It’s possible that you filed for bankruptcy and now you need an auto loan. Or perhaps you’re about to have your bankruptcy discharged and now you’re ready for an upgrade! If you’re in either scenario, working with a subprime lender for your next car loan may be your next step for a higher chance of approval.
Bankruptcy Vehicle Financing
Traditional auto lenders – credit unions, banks, captive lenders – may not be able to assist you with vehicle financing if you’re in bankruptcy because bankruptcy can cause some heavy damage to your credit reports.
Even if you successfully complete your bankruptcy, the damage from the filing can last for up to ten years, making it tougher to meet the credit score requirements of traditional lenders. There are auto lenders equipped to help bankruptcy borrowers, though: subprime lenders.
Subprime lenders that are signed up with special finance dealerships often work bankruptcy borrowers. Your credit score is only one piece of the auto-loan-eligibility puzzle to a subprime lender. If you can meet their stipulations, you could have a shot at an auto loan.
Bankruptcy Car Loan Requirements
Not every bankruptcy borrower can get a subprime car loan, though. You must prove you have the income, stability, and likely have to come prepared with a down payment to secure an auto loan approval.
Typically, these are the common bankruptcy auto loan requirements of subprime lenders:
- Income – Have a minimum monthly income of around $1,500 to $2,500, before taxes. Proven with computer-generated check stubs from the last 30 days, or two to three years of tax returns if you’re a 1099 worker.
- Address – Prove your residency with a recent bank statement or a recent utility bill in your name. Most subprime lenders require that you’ve lived at the same address for around six months to a year.
- Phone – Provide proof of a working phone, either cell or landline. Can’t be a prepaid phone. A recent phone bill in your name can do the trick.
- Driver’s license – You must have a valid driver’s license. This means it can’t be revoked, expired, or suspended.
- Down payment – Subprime lenders generally require a down payment of at least $1,000 or 10% of the vehicle’s selling price. Can be met with cash and/or trade-in equity.
- Personal references – Have a list of five to eight personal references with their names, addresses, and contact information. References can be family members, co-workers, or friends, but can’t be someone that shares your current address.
- Discharge papers – If your bankruptcy was recently discharged and it hasn’t appeared as such on your credit reports, you may need to bring your discharge papers to the dealership to prove you’re in the clear for auto financing.
- Court approval – If you’re in the middle of bankruptcy and need a car loan, then you need the court’s approval to incur more debt. This means choosing a vehicle with a dealership and getting a sample buyer’s order, and taking it to your trustee so they can officially ask the court permission to incur additional debt.
Does My Bankruptcy Chapter Matter?
Your bankruptcy chapter can matter to a subprime lender if you’re applying for a car loan before it’s discharged.
Typically, borrowers in Chapter 13 have a higher chance of auto loan approval, since it’s longer than Chapter 7. Chapter 13 is also the repayment bankruptcy where your court-appointed trustee crafts a repayment plan for you to follow. If you’re approved for a car loan during your bankruptcy, then your trustee must agree that you can make the loan payments, and still keep up with your repayment plan.
Chapter 7 is the liquidation bankruptcy where your creditors are paid by proceeds from liquidating, or selling, your non-exempt assets. Lenders may worry that your car loan could end up getting wiped out in Chapter 7, so they tend to avoid these situations until the bankruptcy is discharged, which typically only takes up to six months.
If your Chapter 13 or Chapter 7 is now discharged, the approval odds are generally higher if you can meet the lender’s requirements.
Ready to Find a Bankruptcy Auto Loan?
You may have to do some legwork to find a subprime lender that’s able to assist bankruptcy borrowers – or you could let us find a special finance dealership for you. For free.
Here at Auto Credit Express, we’ve created a nationwide network of dealers that are signed up with subprime lenders. Skip the search for a dealership by completing our free auto loan request form. We’ll look for a dealership in your local area with no obligation. Get started now!