No matter if you file a Chapter 7 or a Chapter 13, dealing with a bankruptcy isn't easy. If you need an auto loan, you may be wondering about where to find car dealers that deal with open bankruptcies. Luckily, The Car Connection works with dealerships that know how to handle bankruptcy. Before we look at that, however, we want to make sure you know exactly what to expect, the types of dealers you could be working with, and how the type of bankruptcy you filed affects your approval odds.
Car Dealers That Deal with Bankruptcy
Traditional lenders and dealerships don’t typically deal with open bankruptcies. Instead, you need to work with a special finance dealer that has subprime lenders, or a buy here pay here (BHPH) dealership. Both know bad credit and bankruptcy, but getting approved for a car loan requires meeting different qualifications for each.
Subprime lenders work through special finance dealers, and give those dealing with bankruptcy or other types of bad credit a chance to get auto financing. These lenders base approvals on multiple factors, including credit score, income, and residence stability. The biggest benefit to financing through a subprime lender is that these car loans give consumers a chance to rebuild their credit after dealing with bankruptcy.
Buy here pay here dealerships offer loans in-house, which means they’re both a dealer and lender. This one-stop shop is easy and quick – getting approved for financing is even easier than at a subprime lender. A bankruptcy likely won't even matter, as most of these places don't run credit checks. All anyone needs to get approved is enough income and a down payment.
More and more BHPH dealerships are reporting loans and on-time payments to the credit bureaus these days, so make sure to ask about their practices ahead of time if you want to improve your credit score with one of these loans.
Getting a Car Loan with an Open Bankruptcy
Now that you know the basics between the two types of dealers you could be working with, how does the type of bankruptcy you file affect your approval odds while it’s still open? Let’s break it down:
- Chapter 7 bankruptcy – Called a liquidation bankruptcy, this is where any nonexempt property (such as a house or vehicle) can be sold to pay back your creditors. This type of bankruptcy only lasts a few months, and, due to the short time frame, getting approved for a car loan while you have one open usually isn’t possible. Lenders don’t want to run the risk of the auto loan being included in the bankruptcy and losing it. So, with a Chapter 7, you’re better off waiting until it’s been discharged before applying for car financing.
- Chapter 13 bankruptcy – This is a reorganization bankruptcy that lasts either three or five years. That’s a long time to have an open bankruptcy. Luckily, many subprime lenders recognize this and offer financing while a Chapter 13 is open. The process can be tedious, as you have to go through your trustee and get approved through the court, but it's worth it if you truly need a vehicle during this time.
The Bottom Line
Talk to your trustee before you start the process of applying for an auto loan with an open bankruptcy. Your trustee can tell you whether or not you could get an approval from the court for a car during an open bankruptcy, and, if you can’t, give you advice on what to do to improve your odds of getting financing down the road. If you don’t get the court’s approval and try to get an auto loan without their knowledge, your bankruptcy could be dismissed or you could face legal action.
If you’re dealing with an open bankruptcy, or recently had one discharged, and need a dealership to work with, we want to help. At The Car Connection, we connect consumers to local dealers that know how to help people in unique credit situations such as bankruptcy. Complete our car loan request form to get the process started today.