Filing for bankruptcy and going through the bankruptcy process isn’t easy. If you're currently dealing with an open bankruptcy, you may be wondering if you can get an auto loan at this time. It is possible to get a car loan during bankruptcy, but approval may be dependent on the type of bankruptcy you file.
Getting an Auto Loan with an Open Bankruptcy
What type of bankruptcy did you file? This is important, because how lenders view an open Chapter 7 versus an open Chapter 13 is different.
If you have an open Chapter 7, it’s safe to say that you probably aren’t going to get approved for an auto loan. Lenders know that a Chapter 7 bankruptcy typically only lasts a few months, and they’re going to want you to wait until it’s been discharged before they consider your application.
If you have an open Chapter 13, it’s a different story. A Chapter 13 bankruptcy lasts either three or five years, and lenders know that things can happen during this time. You certainly can wait until your Chapter 13 has been discharged, but know that lenders are more willing to work with you even if your bankruptcy is still open.
No matter which type of open bankruptcy you have, you must first get a sample buyer’s order from the dealership you plan on working with. This lists the vehicle you plan to buy, the selling price, and the maximum interest rate you could qualify for.
From there, you take it to your trustee, and this person determines if you’re able to handle a new line of credit. If the trustee approves, a motion to incur debt is filed with the court. The court then decides on whether or not to approve the motion.
You may need to attend a hearing, where your creditors can object, but this isn’t always required. If the court approves the motion, they file an authorization to incur debt, which you receive a copy of to bring to the dealer.
Getting an Auto Loan with a Closed Bankruptcy
Often, we get questions about bankruptcy car loans such as this:
“I just finished filing bankruptcy, which has been discharged. Is this going to affect my trying to get a loan?”
At this point, no matter what type of bankruptcy this customer filed, it’s been discharged. This is the best time to apply for a bankruptcy auto loan, and, although their credit score is affected by the bankruptcy, they have a better chance of getting approved for a car loan because lenders like to see that a bankruptcy has been discharged.
If this customer said their bankruptcy was dismissed rather than discharged, then they’d run into trouble. Having a bankruptcy dismissed means it wasn’t complete, and a lender is going to see this on their credit reports. Most lenders aren’t willing to work with consumers with a dismissed bankruptcy.
The Bottom Line
You can get a bankruptcy auto loan, it just depends on the type of bankruptcy you filed, and, sometimes, whether it’s been discharged. You have a greater chance of getting a bankruptcy car loan with an open Chapter 13 than an open Chapter 7, but you should discuss this with your trustee before you head to a dealership to see if it’s the right move for you.
If you’re looking for a dealer that knows how to handle bankruptcy auto financing, we can help. At Auto Credit Express, we have over 20 years of experience getting bad credit car buyers connected to local dealerships that have special lending resources. Let us help you find a dealer in your area. Simply fill out our fast, free, and easy auto loan request form to get started now!