File Chapter 7 Bankruptcy
Rebuild After BK
by Buying a Car
Considering whether to file chapter 7 bankruptcy or not?
I know a car buying tips website may be an unusual place to find information on this subject, but I think I can help to give some insight as to what to expect when applying for loans after bankruptcy.
As a Finance Manager in the car business, I've had the luxury of reviewing tens of thousands of credit applications/credit files and have learned a few things over the years with regards to this topic.
In addition, I have personal experience with bankruptcy and had to file for this protection back in 2001.
Below you'll find some things to consider and how to rebuild your credit after you file:
- Should You File Chapter 7 Bankruptcy?
- How Buying a Car After Chapter 7 Bankruptcy Helped Me Rebuild
- What To Expect From Lenders After Your Bankruptcy is Discharged
Just My Point of View
This page was not built to replace that of legal advice from a qualified bankruptcy attorney. If you have legal questions regarding:
- Who should
- What to
- How to
- Why to
- When to...
file chapter 7 bankruptcy I would ask that you please contact an attorney that specializes in this field of law.
I would simply like to share with you my story and some of my opinions and observations I've made with regards to the subject of bankruptcy and auto loans.
Should You File
Chapter 7 Bankruptcy?
This is ultimately a question that you will have to answer on your own, but I have seen many a situation where a customer, in my opinion, would have been much better off having filed.
The best way to explain this would be with an example...Let's use Bob and Sarah Jones as an example. Bob and Sarah were married for 10 years and 2 years ago decided enough was enough and they filed for divorce.
Bob and Sarah both had an excellent well established credit history prior to their divorce, but things got ugly between them and both their credit ratings suffered through the divorce.
Shortly after everything was final with the divorce Sarah decided to file chapter 7 bankruptcy and Bob decided not to.
Assuming they both had the same credit history up to this point, with the exception of Sarah filing BK, they both, independently of each other, decided it was time to buy a new car.
Assuming that they were both interested in the identical $20,000 car, this is what my experience has shown me...
Sarah will be able to:
- Get approved for this car
- Put less money down...possibly no money
- Receive a better interest rate (APR)...12-16%
- Finance for a longer term
Bob will oftentimes:
- Not be approved and have to consider another car
- Put more money down and no money down is probably not an option
- Receive a very unfavorable interest rate (APR)...18-29%
- Have to finance for a shorter term
Of course, everybody's situation will be unique and there are many different variables to a lenders approval, but this is very typical of what I have encountered over the years.
There are auto lenders that offer bankruptcy auto loans that are much more favorable than the traditional bad credit auto loan.
In the example above, Sarah would have been approved based on one of these bankruptcy auto loans wherein Bob would have been approved through a bad credit auto lender.
You can see how in this case it was well worth it for Sarah to file chapter 7 bankruptcy. Again, this is not legal advice, but a scenario I have seen many times.
How Buying a Car After Chapter 7 Bankruptcy Helped
One thing that I know helped me when I filed my bankruptcy was the fact that I carried a few well paid loans through my BK.
In other words, I did not wipe out all my debt and continued to pay on a couple of credit cards and carried a mortgage through.
If it is at all possible to carry a well paid debt through a bankruptcy I've found that lenders will view this favorably and it may help to give you a "credit jump start" when you are trying to rebuild your credit after.
Also, shortly after my BK I had applied for, and gotten, a new credit card. The terms for this credit card were rather unfavorable, but it accomplished what I'd hoped for and that was to reestablish some credit after the BK.
Approximately a year after my BK discharged, I bought a used 2000 Ford Taurus with $1,500 down and financed $11,000 through a local credit union at 13.49%.
The credit union had seen that I had paid my bills before the BK, carried well paid loans through the BK and had reestablished with my new credit card after the BK and were willing to take a shot at giving me a loan.
FYI: Buying a car after Chapter 7 bankruptcy is great for your credit. Car credit is one of the best, if not the best, way to build or rebuild credit.
That being said, you must also keep in mind that you may have to start small and work your way up. A popular saying I use to explain this to customers is that "you have to crawl before you walk and walk before you run."
Quick Tip: Do everything in your power to pay your bills on time after you file chapter 7 bankruptcy!Lenders frown, Big Time, on negative credit after a BK...
What To Expect From
Lenders After Bankruptcy
Here are some things lenders will look for to either decline or approve you for an auto loan after your BK:
- Your payment history prior to the BK.
- Did you carry any debt through the BK?
- How long has it been since the BK?
- How much are you trying to borrow?
- Have you had multiple BK's...Very bad.
- What have you done to reestablish after the BK?
- What type of commitment (down payment) are you making to the new car?
- Derogatory credit after the BK...Very bad, avoid this at all costs.
The more positives from above the better your auto loan approval will be. The more negatives the less favorable your approval.
If you are going to file chapter 7 bankruptcy, then look to carry a positive debt through it, begin rebuilding shortly after and by all means do not get in over your head with new debt or else you may find yourself in a very tough credit situation for years to come.
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