Bankruptcy is never an enjoyable situation to find yourself in, but sometimes it is unavoidable. But just because you are in the midst of bankruptcy it does not mean that you stop having needs, especially something as essential as a car. Many people think that you cannot acquire a car during bankruptcy, and while it it is certainly more difficult than not, it is still possible to make it work.
In this article, we’ll talk about how to evaluating your financial situation before buying, cover how bankruptcy courts might determine your financial responsibility, outline how to look for an affordable car and pay for it, and explain the proper channels for getting approval.
How to Buy a Car While in Bankruptcy
Step 1: Evaluate your situation. How realistic a car purchase is for you will largely depend on the unique details of your situation.
Depending on the type of bankruptcy you have filed for, you may have all of your debts completely erased or the amounts you owe seriously reduced. The hard reality is that your credit is going to be adversely affected no matter what you do. And having a low credit score means that acquiring a car loan is going to be very difficult, since that is a major factor lenders will look at before offering you a loan with favorable terms.
Before you move forward — also make sure you know which chapter bankruptcy you are going through. If you are going through Chapter 13 bankruptcy, then you are going be facing a different situation than Chapter 7 bankruptcy, so know what the limits are based on your financial situation and the type of bankruptcy you are in.
In short, you should take notice of your financial situation to see how much money you will have flowing in each month versus how much you could possibly owe. The sum total of these various details will help you make a realistic determination of what you can afford.
Step 2: Investigate other options. If possible, try using public transit, riding with a friend, or riding a bike if you live within reach of your job.
Step 3: Be financially responsible and show patience. The worst thing for a financial institution to see is that you are in the middle of bankruptcy and are not using your money well. In fact, depending on the kind of chapter bankruptcy you are in, you may need court approval before taking on new debt.
This means that if you are asking for an auto loan immediately after filing for bankruptcy, the bank has no indication that you realize the gravity of your situation, which means they are likely to lose money on the loan. Ideally, the longer you can wait before applying for a loan the better.
Step 4: Look for an affordable car. If there was ever a time to make a budget and stick to it, this is it. Don’t go beyond your budget when looking for a car.
The fact is that if you are in a state of bankruptcy, then you probably aren’t going to get approved for a luxury vehicle. If you apply for a more regular car that gets you from place to place, especially if you need it for a job, you will probably have a bit more luck. This signals that you are being responsible and not overextending yourself.
Step 5: Pay as much in cash as possible. Once you have found a car that you can afford, it is wise to pay as much in cash for the car as you can.
There are many reasons for this. First of all, the less money you have to carry on a loan the less chance there is that you could get denied. In other words, the less you owe then the less risk you pose to a lender.
Secondly, your interest rates are going to be significantly higher because you are going through bankruptcy. The high interest rates mean that more you owe on the loan the more you will pay in total interest over the life of the loan. Paying more in cash saves you money over the long run. Also try to pay off your car loan quickly if you are able.
Step 6: Go through all the necessary channels. Depending on your specific situation, you’ll need to consult and get approval from the appropriate people, such as the judge or your trustee.
Buying a car while in bankruptcy involves a great deal of patience and knowledge, but it is not impossible to do if you are careful and smart about how you proceed. Your options will be more limited while in bankruptcy, but you can still find a way to meet your needs.