If you’ve recently filed for bankruptcy, you may have given up the hope of financing a car any time soon–no matter how badly you need one. Well, despair no more because there may be four wheels in your future. The truth is that despite your past financial woes, you may be able to secure a car loan.
Do not proceed without first getting permission from the court to buy a car while you are in bankruptcy. You will need to explain why you need a car, how much you plan to spend on it, and what amount will be financed. You will also need to determine if becoming a car owner will affect your Chapter 13 Plan. For instance, if your current budget does not allow for a car payment, you will need a court order to change the amounts payable to your creditors. Do keep in mind, however, that this is not always possible.
And, remember that taking any further steps before first securing the court’s permission could prove a costly mistake. As “How to Get an Auto Loan During Bankruptcy” warns, if the judge or trustee finds out that you’ve purchased a vehicle without their knowledge, you may be forced to surrender it or your bankruptcy proceeding may even be dismissed.
You may be tempted to opt for a “Buy Here, Pay Here” arrangement–financing a high risk loan through the dealership. Edmunds.com’s “How to Buy a Car After Bankruptcy;” however, warns that they are likely to offer sky-high interest rates with lengthy terms on an older vehicle that will break down before it’s paid off.
Instead, opt for securing pre-approved financing from a credible bank or credit union before you embark on a car hunt. This puts you in a better position to negotiate on the price.
It is important to select a car based on your needs and not your wants. “Financing a Car in Chapter 13 Bankruptcy” warns that this is no time to try to petition for a luxury car, particularly when you have to convince the court of your need for a vehicle in the first place.
Purchasing an expensive car will also require you to come up with a hefty down payment in order to satisfy your lender. The courts will, then, wonder how you came up with so much money and why you haven’t used it to pay down your debts.
Stick with an affordable and reliable option that will be inexpensive to insure, maintain, and keep fueled up.
Your car loan will not only provide you with a greatly needed set of wheels, but it will also enable you to demonstrate your ability to manage credit responsibly. By making future payments on time, you will gradually improve your credit rating, increasing your eligibility for future borrowing.
By setting realistic expectations, working in cooperation with your bankruptcy trustee, and securing the right financing, you may become a car owner once again. So take back the driver’s seat and give that horn a celebratory beep.
Were you able to secure automotive financing while in bankruptcy? What advice can you offer someone in the same situation?
Kimberley Laws is a regular contributor to HowDoYou.com and the author of two blogs, The Embiggens Project and Searching for Barry Weiss. A "Jill of all trades," she is a High School English Teacher and Certified Career Counselor with a background in makeup artistry, retail banking, and graphic design. She is also a scrapbooking, PEZ-collecting, car enthusiast who loves travelling and New York City.
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