Trading in My Car After Bankruptcy

by Sha W.
(Mobile, AL)

Question: I have a question about trading in my car after bankruptcy. I have a 2009 Honda Accord with 40,000 miles on it. I filed Bankruptcy in 10/10. I currently have my auto loan thru credit acceptance.

I would like to trade my car in to get a cheaper note because my current payment is 527.28, and I would like a lower interest rate if possible.

I did have a car before bankruptcy with a credit union, but after the judge reviewed my records she threw it out and advised me to give the car back because the interest rate was so high.

I have had my car for 8 months and have never missed a payment. I called to check the balance of my car and it is $25,836.72, and my pay off amount is $17,550.82.

I was wondering how can I go about trading in my car after bankruptcy so that I won't be considered upside down in the car? So when I go shopping for a car trade in what do I do? The car is in excellent condition.

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Answer: Hi Sha,

Unfortunately, there is not a lot you can do about being upside down in your trade in except to come up with money down to cover the difference between what is owed and what it is worth.

In a better credit situation you may be able to finance it all, but you'll be a bit limited with credit issues.

On top of that you can shop dealers to see which one is willing to give you the most for it. Depending on what the trim is
(LS, EX) and what options it has you are probably not going to be in horrible shape. You may only be 2,000 to 2,500 negative.

The biggest problem you may run into is that it's only been 10ish months since your bankruptcy and I'm not sure that things are going to get a whole lot better for you on the finance end.

Most lenders are looking for 18-24 months after a bankruptcy before they will start offering you the better terms.

I'm assuming that you are in the low to mid 20's now with your interest rate and I don't see that getting a whole lot better this soon after your BK.

One thing you may want to consider (assuming you like your car and were only wanting to trade to lower your rate and payments) is to hang on for another 4 months and check some local credit unions to see if they would be willing to help you refinance your existing loan with better terms.

They may make an exception for you, because you have begun rebuilding with a well paid auto loan (one of the best ways to rebuild).

Better yet, you may want to start calling them now and see what guidelines they have regarding bankruptcy and auto loans.

If refinancing is not an option for you, then I'd have to say that cash down will give you the most leverage under the circumstances and you'll have the best chance of getting a better loan with more money down.

More Money Down = Less Risk to the lender and therefore they may be willing to give you a better rate.

Hope this helps,

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