How Filing Bankruptcy Affects Your Credit

Car buyers with poor credit should know that if done right not only is bankruptcy hardly the end of the world it can offer the opportunity to get approved for a car loan
How Filing Bankruptcy Affects Your Credit
Our experience

Consumers with problem credit often want to know how a bankruptcy will affect their chances of applying for an auto loan.

Here at Auto Credit Express we understand why they’re concerned about this because for the past two decades we’ve been helping car buyers with bad credit looking for online auto loans find those car dealers that can give them their best shot at an auto loan approval.

One thing we will not do, however, is to give anyone legal advice. Consumers searching for this should consult a lawyer and, if they’re considering bankruptcy, an attorney that specializes in bankruptcy law.

What we can do is present the basics of the different types of bankruptcies as well as some of the terms involved with bankruptcy proceedings.

Types of Bankruptcies

Chapter 7 – This type of bankruptcy is a liquidation bankruptcy. All unprotected assets are sold off to satisfy the claims of the creditors. When the debt involves collateral (such as a home or a car), filers have three choices:

1. Redemption – Pay for the current value of the collateral in a single cash payment. The collateral is now theirs free and clear.
2. Reaffirmation – Agree to continue a debt after the bankruptcy has been discharged (completed).
3. Surrender – Give up all rights to the collateral and it now belongs to the creditor who can sell it to recover the debt.

Chapter 13 – This type of bankruptcy is a reorganization bankruptcy. It lasts for either 3 or 5 years, depending on what the filer’s family income is when compared to the state median. The plan must allow for full payment of 1) priority claims (taxes, support) and generally for payment of the value of 2) secured claims (secured by a lien such as an automobile – although this does not include real estate). It also calls for payment on 3) unsecured claims – in that order. The amount of the monthly payment is based on a form that filers fill out that is an evaluation of your living expenses and the disposable income that is left after these expenses. While you are in this type of bankruptcy filers agree to:
1. Make the plan payments
2. Not incur significant debt without court approval
3. Keep insurance on any collateral

For both types of bankruptcies the court appoints a professional called a Trustee. Although the trustee has different duties in both types of bankruptcies, he/she is there to manage the payments and act in the interests of any creditors.

When is a bankruptcy over?

Bankruptcies are over when they are either dismissed or discharged.

If a bankruptcy is dismissed, it means that filers are still legally responsible for all their debts. A dismissal is usually the result of Chapter 13 filers not making their monthly payments.

When a bankruptcy is discharged, it means that it has been completed successfully. All debts that can be discharged are no longer legally enforceable against the debtor (some debts such as student loans, child or family support and criminal restitution cannot be discharged).

How will a bankruptcy affect my credit?

A bankruptcy will stay on your credit report for 10 years following discharge. As a rule, the older the bankruptcy, the less it affects your credit rating. The discharge of a bankruptcy (not a dismissal) is also a good time to begin rebuilding your credit. Both types of credit – revolving (such as a credit card) and installment (a car loan) – will probably have to be reestablished.

How we can help

While we can’t offer any advice to people who are considering bankruptcy, we have helped many consumers looking for bankruptcy auto loans that have successfully completed the process. That’s because Auto Credit Express matches people that have experienced credit difficulties with new car dealers that can offer them their best opportunities for approved auto loans.

So if you’re ready to reestablish your car credit, you can begin now by filling out our online auto loan application.

Posted on August 22, 2013 by in Bankruptcy
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