Even though it’s much easier to get a car loan during an open Chapter 13 bankruptcy than it is to get one during a Chapter 7, you may not need to get a new vehicle if your bankruptcy helps you keep the one you have. Lenders know that a lot can happen during a Chapter 13 that could lead to you needing an auto loan, but there’s a lot this type of bankruptcy can do to help you keep your car or stop drowning in the debt it’s caused.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is known as a reorganization bankruptcy because you and your trustee come up with a manageable plan to repay as much of your debt as possible over a period of three or five years.
A lot can happen with your vehicle during a Chapter 13 bankruptcy. Even though it’s possible to finance a new car if you need one during this time, there are a few things this bankruptcy can do to help you keep your current vehicle.
3 Options to Help You Keep Your Car
There are typically three options that can help you keep your car during a Chapter 13 bankruptcy:
- The automatic stay – When you file bankruptcy, an automatic stay goes into effect which blocks creditors from collecting on debts. This means that a lender can’t repossess your vehicle while an automatic stay is in place.
- Catch up on back payments – Since a Chapter 13 bankruptcy is designed to help you repay your debts over time, it offers the option for you to catch up on back auto loan payments through your repayment plan, as long as you keep making your monthly car loan payment. Doing this allows you to keep your vehicle, and pay off your loan.
- Cramdown your loan – This process allows you to reduce the amount of your auto loan, so that you’re only paying for the value of the car. This is known as a cramdown, and it’s only allowed in a Chapter 13 bankruptcy. You can only qualify for a cramdown if the amount you owe on your loan far exceeds the current value of your vehicle, and you bought it more than two and a half years before filing for bankruptcy. The difference between the car's value and your original loan amount then becomes unsecured debt.
If none of these options work for you, you do have the option to surrender your vehicle to the lender if you can no longer afford your loan, or if you’re making payments on a car that’s in need of costly repairs or can’t be repaired.
Keep in mind, though, that just because you return your vehicle, it doesn’t mean you’re not responsible for paying the lender. Even if the lender sells the car, you’re responsible for paying any balance that wasn’t covered by the sale under your repayment plan.
Getting a Car during a Chapter 13 Bankruptcy
Because there are so many things that can happen to your vehicle during a Chapter 13 bankruptcy, there’s a process in place for allowing you to get another car. This process begins by getting your trustee’s approval to take on more debt. After this, it’s a trip to a dealership that works with bankruptcy auto loans.
In order to get a car loan when you’re in a Chapter 13 bankruptcy, you have to get a sample buyer’s order from a dealer. Before you visit a dealership, however, you need to make sure that they have the lenders available that can work with people in bankruptcy. That’s where we can help.
At Auto Credit Express, we connect people to dealers that have the lending resources for unique credit situations. Our nationwide dealership network has lenders that can help people dealing with bad credit, no credit, and even bankruptcy.
To find out which local dealer could be right for you, simply fill out our free, no-obligation auto loan request form to get the process started right now.