Auto Loans in Chapter 13 Bankruptcy

By filing a chapter 13 bankruptcy you are agreeing to pay back your creditors over a 3-5 year timespan.

If you end up needing a car during a chapter 13 bankruptcy you do have options. You must wait at least 1 year since filing and you must be current on all repayment plan payments and have authorization from the courts.

Can You Still Buy a Car with a Chapter 13 Bankruptcy?

Yes, it is possible to finance a car if you have a chapter 13 bankruptcy on your credit report.

A bankruptcy will stay on your credit report for up to 10 years. Many lenders are hesitant to finance a car for someone with a bankruptcy but you do still have options. 

Most users with a bankruptcy look for subprime auto financing or other bhph dealerships who are structured to work with these individuals.

Ch. 13 Bankruptcy Auto Loan Requirements

The biggest requirement to getting an auto loan with a chapter 13 bankruptcy is to make sure you have permission from your trustee or your bankruptcy is discharged.

If you do not have one of the above you should not be buying a car.

If you do have permission or your bankruptcy has been discharged, the requirements to buy a car are the same as if you didn’t have a bankruptcy.

Since you have a bankruptcy you will be considered a subprime buyer and that does limit your options.

Most subprime financing lenders require the following:

1. At least $1,500 per month of verifiable income.
2. At least two years at the same job.
3. At least 10% down, closer to 20%, when you buy the car.
4. At least a 580 credit score, but anything 650 or higher is preferred.

How to Finance a Car During Chapter 13 Bankruptcy

In order to get financed for an auto loan during chapter 13 bankruptcy you must follow these steps:

1. You will want to obtain a buyer’s order from the dealership you want to purchase  a car from.
2. You will need your trustee to file a motion with the court to get permission.
3. You will have to wait for the court to make their decision.

You will want to make sure you are not behind in payments and it has been at least a year since filing before trying to buy a car.

How to Finance a Car After a Chapter 13 Bankruptcy

Going through a chapter 13 bankruptcy can be a tough process. As soon as your bankruptcy is discharged you can apply for financing for a new car.

However – your credit will take a massive hit and your credit score will likely be very low making it hard to get auto financing with reasonable terms.

A bankruptcy will stay on your credit report for up to 10 years and will make it difficult to get approved for more loans. You will have to work on building back up your credit to achieve at least a 580 credit score.

In most cases, it’s likely you’ll have to wait 2-3 years or more before a lender will give you a conventional loan.

There is no major difference in buying a car after bankruptcy than buying a car with no bankruptcy. The key thing is that you’ll want to read all of the fine print and do your research on dealers.

Your best bet is likely financing through a dealer or finding a buy-here, pay-here dealer or as a last resort working with a rent-to-own car dealer.

Here are some tips for buying a car after your bankruptcy is discharged:

1. Look to get pre-approved from a bad credit auto lender or your local bank. This will give you a good idea of what you can spend for a car.
2. Try to save for a decent down payment. You should try and target at least 20% of the car’s value you’re trying to buy. This will reduce a lot of risk for the lender in the event you don’t pay it back. If you have bad credit you will likely be putting down at least 10% anyways.
3. Don’t be shocked if you have a higher interest rate. Most bad credit car buyers end up getting a 10% interest rate or higher, with most sitting around 15%.

Alternatives to Chapter 13 Bankruptcy Auto Financing

The key to getting approved for auto financing after bankruptcy is to lower the risk to the lender.

You can lower your risk to the lender by doing the following:

1. You can repair your credit or work on setting long-term goals to build credit.
2. You can place a large down payment that is over 20% of the car’s worth.
3. You can find a co-signer that will take the burden of the loan in the event you don’t pay it.
4. You can save enough money and find a private seller.
5. You can apply through your local credit union as these institutions typically cater to their local community.

No matter what option you choose to go with, make sure you’re doing your research and getting multiple offers. As someone with a bankruptcy you’ll automatically fall into the subprime lending category.

The best you can do is slowly work your way out.