Purchasing a Vehicle in Chapter 13 Bankruptcy

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If you’ve recently gone through bankruptcy, or you’re considering it, you probably already know that one of the parts of your life that will be most impacted is your ability to get financing for major purchases, like a car. At OlsenDaines, we understand what you’re going through, and how important understanding your options is. That’s why we’re here to answer your questions about getting an auto loan after filing for bankruptcy.

For many individuals navigating the aftermath of bankruptcy, securing a car loan is more than just a simple transaction – it’s an important milestone toward building back your life and financial flexibility. So let’s talk about what you can expect.

Can you qualify for a car loan while you’re in bankruptcy?

During a Chapter 7 bankruptcy, the prospect of financing a vehicle may seem like a distant dream. However, once you’ve received your discharge letter—typically around 90 days after filing—doors will begin to open again. 

Chapter 13 bankruptcy presents its own set of considerations, including obtaining court permission. We recommend consulting with a bankruptcy attorney who can help you navigate this process smoothly.

How do you buy a car during Chapter 13 bankruptcy?

One way to buy a car during Chapter 13 is to obtain court approval. To do this, you must fill out a Vehicle Purchase Request form (VPR), secure financing, and get your request approved by the court trustee. This can be an arduous process and the available loan terms won’t be favorable since you have poor credit. 

If you need to buy a car during Chapter 13 bankruptcy, we recommend one of these options:

• Pay for It with Cash: You can probably find an affordable car on Craigslist or another marketplace site. If you go this route, you’ll get the transportation you need and save money in the long run since you’re not financing. Best of all, you can pursue this option without court involvement.
• Ask a Friend or Family Member to Finance the Car in Their Name: They will complete the transaction with their good credit and you will pay the monthly payment to them. This way, the court isn’t involved and you have more options than if you were to pay for it with cash. 

Can you qualify for a car loan after bankruptcy?

Yes, you will be able to qualify for a car loan soon after you receive your discharge letter. However, it’s important to recognize that your credit score will have taken a hit post-bankruptcy, making it challenging to secure favorable loan terms. You may want to consider taking take time to rebuild your credit score before taking on a car loan. On the other hand, making regular payments on a car loan can help you rebuild your credit faster. Everyone’s situation is different, and you should take some time to think about your long-term goals. 

Emerging from bankruptcy, the road to financial recovery may feel daunting, especially when it comes to rebuilding credit. Patience and strategic planning are key as you work to rebuild your creditworthiness over time. For more information, read our article on how bankruptcy affects qualifying for a home loan.

Tips for Buying a Car After Bankruptcy

• Make sure your credit score is accurate. Review your credit report regularly to identify and dispute any inaccuracies that may be hurting you.
• Apply through your bank or credit union. Consider partnering with your bank or credit union, where your established relationship may yield more favorable terms than traditional lenders. 
• Bad credit/no credit auto dealerships may be an option. Exercise caution when going this route. Make sure you’re working with a reputable dealer and get an independent inspection with a mechanic. If you can get an affordable vehicle in good shape with low payments, it can help rebuild your credit over time.
• Save up to make a larger down payment to offset less favorable terms.
• Ask friends or family if they would be willing to co-sign with you. If they have strong credit, it will bolster your application.

Call Us with Questions Today

At OlsenDaines, we’re dedicated to providing compassionate guidance and expert advice to those seeking to rebuild their financial foundation through bankruptcy. If you have questions about how it will impact your car loan or any other aspect of your life, we’re here to help. 

Contact us today, and let our experienced bankruptcy attorneys help you navigate your options.