Bankruptcy Basics

When you file for bankruptcy, you’ll have the choice to file a Chapter 7 or Chapter 13. The end goal is the same for both bankruptcy types – get rid of your debt – but which bankruptcy you qualify to file for depends on your income and assets.

What Happens When You File Chapter 7?

Bankruptcy BasicsA Chapter 7 bankruptcy, known as a liquidation bankruptcy, takes between three and five months to complete, and stays on your credit reports for up to 10 years from the date it was filed. In order to file, you need a qualifying level of income. This is determined by comparing your monthly income to the median income of families of the same size in your state. If your income is below the average, then you’ll be able to file a Chapter 7.

Once you file, you’ll be given a trustee who’s in charge of selling your assets to pay off your debts to creditors. Filers can lose their car during a Chapter 7 bankruptcy if they don’t claim it as exempt property, or if they owe money on it and haven’t made arrangements with the lender. With a Chapter 7, you’ll be able to clear your debts quickly and start over, but you may lose some assets in order to do so.

Filing a Chapter 13

A Chapter 13 bankruptcy is a reorganization bankruptcy that stays on your credit reports for up to seven years from the date it was filed. Depending on your repayment plan, a Chapter 13 bankruptcy can take three or five years to complete. To file a Chapter 13, you must have regular disposable income, and can’t have more than $394,725 of unsecured debt or $1,184,200 of secured debt. Unlike a Chapter 7, you may be able to keep your property and assets – including nonexempt property – but you’ll have to pay all or a portion of your debts back through the repayment plan.

Besides being able to keep certain property, what makes a Chapter 13 bankruptcy even more attractive is that you can make up missed payments and avoid foreclosure or repossession, which also hurt your credit.

Getting a Car Loan After Bankruptcy

If you need a car while your bankruptcy is open, the type of bankruptcy you have affects whether or not a lender is willing to finance you. If you have an open Chapter 13 bankruptcy, many dealers – including the ones we work with – are able to help car buyers get the financing they need. It’s easier to get a car with an open Chapter 13 bankruptcy because lenders know it takes many years to complete.

If you have an open Chapter 7 bankruptcy, the majority of lenders will tell you to wait until it has been discharged before you apply for a car loan. This doesn’t necessarily mean you won’t get approved for a car loan with an open Chapter 7 bankruptcy. There are lenders who are willing to work with you, but finding them is a challenge on its own. Remember, a Chapter 7 bankruptcy is short and lasts a few months before it's discharged, so if you can wait until it’s been discharged, we highly recommend you do. Once your Chapter 7 bankruptcy has been discharged and your credit has improved, you can begin searching for your next car.

Unfortunately, because a bankruptcy stays on your credit reports for so many years, buying a car after a bankruptcy can be difficult. Not all lenders are able to handle this type of credit situation, and that’s where The Car Connection steps in.

With our simple auto loan request form, and our nationwide network of dealerships, we want to connect you to a local dealer that can help you, even if you’ve dealt with bankruptcy. Get started today!


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