A Chapter 7 bankruptcy doesn’t last long before it’s discharged – usually three to four months. The biggest drawback to a Chapter 7 is that you may have to liquidate, or give up, your non-exempt assets (possibly a car) to pay back your creditors. If you need a car loan during or after a Chapter 7 bankruptcy, keep reading to find out the challenges you may face.
Can You Buy a Car with an Open Chapter 7 Bankruptcy?
If you end up having to give up your vehicle in a Chapter 7 bankruptcy, but need one to get around, can you finance a car again? Unfortunately, because an open Chapter 7 bankruptcy is short lived, most subprime lenders aren’t going to consider your application for financing if you’re in the middle of one. The reason is because auto lenders don’t want to run the risk of having their loan included in the liquidation process.
Buying a Car with a Closed Chapter 7 Bankruptcy
In an ideal car buying situation, you should wait until after your Chapter 7 bankruptcy has been discharged before looking for auto financing. Once it’s discharged, your debt to income ratio improves, and you can’t file another bankruptcy for seven years. So, it’s best you jump right into the car buying process once you receive your discharge papers if you know you need a vehicle.
Although it may take longer to get approved for car financing after a Chapter 7 bankruptcy, there are certain steps you can take to improve your odds, which include:
- Checking your credit reports and score
- Trying for pre-approval with your bank or credit union
- Researching the average interest rates for your credit score range
- Researching vehicles
- Planning a budget and including tax, title, and license fees
- Rate shopping and comparing offers before making a decision
If a subprime lender turns you down, your next best bet to get financing with a closed Chapter 7 is to visit a buy here pay here (BHPH) dealership.
These dealers are also lenders, and finance in-house. They typically don’t run credit checks, and aren’t concerned about whether or not you have a bankruptcy on your credit reports. Instead, they base an approval on your income and, sometimes, your residence stability. Keep in mind that these dealerships don’t always report on-time payments to the three major credit bureaus, so your credit score isn’t going to improve if you do take out a car loan from one of them.
Looking for Auto Financing?
The bottom line is this: make sure you’re as prepared as possible before you walk into a dealer. Know where your credit score stands and how much car you can afford. No matter where you’re at in the bankruptcy process, we want to help you get connected to a dealership that has the lending resources available to help. At The Car Connection, we strive to help our customers every day by connecting them to a dealer fast. Out process is easy, and free of cost and obligation. Just fill out our auto loan request form, and we’ll get right to work matching you with a local dealership.