The process of a Chapter 7 bankruptcy filing is so short that getting a car loan during one may be difficult.
Getting a Car Loan During a Chapter 7 Bankruptcy
When you file for a Chapter 7 bankruptcy, things tend to move very quickly. A liquidation bankruptcy, the entire process typically lasts up to six months or less. With this type of bankruptcy, you surrender any nonexempt property, and your trustee then sells (or liquidates) it in order to pay your creditors.
Most people who file for a Chapter 7 bankruptcy are able to keep a modest vehicle if they’re current on payments. However, it’s rare to see anyone finance a car during a Chapter 7. The entire process is so short, courts may not want to approve you for new credit during this time.
Most lenders don’t work with borrowers in an open bankruptcy, and if they do, the borrower is usually in a Chapter 13 – not a Chapter 7. However, once any type of bankruptcy has been discharged, getting into an auto loan becomes much easier and much more practical.
After a Bankruptcy Discharge: A Different Story
Once a Chapter 7 bankruptcy has been discharged, your financial situation and ability to get into a car loan is an entirely different story. Many traditional lenders may still be hesitant to approve you with a bankruptcy on your credit reports, though.
However, there are lenders that are equipped to work with borrowers in different types of credit situations, including a recent bankruptcy. They’re called subprime lenders, or sometimes just bad credit auto lenders. Subprime lenders work through a dealership’s special finance department, and they look at more than just your credit reports to consider you for car loan approval.
If you need a vehicle immediately after a Chapter 7 bankruptcy discharge, it may take a while for the discharge to appear on your credit reports. So, if you decide to work with a subprime lender, plan on bringing your discharge papers with you to the dealer to prove you’re in the clear.
Other Items to Bring for Subprime Financing
After you’ve completed a Chapter 7 and you’ve gotten your discharge papers from the court, you can usually apply for an auto loan with a subprime lender right away. You’re still going to need some items to be considered for approval.
Typically, they have these basic rules:
- Income – A minimum monthly income of around $1,500 to $2,000 before taxes. Proven with computer-generated check stubs that show year-to-date income.
- Living stability – Be prepared to bring recent utility bills or bank statements in your name that prove your address. Subprime lenders also looks more favorably on borrowers who’ve lived in the same area for a while.
- Down payment – As a bad credit borrower, you’re going to need some cash down to get into a car loan, especially after a bankruptcy discharge. Usually, subprime lenders require at least $1,000 or 10% of the vehicle’s selling price (occasionally whichever is less).
- Working phone – Your lender needs to be able to get ahold of you, so bring a recent phone bill in your name that proves you have a working contract cell phone or landline phone. Prepaid cell phones generally aren’t accepted by lenders.
- Identity – A driver’s license can easily prove your identity, and it needs to be valid; meaning not revoked, expired, or suspended. It must also have your current address.
- Personal references – These are required after an approval, so prepare a list of between five and eight personal references with contact information (email, phone number, address, etc.). These references can be most anyone, such as friends, coworkers, and family members – just not anyone that lives at your current address.
Now that you have a road map that can help you get into an auto loan after a Chapter 7 bankruptcy, navigating the car loan approval process becomes much easier. The next step is finding a dealership with a special finance department that works with subprime lenders.
Locating a Bad Credit Car Dealership
Finding a dealer with bad credit lending options may be one of the bigger challenges that bad credit borrowers face – but we want to help with that at Drivers Lane.
We take the hassle out of driving around and looking for a dealership that’s equipped to work with post-bankruptcy borrowers by matching you to one in your own area. We have a network of dealers that spans the entire country.
To get started, complete our free auto loan request form. It's secure, completely online, and there’s no obligation to buy – ever! Get back on the road with our help, and start repairing your credit with a subprime car loan.
