When you’re in the middle of bankruptcy and suddenly find yourself needing a car, all hope isn’t lost! It’s possible to get an auto loan during bankruptcy – both Chapter 13 and Chapter 7 – though one is easier than the other. Let’s take a look.
Which Bankruptcy Are You In?
There are processes in place to get an auto loan while in active bankruptcy. However, the ease and probability of success change depending on what Chapter you filed. Generally, it’s easier to get approved for a car loan during Chapter 13, the reorganization bankruptcy, than it is in Chapter 7, the liquidation bankruptcy.
If you own your vehicle free and clear or have a well-managed loan and equity in your car, you’re more likely to lose it in Chapter 7, where your bankruptcy trustee can sell your assets to repay your creditors. In Chapter 13, your trustee forms a repayment plan for you to follow which allows you time to repay your debts, including an auto loan.
No matter which chapter you’re under, if you’re in active bankruptcy and need a car, you have to get permission from the court to take on new debt.
Getting an Auto Loan In Chapter 7 Bankruptcy
In some cases, you can get a car loan in an open Chapter 7 bankruptcy, but it depends on your lender, not all of them work with people who are in open bankruptcy proceedings. If they do, they’re like a subprime lender – a lender that can work with borrowers in unique credit situations.
Even if you find a lender that allows bankruptcy auto loans, you still need to get your trustee’s permission and make sure that you’ve completed your 341 meeting of creditors. In many cases, lenders prefer not to work with people in Chapter 7 since the process is so short, typically four to six months. When lenders grant a loan to someone in bankruptcy they risk the vehicle being sold to repay other debts, which can put them at a loss; not all lenders are willing to take this risk.
If the lender is willing to risk it with you, the process is similar to getting a bad credit auto loan.
Financing a Vehicle During Chapter 13 Bankruptcy
Getting a car loan in Chapter 13 is an entirely different process than that of Chapter 7. For starters, Chapter 13 is a long process that takes either three or five years to complete. Because of the timeframe, lenders and the courts understand that things happen, and you may need another form of transportation in that time.
There’s a process in place that allows bankruptcy borrowers to apply for financing while their filing is open. The first step is to talk to your trustee and let them know you need another vehicle. Then, you have to find a lender that works with bankruptcy. Once you do, you start the process of filling out a sample buyer’s order with the dealer.
In this paperwork, the dealer must list all the details of the vehicle and the loan, including the words “or similar” in the car description, and the highest possible interest rate you may qualify for. The “or similar” designation protects you from having to start the process from scratch if the vehicle you’re looking at sells before you gain court approval to proceed with the purchase.
Once you complete the paperwork, you bring it to your trustee, who then files a motion to obtain debt with the court. This proceeding can take a little while, so you may not find out right away if you can finance another car or not. If you’re approved, you can then head back to the dealership with the paperwork proving you’re in the clear and take delivery of the vehicle.
Ready to Find a Bankruptcy Auto Dealer Near You?
If you find yourself needing a newer ride, but don’t know where to turn due to bankruptcy, look no further. At Auto Credit Express, we work with a large network of dealerships across the country that assist borrowers who have tarnished credit, including those in active bankruptcy. Let us do the legwork for you by matching you to a dealer in your area.
To get started from the comfort of your home, or on the go, simply fill out our fast, free auto loan request form.
Dave says: If you need a cosigner, you're not ready – Northeast Mississippi Daily Journal
How to improve your credit score in 2021: Easy and effective tips
If you’ve ever wondered “What is my credit score?” it’s probably time to find out. Having a good credit score can make life a lot more affordable. If you’re about to buy a house or car, for example, the higher your credit score is, the lower your interest rate (and therefore, monthly cost) will probably be.
Your number may also be the deciding factor for whether or not you can get a loan and ultimately determine if you are even able to buy something you want or need.
So, yes, the goal is to have the highest possible credit score you can, but increasing the number doesn’t just happen overnight. There are important steps to take if you want to increase your score, and the sooner you start working on it, the better.
“If you’re trying to increase (your credit score) substantially to accomplish a goal, you’re really going to have to have as much lead time as possible,” said Thomas Nitzsche, director of media and brand at Money Management International, a nonprofit financial counseling and education provider that advises people on how to legally and ethically improve their credit score on their own.
If you have fair credit and you’re trying to improve the number for a house purchase, for instance, you’ll want to start working on it at least a year in advance, he explained to TMRW.
But even though that sounds like a long time away, you can (and should!) start doing things right now to bump that number up. Below, see seven things you should do — and not do — to help improve your credit score:
1. Review your credit report
The first thing you’ll want to do is pull up a copy of your current report so you know where you stand. You can get free reports from all three agencies — TransUnion, Experian, and Equifax — at annualcreditreport.com. Nitzsche said it’s important to take a moment and understand the financial snapshot of where you are today and where you want to be.
You’ll also want to take some time and look for any errors on your report, which could negatively impact your score. “If your name is misspelled, that’s not going to hurt your score,” he explained. “But if you see a late payment or missed payment (that’s in error), or maybe you have an account that should be reporting but isn’t, then that’s a problem and that will impact your score.”
If there is an error, you should dispute it and try to provide as much proof as you can.
One other thing: You can also ask a creditor to remove an issue if it’s been corrected (i.e., if you paid off a collection debt). Nitzsche said it doesn’t hurt to ask and the worst thing they could say is no.
2. Have good financial habits
“The biggest part of your credit score is payment history, so the most critical thing is never missing a due date,” Nitzsche said. Set up a monthly autopay or add all due dates to your calendar so you never miss a bill.
You can also achieve a higher score when you mix different types of accounts on your credit report. It may seem counterintuitive to get extra points for having debt in the form of student loans, mortgages and auto loans, but as long as you’re paying them off responsibly, it shows that you’re reliable.
3. Aim to use 30% or less of your credit at any given time
Know your credit card limit, and try not to use any more than 30% of that number each month, otherwise your score could lose points for too much credit utilization.
Another thing you can do is ask your bank to increase your limit. “That will give you more flexibility to spend more,” Nitzsche said. You could also pay it off twice a month to keep the balance low. But he does warn that you never know when the balance is going to be reported to the bureau. It can happen at any point during the month, so it might be the day after you make the payment or the day before. “You don’t necessarily want to use the card and pay it the next day because that doesn’t give the bureau the chance to know that you’re using it,” he said.
4. Avoid requests for new credit
If you’re looking to increase your score around the time you want to buy a house or car, you won’t want to open up a new line of credit, like a retail card, credit card or loan. That’s because “hard” credit inquiries like those can lower your score, and sometimes it comes down to a few points over whether you’re approved or what your rate will be, Nitzsche said.
“Soft” credit inquiries, like when an employer checks your credit or when you pull your own report, won’t affect your score.
5. Keep all accounts open, even ones you don’t use anymore
Even if you don’t use that credit card from college, it’s a good idea to just keep it open because closing it could hurt your score. Nitzsche explained that you’ll be dinged some points for each account that is closed. If you want or need to mentally break up with a card, just cut it up instead.
6. Build your credit if needed
If you haven’t established credit yet, you might not even exist … in the credit report space, that is! “If someone has never fallen in delinquency on any subscriptions or utilities or never had collections on anything and they have not utilized credit cards or loans in the past seven to 10 years, they may not have a credit profile at all,” Nitzsche said. “That presents a challenge when you want to buy a home.”
If this sounds familiar, you may have to get a secured credit card where you put down a deposit, he advised. “You still have to make payments and use it responsibly. Not all banks offer them but you can usually check with your local bank or credit union.”
7. Reach out for help
There are many apps and credit-monitoring services that can help you stay on top of your credit score. You could also reach out to a professional credit counselor who can help you navigate your specific situation. (Here’s a good resource about finding a reputable service.)
One last thing: Nitzsche warned that everyone should beware of credit repair scams that claim to be able to increase credit scores for an advance fee to get accurate negative information removed (even temporarily) from credit reports.
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