same time. Our nationwide network of affiliate dealers specializes in bad credit car loans. When you decide to buy a car, our online bad credit loan application can be filled out in the comfort and security of your own home.
For more information, visit www.autocreditexpress.com to see what we can do for you.
Tags: auto financing, aware, bankruptcy, better business bureau, car loan quote, credit bureau, credit monitoring, credit rating, credit score, driver license, fico, free car loan quote, gap insurance, honda, negative equity
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If you are considering bankruptcy, you really should look for other alternatives out there before you go the BK route. While the attorneys will probably tell you it’s an easy, cheap process and you’ll get Chapter 7 approved, the reality is that it’s very expensive, requires lots of upfront money, and it’s now extremely hard to get Chapter 7 from the courts. Instead, you’ll probably end up in Chapter 13 which can cost you a lot more money than expected, and you have all of the negative effects of the BK on your credit report for up to 10 years! There are alternatives that can help keep you out of bankruptcy, but you must qualify first, the programs are not for everyone. You can try calling a company like Consumer Debt Advisors who can explain to you these other alternatives and help determine if you qualify and what program is best for you. They’ll give you a free consultation if you call and will let you know if Bankruptcy is the best option you have.
Just go for the other alternatives instead of BK!
Personal bankruptcy is the process of declaring oneself insolvent in the event of an individual being unable to pay off his or her debts. It happens when the rate of the increase of the person’s debt is more than his or her ability to pay it back.