Factors To Consider When Getting A Car Loan After Bankruptcy
The first car loan after bankruptcy is likely to be subprime, meaning its for a borrower with a credit score of 600 or lower. Being in a hurry to get auto financing with bad credit can make you susceptible to getting back into debt you cant repay. Heres what youll likely face and how to counter them.
Find Out How To Keep Your Car Under Chapter 7 Or Chapter 13 Bankruptcy
Filing for bankruptcy doesn’t mean that you’ll have to give up your car. But it’s not a given that you’ll be able to keep it either. Being able to retain your vehicle in bankruptcy depends on the amount of equity, whether you can continue paying the loan , and the bankruptcy chapter that you choose to file.
Getting Rid Of Your Car Loan And The Car
You can get rid of your car loan and your car easily in Chapter 7. You simply need to express your intent to surrender the vehicle on the bankruptcy intention. Your responsibility on the vehicle will be discharged when the case is completed. You will be required to return the vehicle . You usually will give the vehicle back either during the bankruptcy case or within a few months after the case has been fully completed.
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Have Your Paperwork In Order
If you have a recently discharged bankruptcy, your dealer or lender will want to see your paperwork to make sure the courts cant include the new loan in your proceedings. When you bring this paperwork along with you, you not only show that youre responsibly researching your loan options, but youll cut down on the time needed to complete your potential loan.
Secured And Unsecured Debt
Most car loans are secured. A borrower agrees to secure a loan by pledging property that the lender can take back if the borrower fails to pay according to the contract terms. Doing so gives the lender a lien that allows the lender to repossess the vehicle, if necessary.
If you have a charged-off vehicle loan, but you still have possession of the car , then the loan balance is a secured debt. You’ll characterize it that way when you fill out your bankruptcy forms.
If the lender has sold the car , then the loan balance is an unsecured debt. It’s not secured by the collateral any longer. In most states, a lender has the right to collect a deficiency balancethe difference between what you owe and the proceeds from the vehicle auction. You’ll list the deficiency balance as an unsecured debt.
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Can You Keep Your Car After Declaring Bankruptcy
You might associate bankruptcy with government officials taking all of someones valuables, including their house. But, there are certain things you can keep even throughout a bankruptcy. For example, you might be subject to special conditions if you receive compensation for registered trademarks.
Or you might be able to keep a car as long as its worth an amount consistent with a certain threshold. For example, in Ontario, you can keep a car as long as its worth no more than $7,117. There might also be other conditions, such as a demonstrated need for the car. If youre undergoing bankruptcy, talk to your Licensed Insolvency Trustee for more information about exemptions.
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How To Get Your Credit Reports For Free
Did you know 1 in 5 consumers have an error on at least one of their credit reports, according to the results of a study conducted by the Federal Trade Commission ?
For this reason, you want to review your credit report to ensure the accuracy of the contents. The information contained in your credit reports is whats used to generate your credit scores, and you wouldnt want errors dragging your scores even further into the trenches.
You can get a free copy of your credit reports from each of the three major credit bureaus at AnnualCreditReport.com. .
If You Must Keep Your Car Chapter 7 Bankruptcy
Chapter 7 bankruptcy aims to eliminate most, if not all, of your debt in exchange for your property. Protecting your car in Chapter 7 will depend on whether youre behind and if your equity is exempt. If your vehicle is worth more than what you owe, or you own it outright, you will need to protect it with a bankruptcy exemption.
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How To Get A Car Loan After Bankruptcy
If you have a bankruptcy on your credit report and are looking to get a car loan, heres how to increase your likelihood of success.
1. Check your credit.
Your credit score was likely impacted by the bankruptcy proceedings , but make sure there are no errors on your credit report that could drag your score down even further. According to the Fair Credit Reporting Act, you can access a copy of your credit report for free every 12 months from each of the credit bureaus Experian, TransUnion and Equifax. AnnualCreditReport.com is the only federally-approved website that provides access to all three reports, which are currently being offered weekly.
2. Set your budget and save for a down payment.
Experts advise that you dont spend more than 10% of your budget on transportation costs. Car loan calculators can help you identify how much car you can afford and what your potential car payments will be. Saving for a down payment will also help you get more favorable terms. Experts generally recommend putting down 10% or higher to help you get the best rates and prevent your car loan from going underwater.
3. Compare cars.
Once youve identified your price range, look for vehicles that are practical for your lifestyle. Since your budget and credit score will be top of mind, you might have the most luck buying a used car versus a new one.
4. Shop around for lenders and get preapproved.
5. Review and sign the paperwork.
Bankruptcy Shouldnt Stop You From Getting An Auto Loan
Bankruptcy doesnt make you a bad person and it shouldnt stop you from getting a loan for the automobile that you need.
We all experience hard times that require a little help along the way. If youve recently undergone bankruptcy and are beginning a fresh financial start, consider one of our best bankruptcy auto loans to help rebuild your credit and get you back on the road to success.
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Liens Against Your Car
If you have a lien on your vehicle when you claim bankruptcy, the lien holder will have to prove to the trustee that they hold a valid claim against your car.
The trustee will release the vehicle to the lien holder if they can prove their claim and it has priority over any other claims.
When the car is released to your creditor you might have the chance to keep your vehicle if you wish.
In the case of your car being worth approximately what you owe on it you will likely be given the chance to keep making your monthly payments if you would like to keep the vehicle.
If you owe significantly more than your vehicle is worth you also have the opportunity to simply surrender the vehicle to your creditor and the shortfall debt will be included in your bankruptcy.
Your creditor might also seize the vehicle even if you would like to continue making the payments because once the vehicle has been released to them they have the right to seize the car.
If you have a lien against your vehicle but the value of your vehicle is significantly more than the amount of the lien, your trustee will either give you the option of keeping up the payments on the vehicle or will seize the vehicle and sell it.
If you cannot afford to keep up the payments but would like to keep your car you might want to consider a consumer proposal.
What Happens To My Auto Loan
The lender may repossess your car if you file for Chapter 7 and arent in good standing with your loan. Because you havent kept up with your loan payments, your vehicle wont be protected by any exemptions.
Depending on your situation, you may be able to keep the car if you repay the rest of the loan in one lump sum or sign a reaffirmation agreement. In a reaffirmation agreement, you agree to pay for the car loan as you would if you hadnt filed for bankruptcy.
If you sign a reaffirmation agreement and decide you dont want to keep your car, you can rescind or cancel it. Youll need to do so within 60 days after you sign the agreement or before the court gets involved with your discharge whichever option is later. You wont have to pay for your vehicle if you rescind and return it in time.
When it comes to Chapter 13 bankruptcy and your car loan, the amount you owe on it may be reduced, especially if you owe more than its worth. In addition, if youre eligible for a repayment plan and catch up on your loan, you might be able to keep your car.
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Tips For Shopping Around
- Keep the car loan shopping period to a minimum to reduce the impact on your credit scores. FICO scores overlook auto loan inquiries made 45 days before scoring. So, if you find a loan , the inquiries wont affect your credit scores while youre rate shopping, notes myFICO.
- Some online lenders offer prequalification tools to see what you may qualify for. There is no impact on your credit scores.
- Visit the dealership after youve been prequalified elsewhere and see if they can beat the current offers you have. This may also give you more negotiating power if their numbers are low and they really need your business.
- Consider reaching out to your financial institution for auto financing. If youre a member of a small community bank or credit union, you may have luck as they sometimes approve bad credit car loans based on the strength of the account holders history with their institution.
- Avoid buy here, pay here dealerships if possible. They appeal to consumers with credit challenges, like bankruptcy, because they dont conduct credit checks. But, this usually means high interest rates since the lender is assuming more risk. In fact, interest rates are usually well into the double-digits, and the lender will make as much, or more, profit on the financing as they do on the car itself,according to Autotrader.
Where Can You Get A Car Loan After Bankruptcy
Unfortunately, type A lenders like banks arent likely to lend to you after youve declared bankruptcy. Youll find easier access to secured debts than unsecured debts, however. But, even though auto loans are secured debts, banks will still hesitate to offer you any loan.
Many other private companies provide financial services, including loans for people with poor credit. Your best bet in finding a car loan after bankruptcy is through either:
- An alternative lender
- A car dealership
Remember, an auto loan from an alternative lender usually has higher interest rates and less favourable loan terms. But, you can always discuss refinancing and renegotiate interest throughout the term of the loan.
Some alternative lenders and dealerships that offer auto loans in Canada are Loans Canada, Canada Drives, and CarLoans411.
Are you considering a bankruptcy or consumer proposal? A member from our team may be able to help.
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Will Bankruptcy Wipe Out My Car Loan And Let Me Keep My Car
In bankruptcy, if you want to keep your financed vehicle, then you need to keep paying for it. Bankruptcy will not wipe out the loan amount and allow you to keep the vehicle free and clear.
Yesterday afternoon I received a call from a potential client who wanted to file bankruptcy on her $36,000 truck loan because the payments were over $600 a month. I said that we could definitely do that. She then asked when they would send her the title. At that point, I realized that we had a problem with the concept of bankruptcy and secured debt.
In most cases, bankruptcy will wipe out almost all of your debts, with the exception of certain priority debts like taxes, student loans, child support/alimony, and criminal restitution. However, some people want to keep their secured debts. A secured debt is a debt that you owe that is secured by a thing: a mortgage is secured by a home, a car loan is secured by a car , and your kirby vacuum is secured by a financing agreement filed with the state.
If you want to keep your thing secured by a secured debt, then you need to keep paying on that debt. So if my potential client wants to keep her truck, then she needs to keep the $36,000 loan attached to it. She cannot file a bk and then receive title to a $36,000 truck for free. If she wants that title, then she needs to eventually pay off the secured loan.
Filing Bankruptcy When You Dont Own The Car
If you are still making payments on your car loan when you file for bankruptcy, then the equity you have in the car becomes important. Equity is what you still owe on the car subtracted from its current value. For instance, say your cars value is $9,000 and you still owe $4,000, that means you have $5,000 equity if you sold the car, youd make $5,000. The exemption in your state is $6,000. Since your equity is less than the states exemption, you keep the car. If its more, the bankruptcy trustee can sell it, putting the equity toward your unsecured debt and allowing you to buy a $6,000 car.
The longer youve owned the car and the more youve paid, the more likely it will be over the exemption limit. On the other hand, cars are not like fine wine they lose their value fast. The longer youve had it, the less its worth.
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Determining What Will Happen To Your Car
Each chapter offers different benefits. Once you understand that you’ll have to pay for any car that you’d like to keep and you know how much equity you can protect, you’ll be ready to decide which bankruptcy option is best for you.
For instance, Chapter 7 bankruptcy is an excellent choice for those who can protect all equity and are current on payments. Chapter 13 bankruptcy works well if you’re behind on payments or you have a significant amount of nonexempt equity and would still like to keep the car.
Learn How To Get Approved For Car Loan While In Chapter 13 Bankruptcy
Many people might be wondering as to how to get auto loans while in chapter 13 process. We can teach them the techniques to get approved. For improving chances of securing a car loan approval when in open chapter procedure, it could be advisable to follow the steps as under.
- Get written consent from the court appointed chapter 13 bankruptcy Trustee to go ahead with your decision to finance car.
- Court will assess your need for car & determine the loan amount that can be permitted.
- Look for lenders that specialize in providing car loans to people who have filed for bankruptcy for discharge of debts.
- Trustee will oversee the documentation procedure and ensure that monthly car payments are well within limits sanctioned by chapter 13 court.
Getting Car Loan After Chapter 13 Discharge of Debt Things to Consider
If you are applying for auto loan after chapter 13 discharge of debts, then you may not be needed to take permission from bankruptcy court. But you must get letter from the court which says that all debts have repaid fully or satisfactorily. Reap an array of important advantages as follows.
- Little or almost no need to get into the hassles of costly dealership financing loans.
- It is possible to obtain auto loan approval by paying a large down payment amount.
- Most of the specialized lenders will not ask for details of vehicles make and model.
- Auto loan pre-approval can enable you to purchase next car like cash buyer at dealerships.
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Pro #2 Vehicle Ownership
Not many loans offer you ownership of an asset upon completion. You might get a great interest rate on a special line of credit or credit card, but your money is gone after you spend it. With an auto loan, you invest your money into an asset. If you complete the loan term successfully, youll have a car thats completely your own!
Car Loans After Bankruptcy: Chapter 7 Vs Chapter 13
Bankruptcy laws exist to help people who are carrying an insurmountable debt load. The two most common types for individuals are Chapter 7 and Chapter 13.
A Chapter 7 bankruptcy is designed to provide a fresh slate. A bankruptcy trustee will sell any asset you own during the bankruptcy proceedings to repay your debt this includes any vehicles, unless a vehicle qualifies for an exemption. If you need to purchase a new vehicle, however, its best to do so after your bankruptcy has been finalized, which can take four to six months to complete. Purchasing a car, or otherwise acquiring assets beforehand, can be a sign of fraud.
A Chapter 13 bankruptcy is designed to help consumers pay off their debt. It sets up a payment plan and prevents debt collectors from pursuing further debt collection methods. If you have income and your creditors agree to a payment amount thats affordable for you, youll likely be able to keep your car by making your Chapter 13 payments. You may also be able to purchase a vehicle during a bankruptcy if you receive permission from the court. When the process is over, you can finance a vehicle without needing court permission.
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