Filing for bankruptcy is not something to jump into without any thought. Yes, it is in some cases the best way for an individual to get out of debt, but the way if affects your credit score can make it very difficult for someone who will need car loans after bankruptcy. Here at BankruptcyAutoFinancing.com we can help you prepare for a bankruptcy auto loan.
Should I get an Auto Loan before Bankruptcy?
If you know that you are going to be filing for bankruptcy in the near future your best bet is not getting a car loan before filing bankruptcy, but instead waiting until you have been discharged.
If you have filed a chapter 13 bankruptcy and you have purchased a car 30 months prior to the filing, then your only option for the vehicle is to surrender it, or keep paying on it as if you have not filed for bk at all, which is not helpful in getting out of debt.
In a chapter 7 bankruptcy you have three options, surrender, reaffirm, or redeem, but given that you have recently bought a vehicle it still has a large resale value. Your trustee can take the car, and sell it to pay off your creditors, and then you will have to get an auto loan after bankruptcy anyway.
Before Applying for After Bankruptcy Auto Loans
You need to know exactly how a lender will look at a bankruptcy on your credit report. The first think they will look for is whether you filed chapter 13 or 7, and if you have been discharged (successful bankruptcy) or dismissed (unsuccessful bankruptcy).
Debtors do not like to see repossession directly before or after the bk. This is because if you had one right before filing you could have used the bankruptcy as a way not to pay the deficiency on the car after it was sold at auction, and a repossession after means you didn’t learn anything and are a bad risk.
Using the Same Auto Loan Lender
If you are thinking about using the same auto loan lender as your previous car loan then you need to think about what happened with that loan. If you filed a chapter 13 and used the "cram down process" you chances of getting another loan with that same lender are slim to none. This is because you have forced them to lower your loan balance to the fair market value of the car; in turn losing them money.
Filing for a chapter 7 bankruptcy and reaffirming your car loan will give you a greater chance of being able to get another vehicle financed after bankruptcy from the same lender, provided you made good on all your payments.
Remember we are not lawyers and cannot give legal advice. The situations discussed are only our experiences over the years and may vary with each customer.