At Drivers Lane, we’re not lawyers and can’t tell you what you should or shouldn’t do regarding bankruptcy. But we can give you some advice and tell you the basics about the different types of bankruptcies you can file, and how your car could be affected during a bankruptcy.
A Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is a liquidation proceeding that generally lasts between four and six months. During a Chapter 7, you may need to give up any non-exempt property, which could include a vehicle, to repay your creditors.
If you have to give up your car, it’s going to be almost impossible to get approved for an auto loan with an open Chapter 7. A few lenders may be willing to approve you, but it’s best if you wait. Because a Chapter 7 bankruptcy doesn’t last long, most subprime lenders are going to want to see your bankruptcy’s been discharged before considering approving you.
In order to qualify for a Chapter 7, you need to pass a means test. If your income is below the median income of a family of the same size in your state, you can file a Chapter 7 bankruptcy without taking the means test. If you make more and fail the means test, your next bankruptcy option is a Chapter 13.
A Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is a reorganization proceeding that lasts either three or five years. To pay back your creditors, you and your bankruptcy trustee come up with a repayment plan. The repayment plan must be approved by a judge at the confirmation hearing, and you must keep up with it in addition to your regular monthly bills.
Because a Chapter 13 takes years to complete, and you don’t have to give up assets, you may not need to worry about financing a vehicle during this time. However, things happen, and you may find yourself needing a new car while your bankruptcy is still open. The good news is that subprime lenders are more willing to approve someone for an auto loan with an open Chapter 13, but the bad news is the process takes time.
You need to obtain a sample buyer’s order from a dealership, inform your trustee about taking on additional debt, and get the court’s approval. If your trustee or the court doesn’t approve your request, then you have to start over.
The Bottom Line
Ideally, its best to consider filing bankruptcy as a last resort option. Going through a bankruptcy isn’t easy, and it can affect your approval odds for future financing.
If you’re in the middle of a bankruptcy, or recently had one discharged, and you’re looking for auto financing, we want to help. Drivers Lane works with special finance dealers all across the US that are experts at helping people dealing with bankruptcy and less than perfect credit.
If you want to get matched with a dealership near you, start the process by filling out our free and secure car loan request form right now!