Recovering from bankruptcy often seems like an uphill battle, but there are some helpful facts you should know if you're planning on buying a car.
The Truth About Bankruptcy
It's true that bankruptcy will affect your credit score, but it won't ruin it forever. You'll need time and careful money management to build your credit back up. While you're working to improve your credit, avoid quick-fix methods – financial recovery takes time, and anyone who says otherwise may not be the best source of advice. Always validate the information with a fiduciary and/or attorney.
When Can I Buy a Car After Bankruptcy?
As we've already covered, financial recovery takes time. There's no guaranteed deadline for your credit to improve, so it's always important to be patient. Knowing when it's time to buy a car depends on the type of bankruptcy you file.
If you filed for Chapter 7, you would most likely need to wait until you receive your official discharge notice. Chapter 7 cases often take around four to six months, but you can show the discharge order to the car loan lender once the case is resolved.
In Chapter 13 cases, you have two choices:
- You can get court permission to take out a loan while your case is still pending
- You can wait for your discharge which could take three to five years
To get permission from the court, you'll need to file a motion to incur debt. Essentially, this means that you need to compile a "report" of the loan – the amount, interest, and the make and model of the car. The court will also need proof of any changes in your income and why you need a new car. If there are any discrepancies, the court may approve an amended payment plan.
How Do I Find a Trustworthy Lender?
Finding a legitimate car loan lender is the most crucial step in the car buying process after bankruptcy. A great place to start the search is with your bank or credit union. If neither option produces results, contact your bankruptcy attorney. They have extensive resources that could connect you to the right lender.
Not everyone can obtain a loan from a bank or get recommendations from a lawyer. If this sounds like you, you'll need to tread very carefully. Many lenders appear legitimate but are a front for scams. They target buyers with poor credit by promising low payments but high interest.
Always research the lender before you buy – use online tools to see what kind of loan you qualify for and build up your research to find a trustworthy lender.
Another piece of advice is to be wary of advertisements. Our devices collect search data over time. You've probably noticed an ad for something you were talking about, and this can happen with lenders as well. If you receive emails, messages, or phone calls from a lender you've never contacted before, don't respond and block the contact/caller. These scams may ask for your Social Security number or other personal information; DO NOT submit confidential financial information to a lender or lending service that you have not thoroughly vetted.
The best thing to do if you need a car after bankruptcy is to contact a bankruptcy attorney. They have resources, advice, and guidance backed by experience.
Schedule a FREE case evaluation with Buchalter & Pelphrey, Attorneys at Law, for more information.