Taking on a new car loan while in bankruptcy Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by providing you with interactive tools and financial calculators, publishing original and objective content. This allows users to conduct research and compare information for free - so that you can make financial decisions with confidence. Bankrate has agreements with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are advertised on this site are from companies that compensate us. This compensation can affect the way and when products are featured on the site, such as, for example, the order in which they appear in the listing categories in the event that they are not permitted by law. Our mortgage, home equity and other products for home loans. This compensation, however, does affect the information we publish, or the reviews appear on this website. We do not contain the universe of companies or financial deals that might be accessible to you. SHARE Westend61/Getty Images
5 min read Published June 22, 2022
Writer: Jackie Lam Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie writes about auto loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping readers gain confidence to control their finances with clear, well-researched information that breaks down complex issues into digestible chunks. The Bankrate promise
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There are money-related questions. Bankrate has answers. Our experts have been helping you manage your finances for more than four years. We are constantly striving to provide consumers with the expert guidance and the tools necessary to make it through life's financial journey. Bankrate follows a strict , so you can trust that our information is trustworthy and precise. Our award-winning editors and reporters create honest and accurate content to help you make the right financial choices. The content created by our editorial staff is objective, factual and uninfluenced from our advertising. We're open about the ways we're in a position to provide quality content, competitive rates and useful tools for you by explaining how we earn our money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the placement of sponsored products and services or through you clicking specific links on our website. Therefore, this compensation may impact how, where and in what order products are listed, except where prohibited by law. This is the case for our mortgage, home equity and other products for home loans. Other factors, like our own rules for our website and whether or not a product is available in your region or within your personal credit score may also influence the way and place products are listed on this site. While we strive to provide an array of offers, Bankrate does not include information about each credit or financial product or service. If you apply for Chapter 13 bankruptcy -- sometimes referred to a repayment bankruptcy credit score will be affected and it will remain on your credit report for seven years. When you file Chapter 13 bankruptcy, you enter a repayment plan approved by the court, says Amy Lins, vice president of enterprise learning at, a nonprofit credit counseling agency that is based within Sugar Land, Texas. "This repayment takes place over three to five years, which means that you are not able to take on any new debt," says Lins. "However, the court recognizes that life is unpredictable and it could be necessary to purchase vehicles prior to the conclusion of the Chapter 13 repayment plan." It is possible to secure a car loan, but the options are limited. How to get a car loan when you are in Chapter 13 bankruptcy If you have the cash to pay for the purchase of a vehicle, you could buy a car in money without having to apply to the court. However, you may need to amend your bankruptcy schedule and consult with your lawyer before making any decisions. If you're looking to take out a car loan even though you're on your repayment plan and prior to your discharge from bankruptcy, it is possible to be able to do it. Here are four steps to take, explains Lins. 1. Create a budget that shows that you can afford the car loan. You'll have to show that you can take care of your debt repayment, additional financial commitments and obligations, and the payment for the car. "If the purchase of a car is going to impact other elements that you are able to repay, work with your attorney to create an alternative arrangement for repayment," Lins says. Lins. 2. Find a lender that will work with Chapter 13 bankruptcies There are few lenders and car dealers that will cooperate with people with active bankruptcy however, there are a few who will, according to Lins. "Your bankruptcy attorney may be able provide an inventory of dealers and lenders that will work with you, and you should check with your local bank or credit union." Additionally, as your credit score is likely to be impacted by bankruptcy, you can expect to pay more expensive interest rates, higher fees and less favorable terms. It is also necessary to locate an agent who can work with you to get the vehicle financed. Despite your options being slim take your time and compare rates and terms with a few different lenders. You should have the offer that includes the price of purchase, the monthly payment and interest rate, in writing to provide for the courts, according to Lins. "Keep the purchase price as low as possible and make sure you wait until you have a bankruptcy discharge and rehabilitate your credit before purchasing a vehicle that is more costly," she says. 3. File a motion with the court to buy the vehicle. In order to take over the car loan while still paying back your debt, you'll need to submit a motion to 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 vehicle and why you'll need to obtain financing in order for this. Perhaps your car was damaged in the last down, and the repair costs are so significant that financially it is more sensible to purchase a brand new vehicle. Perhaps you live in an area in which public transportation isn't readily accessible. This is something that your bankruptcy lawyer can help with. 4. When the purchase has been approved by the court you will then be able to obtain your car loan and purchase your vehicle. Make the purchase and begin paying the loan off with your other obligations. How to get a car loan in the aftermath of Chapter 13 bankruptcy Once you complete your court-ordered debt repayment and get released, you will not need to undergo the court process to obtain your approval. And, if you are in a position to, use the car you have until you are at least six months past discharge, according to Lins. Enhance your credit score There are a variety of ways to improve your credit score get credit, one of which is using a secured credit card. Obtaining a secured credit card involves the deposit of a small amount which acts as collateral. The deposit is then used as the credit line of the credit card you have. "Charging and paying back small amounts over time will assist in reestablishing a positive credit history," says Lins. There are also services that report on rent and other charges, including cell phone, utilities and streaming services to help you build or rebuild an punctual payment history, according to Lins. "These services typically charge an affordable fee, however some are completely free," she says. "Using your rental and utility bills to create credit history can be a great way to start the process of rebuilding." Keep track of your credit Besides rebuilding your credit, you will want to keep tabs on it. This will allow you to see the progress you're making and the kinds of changes that could be made. Monitoring your credit frequently can help you spot errors which could affect your credit score in the future. 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 the credit scores of your customers. Shop around for the right car within your budget. Making sure to shop for a car that's within the realm of the budget you're able to comfortably afford is a sure way to stay on top of the obligations. This in turn can help rebuild your credit and keep you on track. Examine your monthly expenses to figure out how much of a car loan your budget can allow. In general automobile-related costs should not exceed 20% of your monthly budget -- an amount that covers the cost of fuel maintenance, insurance and gas. You may also want to establish a price target for your purchase using information available online through websites such as Edmunds and Kelley, which list new and used car prices, as well as insurance cost estimates. Consider a down payment. The greater the amount, the less you'll be liable on it in the future. Review your budget and see the amount you can manage to put aside each month toward purchasing a car. Ideally you should save as much as you can however it all comes down to your income as well as your expenses and obligations. Alternatives to obtaining an auto loan If you're unhappy with the rates and terms provided for the car loan or have trouble getting approved altogether you should consider alternatives. Shopping for a lower-priced vehicle. Even if the rate of interest is very high, your total cost of payments and how much you have to pay monthly is less expensive. Be patient and pay off the loan later, once your credit has improved. Once you rebuild your credit, you'll likely qualify for a greater range of car loans with lower rates of interest, fees and more favorable terms. Cash out completely. Saving money and paying cash outright for a car means that you don't have to apply for a car loan at all, which will save you on interest charges. But if you need a car sooner then later could require the loan . The fact is getting the car loan in the course of Chapter 13 bankruptcy is possible. Find an lender who will collaborate on Chapter 13 bankruptcies and create a reasonable budget that allows you to continue debt repayments and also pay for a car loan. It is also essential to research the market to find the best car for your budget. Once you've been released from bankruptcy, financing options exist. The primary goal is to rebuild your credit by setting up the habit of paying debt in time. "It's an old saying, but time really does heal any wound, including those that affect your credit scores," Lins says. Lins. Find out more
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Written by the writer who contributes to the project. Jackie Lam is a contributing writer for Bankrate. Jackie writes about auto loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain confidence to take control of their finances by providing concise, well-studied and well-researched content that breaks down otherwise complex topics into digestible chunks.
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