Filing for bankruptcy isn’t an easy decision to make. Many residents of Los Angeles who resort to this option either file a Chapter 7 or Chapter 13 bankruptcy. Both have the same end goal of wiping out your debt for a fresh start, but each type has different filing requirements and works differently.
Getting an Auto Loan with a Chapter 7 Bankruptcy
A Chapter 7 bankruptcy, also called a liquidation bankruptcy, is designed to eliminate most or all of your debt by selling any nonexempt property. This bankruptcy typically only lasts three to six months, but it remains on your credit reports for up to 10 years from the date you file.
To qualify, you must pass your state’s means test. This compares your income to your state’s median income for a family of the same size. If it’s less than the median and the court determines that you don’t have the disposable income to pay your creditors, you qualify.
In some cases, you may be required to sell your car if it’s nonexempt and the equity exceeds your state’s exemption amount. If this is the case for you, and you want to finance another vehicle, you need to wait until your Chapter 7 bankruptcy is discharged.
Lenders aren’t going to work with someone in an open Chapter 7 bankruptcy, simply because they know the process doesn’t last long and they don’t want to risk the loan being included in the bankruptcy.
Getting an Auto Loan with a Chapter 13 Bankruptcy
The next type of bankruptcy residents of Los Angeles could file is a Chapter 13. This is referred to as a reorganization bankruptcy, where you follow a repayment plan that pays back all or most of your debt. Chapter 13 bankruptcies last either three or five years, but you generally get to keep your property.
To qualify for a Chapter 13 bankruptcy, you need to have a regular income and unsecured debt that’s less than $394,725, or secured debt that’s less than $1,184,200, according to the legal experts at Nolo.com.
Getting an auto loan with an open Chapter 13 is also easier compared to a Chapter 7. Lenders understand how long it takes to complete a Chapter 13, and are more willing to work with filers.
However, you need to get the court’s approval before you can finance a car, and this could be a time-consuming process. Make sure you’re certain that you need a new vehicle before you head to a dealer.
Ready to Find a Dealership in Los Angeles?
Remember, Angelenos, you should only consider filing for bankruptcy if it’s the last option available to help you get your finances back on track. If you’re simply struggling to pay for your current auto loan, there are other options to consider – including reaching out to your lender for help – that could save you from filing for bankruptcy, losing your car, and hurting your credit.
If you already filed or completed a bankruptcy and you need a new vehicle, Auto Credit Express can help you find a dealership in Los Angeles. We connect bad credit consumers in Los Angeles, the state of California, and the rest of the country to local special finance dealers.
Get the financing you need! Simply submit our online auto loan request form to get the process started today.