Auto Loans in Chapter 7 Bankruptcy

By filing a chapter 7 bankruptcy you will have all of your assets liquidated to pay off your creditors. This may include your car but you can get it exempt from the bankruptcy estate.

If your car ends up being exempt you can still make payments on it. It is possible to finance a car during a chapter 7 bankruptcy as long as you work with your trustee and do everything above board.

Can You Still Buy a Car with a Chapter 7 Bankruptcy?

Yes, it is possible to finance a car if you have a chapter 7 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. 7 Bankruptcy Auto Loan Requirements

The biggest requirement to getting an auto loan with a chapter 7 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 7 Bankruptcy

In order to get financed for an auto loan during chapter 7 bankruptcy you must follow these steps.

1. You will want to really decide if buying a car is the right move.
2. You will want to make sure you have finished your initial 341 meeting where your trustee will examine all of your debts and assets.
3. You will want to get permission from the court before applying for any financing or making any vehicle purchase.
4. If approved, you will want to work with bad credit auto loan providers or other subprime financing lenders.
5. You will want to choose a car that you won’t have any trouble paying off and that won’t disrupt your bankruptcy proceedings.

How to Finance a Car After a Chapter 7 Bankruptcy

Going through a chapter 7 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 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 7 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.