Bankruptcy is not to be entered into lightly. Depending on which stage you’re in, or if you’re considering filing a Chapter 13, the process of getting – or keeping – a vehicle differs greatly. Here are some considerations for every stage.
Car Consideration Before Filing Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is a long process – either three or five years – where you’re responsible for paying off your debts with your disposable income. In a Chapter 13, you’re likely to be able to keep your vehicle, but there are exceptions to this general rule:
- If your car payment is too expensive – say, for a luxury vehicle – the court might not allow you to use the payment when calculating your disposable income. You’re only allowed to keep reasonably necessary living expenses, and a large payment could seem unreasonable, affecting your repayment schedule. Another thing that might harm your repayments is too much equity in your car.
- If you’re already upside down, you might consider a loan cramdown if you plan to file. During a Chapter 13 bankruptcy, this tactic allows you to reduce the amount you owe on a car loan to match the actual cash value of the vehicle. Anything left over gets added to your other unsecured debts. However, you have to have purchased your car at least 910 days (two and a half years) before filing.
- If you’re behind on your car payments, it typically means repossession, but an “automatic stay” goes into place as soon as you file bankruptcy. This prohibits most creditors from collecting further payments. A Chapter 13 bankruptcy doesn’t always mean you automatically get to keep your car. However, if you pay the amount you’re behind, and keep up with your remaining car payments, you should be safe.
Buying a Car During Chapter 13 BK
The first step in getting auto financing during a Chapter 13 bankruptcy is finding a lender who can work with you. Because not all lenders work with people in this situation, you’ll typically need a special finance dealer with subprime lending resources.
Once you’ve found one, get a sample buyer's order along with a financing statement to bring to your trustee. These need to include all the specifics about your potential loan: the down payment, amount to finance, monthly payment, loan term, interest rate, vehicle information, etc. It’s very important to make sure the dealer includes “or similar” with your vehicle information.
Because your trustee will have to review the paperwork and take it to the court for approval with a “motion to incur debt,” the process takes time. Without the “or similar” stipulation on your paperwork, you might have to start from scratch if the vehicle you plan to buy has been sold.
The court can approve or deny your motion, depending on why you need the car and how a new payment affects your repayment plan. You might be required to attend a hearing during this process, but once you’re approved, you can return to the dealer and continue the financing process.
Purchasing a Vehicle After Bankruptcy
Once you’ve completed a Chapter 13, your vehicle buying process is similar to any other bad credit car buying situation. This means there are certain requirements you’ll need to meet with a subprime dealer. It’s best to be prepared for this, including a down payment – typically $1,000 or 10 percent of the vehicle's selling price – and higher interest rates.
If you’ve kept up with your repayment plan, and come out of your Chapter 13 bankruptcy with a discharge, any remaining debt is wiped out. Though your credit will reflect the bankruptcy with a lower credit score, it’s usually not too difficult to get vehicle financing at this point. However, having the proper lender is key.
Start Your Financing Journey with Us
Whether you’re in an open Chapter 13 bankruptcy, or are ready to finance a vehicle after discharge, Auto Credit Express wants to be your go-to service. Let us help you find the right local dealer for your situation from the extensive network of special finance dealers we work with. Don’t wait any longer for the vehicle you need, fill out our auto loan request form and get the process started today.