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Backruptcy Auto Financing: The Basics
Going through a bankruptcy lowers your credit score, but it can also give you a fresh start, financially. Once finished, you may think that it is next to impossible to get approved for credit again, but usually that is not the case. At Liberty Auto Loan, we specialize in helping people get connected to local dealerships who know how to work through your unique credit situation. Many of our network dealers have loan options for all types of bad credit situations, including bankruptcy. With the second chance you need, you can get back on the road and on the way to rebuilding your credit.
Applying for an auto loan
after declaring bankruptcy…
It’s a tough situation to find yourself in, but one that unfortunately can happen in the blink of an eye. While a bankruptcy does negatively affect your credit, it doesn’t necessarily have to mean that you are immediately disqualified from receiving an auto loan. Quite the contrary. While it will undoubtedly make applying for financing somewhat more difficult, there are a few things you can do to give yourself a better chance of being accepted.
About Chapter 7 Bankruptcy
This bankruptcy is the kind that usually springs to most people’s minds when they actually think of bankruptcy. Chapter 7 is when someone is unable to pay their debts through financial assets alone, and so are subject to forfeiting their physical possessions in order to obtain money to pay.
While it’s not unheard of to receive auto financing while undergoing open Chapter 7 bankruptcy, it is extremely unlikely. Mostly this is due to the fact that a lender would not want to get swept up in the bankruptcy and end up losing a potentially significant portion of the loan balance.
When applying for a loan following Chapter 7 it’s advisable to wait the 3 to 6 months for the bankruptcy to be discharged before seeking a lender. It is also a good idea to wait until you’ve had a chance to get your finances back on track before looking to add another debt.
About Chapter 13 Bankruptcy
Chapter 13 varies significantly from Chapter 7 in that rather than having your possessions be subject to liquidation, you are granted the opportunity to pay off your debts through a pre-arranged payment plan. Usually plans span between 3-5 years. Although more lenders will be open to your request for a loan while navigating through a chapter 13 bankruptcy, it comes with its own set of challenges to overcome.
First you will need to locate a dealership with lenders that are able to work with open chapter 13 bankruptcies. Once you’ve found one, you’ll need them to prepare a sample buyer’s order that you can then take to your trustee, and the court. Once the order has been received a decision will be made in regard to your need for a vehicle and the loan’s impact on your current payment arrangement. If your request is accepted, you will receive a court order which you will then bring back to the dealership to finish purchasing your vehicle.
Applying for a loan after chapter 13 discharge is very similar to seeking financing with bad credit. The only difference is that you will need to have your discharge papers in hand before actually heading to the dealership.
Keep in mind when you’re ready to buy a new car that chapter 7 bankruptcy can stay on your credit report for up to 10 years, and chapter 13 can stay on it for up to 7.
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