You can buy a car while you're in a Chapter 7 bankruptcy, but if you can wait until your case is discharged, you may have an easier time finding financing. Chapter 7 is a pretty short process, lasting only around four to six months, and many lenders don't work with borrowers in this situation. Let's take a closer look.
Getting a Car In Chapter 7 Bankruptcy
If you need a vehicle while you're in Chapter 7 bankruptcy, you should talk to your trustee before taking any action. You may have a few options depending on your situation. You may be able to purchase an inexpensive car for cash if the value of the car can be protected with a bankruptcy exemption. Or, you may qualify to take on a small auto loan.
Be aware that if you are able to get a car loan during bankruptcy you must have the court's permission, and its value must be able to be exempt. If the vehicle is worth more than you're allowed to keep, your trustee is obligated to sell the car for its value. Once the vehicle is sold you're given the exemption amount and anything extra is paid to your creditors. You can use the cash to purchase an affordable car which can be covered by the exemption.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is a process in which your assets are sold by a bankruptcy trustee to get the money to repay your debts. It's often referred to as liquidation bankruptcy and may be the first option individuals look at when they're considering filing. Not everyone qualifies for this type of bankruptcy, though.
Before you can file you have to take a Chapter 7 Means Test, which calculates if you have the financial "means" to repay at least a portion of your debts. The means test compares your average monthly income for the six months prior to filing to the average median income of a family (the same size as yours) in your state. If you make less than this, you're eligible to file Chapter 7.
Once you file, you're assigned a trustee by the court, and they determine the value of your property and sell whatever they can in order to repay your creditors. Any debts left after the bankruptcy are typically wiped away, and can include an auto loan if you get one during your filing.
This is a big reason many lenders don't make loans to borrowers in Chapter 7 – they stand to lose a significant amount of money if a new loan is included.
Filing Chapter 7 With a Car Loan
If you have a car loan when you file, you don't always have to lose it. You may be able to keep your vehicle and its loan if you qualify for one of two options – reaffirmation or redemption. But, if you don't intend to keep your car, you have to say so when you file; if you don't you may still be responsible for the loan amount after discharge.
Finding Bankruptcy Auto Lenders
Whether you're in an open Chapter 7 bankruptcy or have just been discharged, it's still possible to get an auto loan – as long as you have your trustee's permission, and are working with the right lender. Not all lenders can work with borrowers in an open bankruptcy, but we want to help you find the ones that can.
Here at The Car Connection, we've cultivated a nationwide network of special finance dealerships that are signed up with subprime lenders that can help consumers with problem credit, including bankruptcy. Don't wait until it's too late, get connected to the dealer you need by filling out our fast, free, zero-obligation auto loan request form.