Lots of troubled consumers wonder whether they can get auto loans while in bankruptcy. The answer isn’t simple. In fact, the best answer is, “it depends.”
First of all, there are two different types of personal bankruptcy: Chapter 13 and Chapter 7. These aren’t the only kinds of bankruptcy in the law books. There are also chapters 9, 11, and 12, but these are for municipalities, corporations and fishermen/farmers. Chances are pretty good that you and your family will be dealing with Chapter 13 or Chapter 7 if you’re looking for auto loans while in bankruptcy.
With Chapter 7, any secured assets (such as a vehicle or house, where the item purchased is considered “collateral” for the loan) is usually repossessed by the creditor. Any other assets, such as bank accounts, property and so on, are sold and the proceeds are used to pay off any creditors holding your unsecured debt. If you’re paying on a car loan, you can ask that it be excluded from the bankruptcy, which means you get to keep it as long as you continue making payments. An important part of a Chapter 7 bankruptcy is the 341 meeting, which has to happen before the bankruptcy is discharged. Once that’s over and everything is resolved, you may be able to speak to a lender that provides auto loans while in bankruptcy.
With Chapter 13, a trustee is appointed to basically manage your money for you. This trustee will set up a payment schedule and you have to stick to it. Sometimes it lasts for as little as three years or as long as five. The amount of the payment depends on how much debt you’ve accumulated, and what your income is. If you consider auto loans while in bankruptcy, you have to first petition the trustee to allow you to take on additional debt. Again, it depends on the trustee whether you get an order that will allow you to get an additional loan. If the trustee says yes, you have permission.
Regardless of the type of bankruptcy you choose and the status of your case, you’ll still need to find a lender. Bankruptcy is a serious thing, and lots of companies that provide loans are very hesitant to work with anyone who is planning to file for bankruptcy, is in the process of filing for bankruptcy, or has a recently discharged bankruptcy. But don’t be dismayed. There are lenders out there that specialize in working with individuals and families seeking car loans while affected by bankruptcy. So if you’re needing to find car loans and have bad credit* caused by the bankruptcy process, make sure you talk to a company that’s understands your situation and is willing to work with you.
* “Bad” or “Poor” credit generally is considered a FICO score around 600 and below by sources including the Consumer Federation of America and National Credit Reporting Association (reported by the Associated Press), Bankrate.com, Credit.com, Investopedia, NerdWallet.com and others. The Congressional Budget Office identifies a FICO score of 620 as the “cutoff” for prime loans. FICO scores are not the sole factor in lending decisions by RoadLoans.com and Santander Consumer USA.