Auto Loan
Bankruptcy car loan
Unhappy with your current auto loan terms? Click here to refinance and drive home some savings!
Unhappy with your current auto loan terms? Click here to refinance and drive home some savings!
If you're having trouble paying your bills, bankruptcy can be a last resort. But assets in your name, like your car, could be affected while going through bankruptcy. Secured loans need something as security. For an auto loan, the vehicle itself acts as a the collateral. When you don't pay back this kind of loan, the lender can legally take back the thing you put up as security. But many people need a car to get to and from work or to help take care of an elderly parent. Because of this, there are many ways to keep your car even if you file for bankruptcy.
Key Takeaways
1. Reaffirm your current car loan
When a person files for bankruptcy, a car loan can go one of two ways. Most of them require you to complete a reaffirmation agreement approved by the court. This is a legal contract that can be enforced. It was filed with the bankruptcy court and approved by a judge.
It says that you promise to pay back all or part of a debt that you might have been able to get rid of in bankruptcy. Some lenders will not send you statements or report your payments to the credit bureau unless you sign an agreement that the court has approved. Most of the time, if you don't sign the agreement, the lender will take your car back because you broke the loan terms.
2. Keep the car and keep paying for it
Some lenders will let you keep making payments even if you don't sign a new agreement. You will need to make sure that payments are up to date, and after you file your case, you may not get monthly statements. You'll have to call the lender to determine when the balance will be paid off.
3. Pay off the car loan with a different lender
Under bankruptcy law, a car owner can reduce the amount owed on a car to its fair market value. For example, if you owe $15,000 on a car that is only worth $10,000, you may be able to get a new loan after bankruptcy that lowers the amount you owe on the car by $5,000.
The court must approve a motion to pay off the car loan. You will fill out a loan application with the new lender, who will give you a new car loan offer. Then you will send the offer and a motion to the court.
The car's current lender will either agree with the new loan value or not. You can either agree with the other lender about the car's value or wait for a judge to decide what the car is worth. You might be able to keep the car if you can find a lender ready to give you a new loan and if the current lender agrees to the value of the new loan.
4. Negotiate directly with the lender
Some lenders will work with you and decrease the balance fairly without you having to return the car. Most likely, this service will be offered by credit unions. Most lenders don't, but it's a good idea to ask once you've filed. You must keep up with your car payments before and after filing for bankruptcy unless you plan to give up the car. If you can keep up with the payments, you might be able to keep the car.
5. Surrender the vehicle
Lastly, you can give the car back to the lender. Get something on paper to show that you gave it up. Until then, keep your car insurance up to date as long as you have the car. You don't want to worsen your financial problems by getting into a car accident after filing for bankruptcy. If you get that debt after you file for bankruptcy, you won't be able to get rid of it.
Once you give back the car, the lender will usually sell it for less than what you still owe. You should eliminate the remaining balance in your bankruptcy, called the "deficiency balance."
Considering the type of bankruptcy, you may have options for declaring bankruptcy and keeping your car.
In a reorganization or restructuring, you would keep paying off some of your debts if you filed for Chapter 13 bankruptcy. As part of a repayment plan for an current car loan balance, you would pay back the debt, but the total amount you pay back depends on how old the loan is:
You have to pay the full amount if the car loan is less than 910 days old. But under the bankruptcy rules, there is a chance that the interest rate could be lowered, which could make the monthly payment less.
If the car loan exceeds 910 days, the courts could possibly give you a prorated payment amount based on the fair market value of the car. If you are already behind on your car loan payments, you might be able to work out a different payment plan with the car lender.
With Chapter 7, also called "liquidation," you would give up assets in exchange for getting out of some debts. In general, people who have car loans can think about the following five options:
You file for Chapter 7 bankruptcy to get rid of all your debts and start over with a "clean slate." Depending on your situation, you might be unable to keep your car during the process.
When looking for a car loan, you should look at places other than the dealership. Here are a few of the best places to get an auto loan with bad credit.
While the minimum credit score will vary by lender, the higher your score, the better interest rate you'll receive. If your credit isn't where you want it to be, you might not get the cheapest APR. But there are lenders that offer ATV loans for those with bad credit.
| Lender | Terms | Amounts | Best For |
|---|---|---|---|
| Capital One | 36 - 72 months | $4,000 and up | Auto purchase |
| Carvana Auto Loan | 36 - 72 months | $1,000 - $85,000 | Online car buying |
| New Roads | 48 - 72 months | $6,000 - $38,000 | Preapprovals |
| iLending | 36 - 84 months | $7,500 or more | Refinance loans |
You could also check with a credit union in your area. Credit unions, in particular, tend to have products that help people get their finances back on track, and they may be more willing to work with people who have gone through bankruptcy. But if you have debts to a credit union and get a bankruptcy discharge, the credit union might not do business with you.
You might have to look around to find a lender who will work with your bad credit. If your loan applications are turned down, ask the lender how you can improve your chances of getting a loan next time.
Most lenders won't give loans to people who are still in bankruptcy, so you'll probably have to wait until it's over. Chapter 7 bankruptcy is what most people who file for bankruptcy choose. Most of the time, these bankruptcies are discharged four to six months after filing them.
Even after your bankruptcy is over, you may still have to wait before you can get a loan. Some lenders won't give loans to people who have gone bankrupt in the past 12 months, while others want people to wait 24 months before they can apply for a loan.
There's no easy way around it: get ready for a rate of interest that might surprise you. Once you file a Chapter 7 bankruptcy, you can’t get rid of it from your credit report for 10 years. Filing for bankruptcy under Chapter 13 stays on your credit report for seven years. But your credit starts to get better almost as soon as your debts are paid off. The longer you wait and the better your credit history gets, the more likely you will get a loan and a lower rate.
Approvals will depend on more than just your credit score, but those with a shaky financial history can expect to pay interest rates in the double digits. When you're ready to start looking for loans, you might want to check out your local credit union or lenders who offer auto loans for people with bad credit. With a preapproved loan, you can search anywhere you want without worrying about whether or not you'll qualify. Most car dealers know a lot about auto loans after bankruptcy, but a preapproved loan gives them a rate they can't beat.
You'll need a down payment, so save as much as possible. Some loan offers to people who have gone bankrupt may come with high origination fees, sometimes in the thousands of dollars, to compensate for the risk. But that may be the best loan you can get, and if you make a bigger down payment, you can cover the fees and stay within the loan-to-value rules of the lender.
You can also take the time to improve other things lenders look at, such as how long you've been at your job and where you live. You'll probably have to take out a loan with higher-than-desirable interest rates, but remember that you can refinance your loan in about a year.
After your bankruptcy, there will be damage to your credit that you can't avoid. Contrary to what some shady credit repair companies say, this information can't be taken off of your credit report right away. In other words, there isn't a magic button to start over.
Each person's credit is affected differently by bankruptcy. The damage will be worse the more accounts you list in your bankruptcy. Also, the more points you lose, depending on how high your scores were before you filed for bankruptcy.
For example, if your scores were around 750 before you filed for bankruptcy, you can expect to lose 100 or more points. The most important thing is to show lenders that you've worked through your money problems. The best way to do this is to make payments on time immediately.
You might need new credit to improve your credit scores, but you can't get it because you have bad credit. Here are some good ways to get around this problem. Ask a friend or family member with good credit to make you an authorized user to one or more of their credit card accounts. This will make it look like the account belongs to both of you on your credit reports.
Apply for a credit card with a deposit. The goal of these credit cards is to help people with bad credit. You don't have to have a high credit score to qualify. Instead, you just have to make a deposit.
Apply for a loan to help build your credit. Most of the time, these small loans have high-interest rates and must be paid back quickly. They may not be as helpful as a secured credit card or another long-term account, but they can still help you improve your credit. A credit union or a local bank most likely offers credit-builder loans.
In case of having a bad credit, getting a loan for a lot of money can be hard. You can improve your chances of getting a loan if you are looking for a cheaper car. This might mean buying a used car that doesn't have the latest technology, but it doesn't mean you have to sacrifice safety or reliability. Some of the best-rated new compact cars cost less than $16,000, and you might be able to find a used one for much less.
Keeping your transportation costs low can help you stick to your budget and avoid getting back into trouble with money. Of course, this solution doesn't have to be permanent. Once your income and credit allow it, you can think about moving up.
Lenders may think you are too risky if your credit is bad and turn down your auto loan requests. Having a cosigner can lower the risk for the lender and improve your chances of getting the loan.
A cosigner agrees to pay the loan in full if you don't. A cosigner doesn't have to have great credit, but if you can find someone with better credit than you, your chances of getting an auto loan will be better.
No matter what you do, you'll have to wait a certain amount of time before you can get a loan. Lenders may want to see a copy of your bankruptcy discharge order. After your court hearing, it takes about 60 days to get the order. Experts say you should wait a year after bankruptcy before getting another loan, if possible. While waiting, you can save money for your purchase and build your credit.
The first car loan you get after filing for bankruptcy is probably a subprime loan, which means it's for people with credit scores of 600 or less. If you're in a hurry to get auto financing with bad credit, you might get into more debt you can't pay back. Here's what you'll probably run into and how to deal with it.
If your monthly payments are low, a high-interest rate might not seem like a big deal, but you might be surprised when you figure out how much your loan will cost.
When you've been through bankruptcy, search for a loan to find the one with the lowest APR. Most credit bureaus give consumers two weeks to compare rates, so applying to multiple lenders won't hurt your credit score any more than applying to just one, as long as you make all of your applications within that two-week window.
There are pros and cons to paying back a loan over time. Your monthly payments can be lower if you have a long time to repay the loan, which can help you stay with your budget. But a low payment might make you forget how much it costs to borrow: When you make payments over a longer period of time, you pay more interest.
One trick is getting a longer loan term with a low payment but paying more monthly for the principal. If you do this, you'll pay off your loan faster and with less interest, but you can still only pay the minimum payment if you need to.
Companies that advertise "no credit check," "guaranteed financing," and "buy-here, pay-here" are known for being predatory. These companies might give you more money than your car is worth, then charge you high-interest rates so that you are immediately in debt.
You could apply to a national finance company with a good reputation for car loans for people with bad credit, or you could go to your local credit union for an auto loan. Talk to a customer service rep and ask what you can do to get approved if you don't qualify immediately.
Filing bankruptcy is not easy, but if you have a car loan, you might be able to get your debts under control after filing. Look at your options and talk to your bankruptcy lawyer to determine which is best for your bankruptcy car loan.
You can certainly get an auto loan after bankruptcy, but it may take a little more work than buying a car when your finances are in good shape. Improving your credit score and saving up for a good down payment are the best ways to get a car loan after bankruptcy.
When you file for Chapter 7, your car loan will not be wiped out because it is not an unsecured debt. Instead, it is a secured debt. In this kind of bankruptcy, you will have to sign a reaffirmation agreement with your secured creditors, like the people who hold your car loan.
All bankruptcy-related accounts will stay on your credit report and affect your credit score for seven to ten years, though their effect will lessen over time. Also, you may still have to pay back federal student loans even if you file for bankruptcy.
For ATV loans, the average rates for new car loans are 3.51% and the average rates for used car loans are 5.38%. It’s always better to use an online calculator to get accurate results.
Yes, people who have gone through bankruptcy can still get auto loans. But you'll pay more interest if you finance the car after getting out of bankruptcy.