A discharged bankruptcy can mark the beginning of an improved FICO score if you go about reestablishing your credit in the right way.
What we do
Here at Auto Credit Express, we specialize in bad credit car loans. One of the questions we are asked most often from consumers who have experienced a bankruptcy is whether or not they can finance a car. The answer is that a car loan is very possible after a bankruptcy and is, in fact, a great way to reestablish your installment credit in general, and your auto credit in particular. There are, however, a couple of issues that need to be resolved before an application can be filled out.
The type of bankruptcy
These are the two types of personal bankruptcys in the United States. A Chapter 7 bankruptcy (which involves a liquidation of certain assets) is fairly short and is usually over in a matter of months. A Chapter 13 bankruptcy (which involves a reorganization and repayment of debts) can last either 3 or 5 years.
If you are currently in a Chapter 7 bankruptcy, you will need to wait until it has been discharged. The good news for consumers with bad credit is that once this bankruptcy has been discharged, most subprime lenders will consider you for a car loan.
If you are currently in a Chapter 13 bankruptcy, things can get complicated. In order to qualify for a loan, you will need to contact the Trustee and have him/her request an order to incur additional debt from the court (this is required because a Chapter 13 bankruptcy is based on your income and expenses and any additional debt requires court approval). If the court approves the request, they will furnish you with the document. Make sure you have this document when you apply for a car loan, because you will need this as proof that the court will allow it. The order also states the maximum amount the court will permit you to borrow. The bad news for bad credit car loan borrowers is there are not many subprime lenders who offer this type of loan.
Completing a bankruptcy
There are actually two ways of finishing a bankruptcy. A bankruptcy can either be dismissed or it can be discharged.
If you bankruptcy has been dismissed – and this is more common in Chapter 13 filings than in a Chapter 7, it means that the person that filed the bankruptcy has ignored the court order by failing to make the required payments. If your bankruptcy has been dismissed, no subprime lender will consider you for a car loan.
If your bankruptcy has been discharged, it means that you have followed all the court's guidelines and you have successfully finished your bankruptcy. At this time, the court will issue a letter of discharge. Keep this document, since you will probably need it as proof the bankruptcy has been completed (the credit bureaus may not have received the information yet, so the lender may require a copy of it).
Now it's time to start rebuilding your credit.
Your credit report
There are a number of ways to receive copies of your credit score from the three bureaus (Equifax, Experian and TransUnion). You can either go to www.annualcreditreport.com and request a free copy of your credit score from each of the three credit bureaus (you are entitled to one free copy from each bureau per year), or you can visit a site such as freescore360.com and, for a minimal fee, receive all three reports plus credit scores and the ability to sign up for a credit monitoring service. You are entitled to one free copy from each bureau per year. Notify the bureaus through their dispute processes if you find any errors.
Rebuild your credit
There are two types of credit – revolving credit and installment credit. You will need to re-establish yourself with both types.
An example of revolving credit is a credit card. If you don't qualify for a regular unsecured credit card, apply for a secured credit card, where your credit limit is determined by funds you deposit in a bank account. Look for a company that allows you to switch it over to an unsecured card in 12-18 months, provided you make all your payments on time. It's also a good idea if you only use 30% of your credit line.
An example of installment credit would be a car loan. At Auto Credit Express, we have helped thousands of people with all types of bad credit get reestablished while driving a new or low-mileage used car. Simply go to our site, www.autocreditexpress.com. Once there, you will find the answers to many of your questions, as well as testimonials from our customers. The best news is that you can complete the entire process from the comfort and privacy of your home.