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Taking on a new car loan while in bankruptcy Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by providing you with interactive tools and financial calculators, publishing original and objective content. This allows users to conduct research and analyze information for no cost – so that you can make informed financial decisions. Bankrate has agreements with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The products that appear on this site are from companies that compensate us. This compensation can affect the way and when products are featured on this website, for example, for example, the order in which they appear within the listing categories and other categories, unless prohibited by law for our mortgage or home equity products, as well as other products for home loans. However, this compensation will affect the content we publish or the reviews appear on this website. We do not include the universe of companies or financial deals that might be available to you. SHARE Westend61/Getty Images

5 min read Published June 22, 2022

Writer: Jackie Lam Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie is a writer on auto loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to control their finances with concise, well-studied information that break down complicated issues into digestible chunks. The Bankrate promise

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This post could contain the mention of products made by our partners. Here’s an explanation for how we earn our money . The Bankrate promise

Established in 1976, Bankrate has a long experience of helping customers make smart financial choices.

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They ensure that what we write will ensure that our content is reliable, honest and reliable. The loans reporter and editor concentrate on the things that consumers care about most — the various types of loans available, the best rates, the top lenders, the best ways to pay off debt and many more — so you’ll be able to feel secure when investing your money. Editorial integrity

Bankrate follows a strict standard of conduct, which means you can be confident that we’ll put your needs first. Our award-winning editors, reporters and editors provide honest and trustworthy content to help you make the right financial choices. Our main principles are that we value your trust. Our aim is to provide our readers with accurate and unbiased information, and we have standards for editorial content in place to ensure this happens. Our reporters and editors thoroughly verify the truthfulness of content in order to make sure that what you read is true. We maintain a firewall with our advertising partners and the editorial team. Our editorial team doesn’t receive direct compensation from our advertisers. Editorial Independence Bankrate’s editorial staff writes in the name of YOU as the reader. Our goal is to give you the best advice that will help you make smart financial decisions for your personal finances. We follow strict guidelines to ensure that our editorial content is not affected by advertisements. Our editorial staff receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. Therefore, whether you’re reading an article or a report it is safe to know that you’re receiving reliable and reliable information. What we do to earn money

There are money-related questions. Bankrate has answers. Our experts have been helping you manage your finances for more than four decades. We continually strive to provide consumers with the expert guidance and the tools necessary to succeed throughout life’s financial journey. Bankrate follows a strict policy, which means you can be confident that our information is trustworthy and accurate. Our award-winning editors and journalists create honest and accurate content to help you make the right financial decisions. Our content produced by our editorial staff is objective, factual and is not influenced by our advertisers. We’re transparent about how we are able to bring quality information, competitive rates and useful tools to you by explaining how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We receive compensation for placement of sponsored products and, services, or by you clicking on certain links posted on our website. This compensation could affect the way, location and when products are listed, except where prohibited by law for our loan products, such as mortgages and home equity, and other home lending products. Other elements, such as our own proprietary website rules and whether the product is available within your area or at your own personal credit score may also influence the manner in which products are featured on this website. Although we try to offer a wide range offers, Bankrate does not include details about every financial or credit product or service. When you file Chapter 13 bankruptcy — sometimes referred to a repayment bankruptcy credit rating will suffer, and it will stay on your credit profile for seven years. In Chapter 13 bankruptcy, you enter a repayment plan approved by the court clarifies Amy Lins, vice president of enterprise learning for , an agency that provides credit counseling for non-profits that is based within Sugar Land, Texas. “This payment is spread over three to five years, which means that you are not able to take on any more debt,” says Lins. “However the court does recognize that life happens and it might be necessary to buy an automobile prior to the end of the Chapter 13 repayment plan.” You may be able to secure an auto loan however, your options will be restricted. What is the best way to obtain a car loan during Chapter 13 bankruptcy If you have enough cash to buy an automobile, you may simply purchase a vehicle for money without having to apply to the court. However, you may need to modify your bankruptcy plan in order to get it changed, so consult your lawyer first. If you need to get an auto loan when you’re still in your repayment plan, and before you’re discharged from bankruptcy, it is possible to take it. Here are the four steps you need to follow, according to Lins. 1. Create a new budget to show that you have the funds to make the car payment You’ll need to show that you can take care of your debt repayment, other financial obligations and responsibilities , as well as the payment for the car. “If the car purchase going to impact other elements of your repayment plan, you should work with your lawyer to develop a new payment plan” Lins says. Lins. 2. Find a lender who will accept Chapter 13 bankruptcies There are few lenders and car dealers who will work with those in an active bankruptcy, however, there are a few that will, says Lins. “Your bankruptcy attorney may be able to give you the names of lenders and dealers that are willing to work with you and you should inquire with your local bank or credit union.” Also, since your credit score will suffer from bankruptcy, you can expect to pay higher interest rates, fees and less favorable terms. Also, you’ll need to find a dealer who works with you to get your car financing. Despite your options being slim take your time and compare rates and terms offered by several lenders. You should have the offer with the purchase price, the monthly payment and interest rate in writing, to submit to the court, explains Lins. “Keep the price of your purchase as low as you can and make sure you wait until you have a bankruptcy discharge and repair your credit before purchasing a more expensive vehicle,” she says. 3. You can file a motion with the court to purchase the car to pay off the car loan while still repaying your debt, you’ll need to make a motion to the court to get it approved. This involves bringing in your request and having a solid explanation of why you need to purchase a car and why you’ll have to obtain financing in order to purchase it. Perhaps your car was damaged in the last down, and the repair costs are so substantial that it is more sensible to purchase a brand new vehicle. You reside in an area in which public transportation isn’t readily accessible. This is something your bankruptcy lawyer can help with. 4. Complete the purchase Once the purchase is approved by the court you are now able to apply for a car loan and get your car. Start paying the loan off with your other obligations. How to get a car loan in the aftermath of Chapter 13 bankruptcy Once you finish your court-ordered debt repayment and are discharged, you won’t have to apply to the courts to be approved. If you’re able to, try to make do with the car you have until you’re at least six months post discharge, says Lins. Enhance your credit score There are a variety of ways to improve your credit score , including getting and responsibly using a secured credit card. The process of obtaining a secured credit card requires putting down a small deposit that acts as collateral. The deposit is then used as the credit line of the credit card you have. “Charging and paying back smaller amounts over time will assist in reestablishing your credit history in a positive way,” says Lins. It is also possible to look into services that report on rent and other bills, like cell phones, utilities and streaming services, to help create or maintain an timely payment history, claims Lins. “These services typically have small fees, however certain are free,” she says. “Using your rent and utility bills to create credit history can be a good strategy to kick-start rebuilding.” Monitor your credit. Besides repairing your credit score, you’ll want to keep tabs on it. This will help you see the progress you’re making and what kind of improvement could be made. Also, monitoring your credit frequently will allow you to spot any errors that could hurt your score in the future. You can order free reports from AnnualCreditReport.com or sign up for a free credit monitoring service. Some credit cards provide a free monthly look at the credit scores of your customers. Find an affordable car. Be sure to select a car that’s within your budget and the amount you are able to afford. will ensure you stay on top of your payments. This will help you rebuild your credit and help you stay on the right track. Examine your expenses for the month to determine how much car payment your budget will allow. As a rule of thumb the car-related costs should not exceed 20 percent of your budget per month. This is an amount that covers the cost of fuel maintenance, insurance and gas. You might also wish to set a target price for your purchase using data available on websites such as Edmunds and Kelley, which offer used and new car prices, and estimates of insurance costs. Make a down payment The , the less you’ll owe for it in the future. Review your budget and see what you can manage to put aside each month toward the purchase of a vehicle. The ideal is to save as much as you can but ultimately it comes down to your earnings, expenses and existing obligations. Alternatives to getting the new car loan If you’re unhappy with the terms and rates offered for a car loan or have difficulties getting it approved, consider other options. Shopping for a lower-priced vehicle. Even if your interest rate is high, your total payment and how much you owe monthly will be less expensive. Wait and finance later when your credit is better. Once you rebuild your credit, you’ll most likely qualify for a wider swath of car loans with lower interest rates, fees and more favorable conditions. Cash out completely. Saving up and paying in cash for a car means you won’t have to apply for a car loan at all that will save you in interest fees. However, if you’re in need of to purchase a car earlier then later could have to get the loan . The bottom line is that getting an auto loan through Chapter 13 bankruptcy is possible. Find an lender who is willing to deal on Chapter 13 bankruptcies and create a reasonable budget that allows you to pay off debt while also paying for a car loan. It’s also important to shop around to find the best car for your budget. After you are discharged from bankruptcy, financing options are available. But the first step is to rebuild your credit by setting up an established track record of making debt payments in time. “It’s an old saying but the truth is that time heals any wound, including those in your score,” Lins says. Lins. Find out more

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Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie writes about auto loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to manage their finances by providing clear, well-researched information that breaks down complicated subjects into bite-sized pieces.

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