When you're in the middle of bankruptcy and suddenly find yourself needing a car, all hope isn't lost! It's possible to get an auto loan during bankruptcy – both Chapter 13 and Chapter 7 – though one is easier than the other. Let's take a look.

Which Bankruptcy Are You In?

There are processes in place to get an auto loan while in active bankruptcy. However, the ease and probability of success change depending on what Chapter you filed. Generally, it’s easier to get approved for a car loan during Chapter 13, the reorganization bankruptcy, than it is in Chapter 7, the liquidation bankruptcy.

If you own your vehicle 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 bankruptcy trustee can sell your assets to repay your creditors. In Chapter 13, your trustee forms a repayment plan for you to follow which allows you time to repay your debts, including an auto loan.Bankruptcy Car Buying and Bad Credit

No matter which chapter you're under, if you're in active bankruptcy and need a car, you have to get permission from the court to take on new debt.

Getting an Auto 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 open bankruptcy proceedings. If 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 bankruptcy auto loans, you still need to get your trustee's permission and make sure that you've completed your 341 meeting of creditors. In many cases, lenders prefer not to work with people in Chapter 7 since the process is so short, typically four to six months. When lenders grant a loan to someone in bankruptcy they risk the vehicle being sold to repay other debts, which can put them at 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 bad credit auto loan.

Financing a Vehicle During Chapter 13 Bankruptcy

Getting a car loan in Chapter 13 is an entirely different process than that of Chapter 7. For starters, Chapter 13 is a long process that takes either three or five years to complete. Because of the timeframe, lenders and the courts understand that things happen, and you may need another form of transportation in that time.

There's a process in place that allows bankruptcy borrowers to apply for financing while their filing is open. The first step is to talk to your trustee and let them know you need another vehicle. Then, you have to find a lender that works with bankruptcy. Once you do, you start the process of 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 you may qualify for. The "or similar" designation protects you from having to start the process from scratch if the vehicle you're looking at sells before you gain court approval to proceed with the purchase.

Once you complete the paperwork, you bring it to your trustee, who then files a motion to obtain debt with the court. This proceeding can take a little while, so you may not find out right away if you can finance another car or not. If you’re approved, you can then head back to the dealership with the paperwork proving you’re in the clear and take delivery of the vehicle.

Ready to Find a Bankruptcy Auto Dealer Near You?

If you find yourself needing a newer ride, but don't know where to turn due to bankruptcy, look no further. At Auto Credit Express, we work with a large network of dealerships across the country that assist borrowers who have tarnished credit, including those in active bankruptcy. Let us do the legwork for you by matching you to a dealer in your area.

To get started from the comfort of your home, or on the go, simply fill out our fast, free auto loan request form.