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The Process of Auto Financing Following Bankruptcy

If you've filed for bankruptcy, you might feel like you'll never get approved for another line of credit again. Fortunately, that is not true. At Auto Credit Express, we have been helping bankrupt clients find bad credit car dealerships in their area to approve them for vehicle financing since 1999. Bankruptcy isn't the end of the world. It's a new beginning to financial stability.

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Open Bankruptcy Auto Loans

After you have filed your bankruptcy papers with the court, your bankruptcy is now considered open. It will remain that way until you receive your discharge papers from the judge. Open bankruptcy auto loans may be made available during this time with both Chapter 7 and Chapter 13 bankruptcies, but with different requirements.

A chapter 7 bankruptcy is open for approximately three to four months making the process a little faster. Before you can apply for an auto loan through any subprime lender, you must make sure that your meeting of creditors has taken place. This is called the 341 meeting and allows the creditors listed on your BK papers to ask you questions about your debts. Lenders wait for this meeting to be completed before offering financing to debtors because:

  • After this meeting, you can no longer add debts to your bankruptcy petition, and therefore, the new car loan will not be discharged in the bankruptcy process.
  • Should your case be dismissed by your bankruptcy judge for any reason, you are still liable for the balance of the loan.
  • Your creditors have agreed to the terms of the bankruptcy and your debts will be extinguished, lowering your debt to income ratio

After you have proof of completion, you can then complete the online loan request form at Auto Credit Express. Keep in mind, however, that because a Chapter 7 bankruptcy happens so quickly, your loan approval chances will significantly improve if you delay applying until you have your discharge papers.

If you've filed for Chapter 13, you have a little more leeway when it comes to car loans during bankruptcy. The process is much longer, lasting three or five years. The court appointed trustee will set up a payment plan based on your income, and you will repay a portion of your debts over the life of the bankruptcy. If you plan to apply for financing of any kind during this time, you must get approval through your trustee.

Compile a list of reasons as to why you need a new vehicle to present to the court. For example:

  • More than one person in the house has a job, so you need two cars.
  • One person works while the other drives kids to school or extra-curricular activities.
  • You have one car that is about to die, and you need a reliable vehicle for the family.

Once you have compiled your list, you must then file it with your trustee. This is called a Motion to Incur Additional Debt. Then you may have to answer questions about the vehicle you want to purchase. There could be stipulations added to the loan terms, including how long the loan is, what your interest rate can be, and what your monthly payment must be. If your motion is accepted, you will receive an Authorization to Incur Additional Debt. Once you are authorized, you can proceed with your purchase.

Thinking of Filing for Personal Bankruptcy?

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After Bankruptcy Car Financing

Taking out a new line of credit can be stressful regardless of what your credit score is, but when you have a recent bankruptcy on your report, your anxiety level can skyrocket. You don't know how long you should wait, if you should wait, or if there is even a chance for an auto loan approval until the it falls off your credit report. We are here to tell you, you don't have to wait or worry at all.

At Auto Credit Express, we understand that it isn't always an option for you to wait weeks, months or years after bankruptcy before taking out an auto loan. This is why our network of lenders can offer you auto financing as soon as your discharge papers are in your hand. While most of our bad credit car dealerships offer both new and used vehicles, we highly recommend purchasing a pre-owned car, truck, SUV, or minivan. Late model automobiles generally offer the following benefits:

  • Lower price tag
  • Lower interest rates
  • Lower insurance rates

The used cars offered on our dealers' lots are not the junky automobiles of yesteryear you may be thinking of. Instead, you will be financing a vehicle that is reliable, runs well and has low mileage.

Vehicle Options in Bankruptcy

If you're filing for bankruptcy and you're not ready to give up your vehicle just yet, you have options to keep it. If you have more equity in the car than your state allows you to exempt, you must surrender your vehicle to the bankruptcy unless you reaffirm, redeem, or cram down the loan.

Redeeming your auto loan allows you to lower your loan balance to the fair market value of the vehicle. This is court ordered by the judge and the lender must abide by the ruling. The correct fair market value of the vehicle will be determined by the judge, you, the lender, and the help of websites such as Kelley Blue Book and NADA.

Cram Down
The cram down process is only available in a chapter 13 bankruptcy and works in the same way as the redemption. The lender is forced to "cram down" the loan balance to the fair market value of the vehicle. The major difference is the fact that you are not eligible for this process if you have not owned your car for at least 910 days or 2.5 years. This is to protect creditors from granting a poor credit score auto loan to a consumer and then having them include the vehicle in the BK to get out of the debt.

If you decide to reaffirm your loan, you are signing a legally enforceable contract to repay the entire loan balance, as if the bankruptcy was not occurring. Both the creditor and debtor must agree on the terms, and usually a lender will not sign this document if you are currently behind on your payments, or have a history of late payments.

Before you make any decisions about keeping your vehicle, you must first gain permission from either the trustee or the judge working on your case. They must see that keeping the debt is not going to create a financial hardship on you or your family.


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Auto Loan Refinancing Post Bankruptcy

Whether you have decided to keep your vehicle during the bankruptcy process, or you have recently gotten a new car loan after bankruptcy from a buy here pay here, tote the note or other type of car dealership, you may be thinking about refinancing. Is it even possible with a BK on your credit report? Absolutely! Auto loan refinancing, post bankruptcy, is available to you regardless of whether you were recently discharged or you completed the bankruptcy years ago.

Refinancing your vehicle works in the same way as refinancing your mortgage, except less paperwork, and usually there are no fees associated with it. It provides many benefits to you, such as:

  • Lower interest rate - If your credit score has increased since your loan was originally obtained, you may be eligible for a better interest rate.
  • Lower monthly payment - Getting a lower interest rate will decrease your monthly or weekly car loan payment drastically, providing a quick money saver.
  • Extended loan term - If you can't afford your current monthly payment, but are not eligible for a lower interest rate, you can extend your loan terms. This will stretch your monthly payments out over a longer period of time, helping you save money in the short term, but costing your more in the long run.
  • Paying the loan off early - Lowering your interest rate can help you to pay off your loan early. If you can afford it, you can continue to pay your current monthly payment, but with a lower interest rate. The extra money will be applied to your principle balance, resulting in your loan being paid off early.

Sometimes you need to seek a new lender. While many lenders will refinance their own loans if you qualify, some do not. In cases such as these, a rejected refinance application is usually based on the recent bankruptcy still showing on your report. Here at Auto Credit Express, that doesn't matter . As long as you have shown good faith on your open credit accounts since your bankruptcy, and you have improved your credit score, we can probably get you approved with one of our lenders.

Bankruptcy Auto Financing and Down Payments

If you've filed for bankruptcy protection in the past, the chances of you having the needed cash on hand for a significant down payment is low. This is why most people can use some help when it comes to finding low down payment bankruptcy auto financing.

Putting money down on a car reduces the amount you are financing, which in turn reduces the interest charges and monthly payment. If you don't have the cash saved, you can do one of the following:

  • Ask a family member or friend for the cash.
  • Wait a few months and save the money.
  • Use collateral from another property.

These are all feasible ways to acquire the money to put down on the used vehicle you have your eye on. Remember, the more you put down initially, the more money you are saving over the life of your loan.

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Rebuild Your Credit with a Bankruptcy Car Loan

Your credit score is one of the most important factors to consider when it comes to leasing or financing a car, and rebuilding your credit with a bankruptcy car loan is simple. By making consistent, on-time payments, you can pull your credit score back up the ladder in no time.

If you've filed for bankruptcy, and you're looking for a good way to start rebuilding your credit profile, Auto Credit Express can help. Whether you've filed for Chapter 7 or Chapter 13, and you're discharged or still in the process, we will go to great lengths to set you up with one of our many dealerships accepting bankruptcy clients.

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