Auto Loans and Chapter 7 Bankruptcy
By Attorney Ginger Kelly
Going through a bankruptcy can be a stressful experience. And it can get even more stressful if you suddenly need to finance a car.
Clients often ask, “If I file for a Chapter 7 Bankruptcy, can I get a car loan?”
My response is this: “Well yes, and no.” Then, I typically say, “Let me explain; yes, you can typically get a car loan after your debts have been discharged under a Chapter 7 liquidation bankruptcy, but your chances of getting a car loan approved is far less before you receive the final discharge disposition.
More about this…
Auto Loans and Chapter 7 Bankruptcy Filing and Discharge
The first thing to know is that a Chapter 7 Bankruptcy Filing is the first thing filed at the beginning of a Chapter 7 Bankruptcy. The Discharge is the final disposition of the bankruptcy judge. In other words, the Discharge is typically the last thing.
If you need a car loan, it’s better to wait until your Chapter 7 bankruptcy has been discharged before you apply. Don’t apply for a loan after a Chapter 7 has been filed. Wait. A Chapter 7 bankruptcy is typically discharged around 60 to 75 days after the meeting of the creditors, also known as the 341 meeting. The meeting of the creditors typically happens 30 days after your bankruptcy petition is filed. A good bankruptcy attorney will explain this before you decide to file. Find out more about whether or not bankruptcy may be right for you by reading, “Bankruptcy, the Easy Way Out. Really?”
Technically, you can apply for a car loan after the meeting of the creditors, but it’s very difficult to get this type of loan before the final discharge. Almost no lenders and very few subprime lenders loan money to anyone in the midst of a Chapter 7 bankruptcy.
Lenders do not want to give loans to people with open Chapter 7 bankruptcies because of the risk factor involved. If a new debt was discharged, in the Chapter 7 liquidation process, the lender would lose out big time. Therefore, rather than placing themselves at such great risk, most lenders simply choose not to lend money for any reason, if you’ve filed but not received a final discharge.
Because lenders, including most subprime lenders, will not loan money without a final bankruptcy discharge, it’s best to wait until after the discharge to apply for an auto loan.
Car Loan Approval Post Chapter 7 Bankruptcy Discharge
While credit scores take a big hit after a Chapter 7 bankruptcy discharge, the discharge still offers the best option for a fresh start and a brand new financial beginning. Most people in financial trouble are unable to rebuild their credit without filing for a Chapter 7 bankruptcy and typically take longer than the 10 years to rebuild. After 10 years a Chapter 7 bankruptcy is removed from a credit report. This is why most chances are better for getting approved for a car loan after filing any Chapter 7 and receiving a discharge, rather than not filing for bankruptcy at all.
The essential step for getting credit, post-discharge or after the Chapter 7 bankruptcy final disposition, is working with a trustworthy car dealership who knows your situation and a variety of subprime lenders. Only a few car dealers work with subprime lenders, others do not. When dealers work only with traditional banks, most people with a Chapter 7 discharge will not get a car loan approved. When the dealer works with a variety of subprime lenders, chances for loan approval are greater. It’s really that simple.
This is why knowing your dealer is important as well as being careful not to get that hard inquiry on your credit report until you are relatively sure you will be approved. Having a hard inquiry “hit” on your credit report only complicates things. You can read more about this in my article, When Balance Transfers Make Good Sense. Unless there is a good chance you will be approved and you are willing to accept the terms of the loan, don’t bother applying for that car loan. If all the cards are in line and you’ve received your discharge, go for it. Chances are better you will get approved.
August 14, 2017
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ABOUT ME: Attorney Kelly is an attorney in good standing, licensed to practice in both the Federal District and State Courts of Massachusetts and Rhode Island. Her law practice is focused on consumer debt, finance, bankruptcy and District Court matters. Attorney Kelly is experienced in both criminal and civil trial work. On a personal note, Attorney Kelly enjoys writing and other things, like conservation and agriculture.
NOTICE: Attorney Kelly does NOT provide legal advice to anyone via social media or anywhere over the Internet. Any and all electronic posts and writings, by Attorney Kelly, does NOT establish any type of attorney-client relationship, whatsoever, neither perceived, actual, material, implied or other. We cannot stress enough, if you need personal legal advice, always see your attorney. Do not rely upon Attorney Kelly’s posts, writings or any Internet information on websites or social media for your own personal legal advice. Seek legal advice and representation from your own personal attorney.
Copyright © 2017, by Ginger B. Kelly, Esq., all rights reserved.