Taking on a new car loan while in bankruptcy Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by offering you interactive tools and financial calculators as well as publishing quality and impartial content. This allows you to conduct your own research and compare data for free and help you make informed financial decisions. Bankrate has agreements with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are advertised on this website are provided by companies that pay us. This compensation could affect how and when products are featured on this site, including for instance, the order in which they appear within the listing categories, except where prohibited by law. Our mortgage home equity, mortgage and other home lending products. This compensation, however, does affect the information we provide, or the reviews that you read on this site. We do not include the universe of companies or financial offers that may be accessible to you. SHARE Westend61/Getty images
5 min read Published June 22, 2022
Jackie Lam Written Jackie Lam Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie write about automobile loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to control their finances with precise, well-studied and well-researched data that breaks down complex subjects into bite-sized pieces. The Bankrate guarantee
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We receive compensation for placement of sponsored products and, services, or by you clicking on certain links posted on our site. This compensation could impact how, where and in what order items appear within listing categories, except where prohibited by law. We also offer credit, mortgage and other products for home loans. Other factors, such as our own website rules and whether or not a product is offered in your area or at your own personal credit score may also influence the manner in which products are featured on this website. We strive to offer a wide range offers, Bankrate does not include details about every financial or credit product or service. When you file Chapter 13 bankruptcy -- sometimes referred to a repayment bankruptcy -- your credit will take a hit, and it will stay on your credit report up to seven years. When you file Chapter 13 bankruptcy, you sign a repayment plan that has been approved by the court explains Amy Lins, vice president of enterprise learning at, an agency that provides credit counseling for non-profits that is based within Sugar Land, Texas. "This payment is spread over a period of three to five years, which is not the time to start taking on additional debts," says Lins. "However, the court recognizes that life is unpredictable and it could be necessary to purchase an automobile prior to the end in the Chapter 13 repayment plan." You might be able to get a car loan however, your options will be restricted. How to get a car loan while in Chapter 13 bankruptcy If you have the cash to buy an automobile, you may simply purchase a vehicle for cash without going through the court. However, you may need to modify your bankruptcy plan in order to get it changed, so consult your attorney before making any decisions. If you're looking to take out a car loan when you're still on your repayment plan and prior to the discharge of bankruptcy, you may be able to do so. Here are the four steps you need to follow, according to Lins. 1. Create a budget that shows that you can afford the car loan. You'll have to prove that you are able to juggle your debt repayment, additional financial commitments and responsibilities , as well as the cost of your car. "If the purchase of a car is likely to affect other aspects in your plan for repayment, you should work with your lawyer to come up with a new proposed payment plan" advises Lins. 2. Find an lender who will accept Chapter 13 bankruptcies There are few lenders and car dealers who will work with those in an active bankruptcy, but there certainly are some who will, according to Lins. "Your bankruptcy attorney might be able to provide the names of lenders and dealers that can work with you, and you should check with your local bank or credit union." Also, since your credit score is likely to take a hit from bankruptcy, be prepared for greater interest rates, charges and less favorable terms. It is also necessary to locate an auto dealer that works with you to get the vehicle loaned. Even though your options are slim Do your research and look at rates and terms offered by several lenders. The offer must be submitted with the price of purchase, the monthly payment and interest rate in writing to provide to the court, explains Lins. "Keep the price of your purchase as low as you can and wait to exit bankruptcy and rehabilitate your credit before buying a larger vehicle," she says. 3. File a motion with the court to buy the vehicle. To take on the car debt while you're still paying back your debt You'll need to file a motion with the court in order to get it accepted. This involves bringing in your request and presenting a convincing justification for the need to purchase a car and the reason you'll need to get financing to purchase it. Maybe your previous car broke down, and the repair costs are so costly that it is more sensible to buy a brand new car. Perhaps you reside in an area that public transportation isn't easily accessible. This is something that your bankruptcy attorney can assist with. 4. Make the purchase after the purchase has been approved by the court you will then be able to obtain your car loan and get your car. Purchase the car and start paying the loan off along with other obligations. How to obtain an auto loan in the aftermath of Chapter 13 bankruptcy Once you finish your court-ordered debt repayment and you are discharged, you won't have to go through the courts to get your approved. And, if you are capable of it, you should make do with your car until you're at least six months after discharge, according to Lins. Enhance your credit score There are many ways to do this , including getting and responsibly using a secured credit card. Obtaining a secured credit card means putting down a small deposit which acts as collateral. Your deposit becomes the credit line to credit cards. "Charging and repaying smaller amounts over time will help rebuild a positive credit history," says Lins. It is also possible to look into companies that can report rent and other charges, including cell phone, utilities and streaming services that can help you create or maintain an on-time payment history, says Lins. "These services typically have small fees, however certain are completely free," she says. "Using your utility bills and rental payments to build credit histories can be a great way to kick-start rebuilding." Check your credit. In addition to rebuilding your credit, you'll be able to monitor it. This will let you know the progress you are making and the kinds of changes that are possible. Additionally, keeping track of your credit on a regular basis can help you spot errors that can ding your score down the line. You can order free reports from AnnualCreditReport.com or sign up for a free credit monitoring service. Some credit cards provide an annual free look at your credit score. Look around for the right car within your budget. Be sure to choose an automobile that is within the range of the budget you're able to comfortably afford will ensure you stay on top of the obligations. This will aid in rebuilding your credit and ensure that you are on the right the right track. Check your expenses for the month to determine how much car payment your budget will allow. As a general rule, car related expenses shouldn't exceed 20 percent of your budget for the month -- a threshold that includes the cost of gasoline maintenance, insurance and gas. You may also want to determine a budget to purchase your car using the data available on websites such as Edmunds and Kelley, which offer used and new prices for cars, and estimates of insurance costs. Make a down payment The more you pay, the less you'll have to pay for it in the future. Review your budget and determine what you can afford to stash away each month toward buying a car. Ideally you should save as much money as you can, but it ultimately boils down to your earnings, expenses and existing obligations. Alternatives to obtaining a new car loan If you are unhappy with the rates and terms offered for the car loan or you are having difficulty getting your loan approved at all, consider other options. Looking for a cheaper car. Even if the interest is high, your overall amount of payment and the amount you have to pay monthly is less expensive. Wait and finance later when your credit is better. Once you rebuild your credit, you'll most likely qualify for a greater range of car loans with lower rates of interest, fees and more favorable conditions. Pay in cash entirely. Saving money and paying in cash for a car means you won't have to apply for an auto loan for any reason that will save you in interest fees. But if you need a car sooner then later may require a . The bottom line Getting the car loan in the course of Chapter 13 bankruptcy is possible. Find an lender that is willing to deal in conjunction with Chapter 13 bankruptcies and create an affordable budget that will allow you to continue debt repayments as well as pay for a car loan. It's also crucial to research the market to find the right car to fit your budget. When you've been discharged in bankruptcy, options for financing are available. However, the primary goal is to rebuild your credit score by creating the habit of making payments punctually. "It's an old saying, but the truth is that time heals any wound, including those that affect your credit scores" Lins says. Lins. Learn more
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Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie is a writer on auto loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to manage their finances with concise, well-studied and well-researched content that breaks down otherwise complex topics into digestible chunks.
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