The qualifications for high risk car loans are different if a bankruptcy has not yet been discharged
Understanding your credit problems
At Auto Credit Express we occasionally receive questions from people currently in a bankruptcy that want to know if it's possible to get car loan approvals from higher risk lenders before receiving a letter of discharge from the court.
Since we've been helping consumers with credit problems for the last two decades to find dealers that can help get them financed, we know the answer to this particular question isn't always simple. Here is why:
Bankruptcy auto loans
Applying for subprime auto loan financing following the discharge of a bankruptcy is a fairly simple process. The only additional documentation that most lenders will require is a copy of the discharge order issued by the court.
But if someone needs a vehicle before their bankruptcy is completed, the process for applying for a car loan really depends on which type of personal bankruptcy that person has chosen - a Chapter 7 or a Chapter 13.
Filing for a Chapter 7 bankruptcy involves liquidating a debtor's assets and distributing any proceeds to the unsecured creditors. This type of bankruptcy is typically completed in a matter of months and can only be done once every 8 years.
Filing a Chapter 13 bankruptcy involves the setting up of a payment schedule that must be followed to complete the bankruptcy, which normally takes either three or five years.
Since a Chapter 7 bankruptcy is over fairly quickly while a Chapter 13 takes much longer, there are different rules that must be followed for each type.
Chapter 7 bankruptcy car loans
The first step in determining a filer's eligibility for a Chapter 7 bankruptcy is the means test. If this test is passed (and with the more stringent guidelines now in place there's no guarantee that it will be), the next step is the 341 meeting of creditors. At this meeting the court affirms the value of assets and the accuracy of the information contained in the filer's schedule of debts.
The timing of the 341 meeting is important. This is because of the fact that while high-risk lenders auto lenders typically require that a Chapter 7 must be discharged (due to the short term), there are some that will review an application once this meeting has taken place.
Chapter 13 bankruptcy car loans
The scenario is much different for individuals currently in a Chapter 13 bankruptcy. These filers, before applying for any type of loan, must request the court-appointed trustee to petition the judge for an order to incur additional debt. The order (if it's granted by the court) gives the filer permission to take out a loan. In addition, the order details the maximum loan amount and can also specify the maximum interest rate allowed (this last requirement can often be a problem with subprime lenders).
If the order is not granted, the filer cannot apply for any type of loan. Since bankruptcy filings appear on credit reports, lenders typically already know if an applicant is in a Chapter 13 and will automatically request a copy of the court order before reviewing the loan request.
As we see it
The ability to qualify for auto loans during bankruptcy typically depends on the type of bankruptcy, how far along it is and, if it's a Chapter 13, the granting of an order to incur additional debt as well as a lender's willingness to meet its requirements.
If you have filed for bankruptcy and provided you meet these guidelines we want you to remember is that Auto Credit Express specializes in matching applicants with new car dealers that can offer them their best opportunities for approved car loans.
So if you're ready to begin reestablishing your car credit, you can begin now by filling out our online auto loans application.