After your bankruptcy is dismissed, it can be difficult to find auto financing. However, most negative marks on your credit reports fall off after some time, and there are dealerships willing to work with borrowers in these situations.
Bankruptcy Dismissal and Vehicle Financing
A bankruptcy dismissal typically means something went wrong with your bankruptcy. There are two main types of dismissed bankruptcies: with and without prejudice.
- If the bankruptcy was dismissed with prejudice, there was fraud in some fashion; abuse of the process; court’s orders were disobeyed; or filing multiple times to avoid payments (or a combination of these). A dismissal with prejudice can drastically lower your credit rating.
- If the bankruptcy was dismissed without prejudice, it usually means some sort of clerical error or the borrower submitted the wrong document. If this is the case, then you can typically refile for bankruptcy pretty quickly and try again.
With a dismissed bankruptcy on your credit reports, most traditional auto lenders aren’t willing to approve you for an auto loan. It isn’t the greatest position to be in when you’re looking to finance a vehicle, but not all hope is lost. You do have auto loan options after a dismissed bankruptcy, and you can work to repair your credit, too.
Auto Loans Options After Bankruptcy Dismissal
There are typically two auto loan options for bankruptcy borrowers: subprime lenders and in-house financers. Let’s take a closer look:
Subprime auto lenders are equipped to assist bankruptcy borrowers. You can apply with a subprime lender through a special finance dealership, but you may or may not be approved for financing. Many subprime lenders prefer bankruptcy borrowers with a discharged bankruptcy (completed), not a dismissal, but every lender varies in their specific stipulations. Applying with a special finance dealership is a good place to start if you need vehicle financing. Subprime lenders can help you get a jump on credit repair if you’re approved since they report their car loans to the major credit reporting bureaus.- In-house financers are often recommended to bankruptcy borrowers. These lenders may not even check your credit reports at all. In-house financing means the dealer and lender are one and the same, and they don’t rely on third-party lenders before they approve an auto loan application. In-house financers are found at buy here pay here (BHPH) dealerships. If a subprime auto lender can’t work with your dismissed bankruptcy, a BHPH dealer is a logical next step. However, credit repair may not be an option with in-house financing. Some BHPH dealers don’t report their loans to the credit bureaus, so your on-time payments can’t improve your credit.
Credit Repair After Bankruptcy Dismissal
After a bankruptcy is dismissed, it can take years for it to fall off your credit reports, depending on how you filed. A Chapter 7 can remain there for up to 10 years; Chapter 13 can stay for up to seven years. While that sounds like a long time, the negative effect of bankruptcy dismissal on your credit reports fades with each passing year. Your credit score is made up of many things, not just negative accounts.
Your FICO credit score is made up of your: payment history, amounts owed, length of credit history, credit mix, and new credit. Improving each aspect of your credit score takes time, but you don't have to tackle them all at once. Here are some quick credit-improving tips you can use:
- Pay all your bills on time – Payment history carries the most weight (35%), so making all of your bill and loan payments on time is important to credit repair. Missed or late payments can remain on your credit reports for up to seven years, so prioritize your payment history.
- Keep old accounts open – By keeping old, unused credit lines open, you’re lengthening your credit length. The longer you’ve had positive accounts open, the better off your credit score is.
- Pay down your credit cards – If you owe more than 30% of your credit card spending limits, it can lower your credit score. Bring down your credit card balances as much as possible; the lower the better.
- Dispute errors on your credit reports – There are three major credit reporting agencies: TransUnion, Equifax, and Experian. Each is likely to generate different credit reports, and sometimes mistakes happen. Comb through your credit reports for inaccuracies (such as duplicate accounts or old, already paid accounts), dispute them, and have them removed. All three bureaus allow for online dispute resolution. Right now, due to the pandemic, you can request a free copy of all your credit reports weekly by visiting www.annualcreditreport.com.
- Avoid applying for new credit when possible – When you apply for new credit, a hard inquiry is listed on your credit reports and can lower your credit score, generally around five to 10 points. Avoid applying for new credit unless it’s necessary to avoid stacking up hard inquiries since they can lower your credit score for up to 12 months. Opening a new line of credit can also help your credit score if you manage it well, but applying for new credit frequently can harm it for a while. If you apply for new credit and don’t qualify, then the hard inquiry can still hurt your credit for up to 12 months, so apply wisely.
- Take on new credit you can handle – While you should avoid applying for new credit when possible, taking on a car loan you can comfortably afford builds a good payment history. Auto loans typically last for years, so that could be years of on-time payments that brush up your credit. Auto loans are installment loans, which improves the credit mix aspect of your credit score, too. Making your car payments on time, and adding variety to your credit reports, has the potential to boost your credit significantly.
Locating a Dealership for Bankruptcy Auto Loans
Finding an auto loan after your bankruptcy is dismissed could be a hassle, and improving your credit score can take some hard work. However, both are possible, and we want to help by matching you with a dealership that has resources for bankruptcy borrowers.
Here at Auto Credit Express, we’re in the business of connecting bankruptcy and bad credit borrowers to dealers that are signed up with subprime lenders all over the country. To get started on the road to your next auto loan, fill out our auto loan request form. There’s never an obligation to buy, our form is secure, and completely free. Once you submit it, we’ll get right to work looking for a dealership in your local area that has bad credit lending resources.
