Going through a bankruptcy can be a stressful experience. And it can get even more taxing if you need to finance a car. Here at Auto Credit Express, we are constantly being asked questions about getting a car loan during or after a personal bankruptcy. Here is one we received just last month:
"We have had to file bankruptcy, chapter 7. It has not been discharged as of yet. Will this have a factor in us being approved for a used auto credit loan? If so, would our chances of being approved after it has been discharged be greater?"
Yes, being in an open Chapter 7 bankruptcy will play a factor in whether or not you can get approved for a car loan. And, yes, your chances of being approved will be greater after you receive your discharge papers. Allow us to explain.
Chapter 7 Bankruptcy and Auto Loans
If you need a car loan, it's much better to wait until your Chapter 7 bankruptcy has been discharged before you apply.
A Ch. 7 is a liquidation proceeding where most personal property of value is forfeited. Approximately 30 days after filing, a meeting with your creditors takes place, formally known as the 341 meeting. Then, according to Nolo.com, around 60-75 days after that, the court sends you a written discharge of your debts.
This type of bankruptcy is a relatively short procedure that is only open for a couple of months. Technically speaking, you are able to apply for an auto loan after the 341 meeting has taken place, but very few subprime lenders will consider applications until the bankruptcy has been discharged.
The reason for this is simple. If a lender offered you financing during an open Ch. 7, it is possible for you to include the debt in the liquidation process. This would result in the lender losing a lot of money. So, rather than dealing with messy situations like that, almost all subprime lenders require you to wait until after you are discharged.
Therefore, to answer the question, it's best to wait until after you are discharged to apply for an auto loan.
Getting Approved for a Car Loan after Chapter 7 Bankruptcy
While a Ch. 7 bankruptcy knocks your credit score and stays on your credit reports for 10 years, it offers a fresh start. If you were to wait and spend some time rebuilding your credit, your chances of getting approved (and with better terms) may improve even more.
But, the best way to get approved for an auto loan after a bankruptcy is to make sure you are working with the right dealership. You need to find a special finance dealership with subprime lending connections. This is because most traditional banks and lenders do not work with applicants with bad credit, especially those who have recently been through a bankruptcy.
At Auto Credit Express, we have compiled the nation's largest network of special finance car dealerships. We can connect you with one in your area free of charge to help you get back on the road. Begin the process by filling out our free and secure car loan request form today.