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5 min read Published June 22, 2022
Written by Jackie Lam Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie write about automobile 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 control their finances by providing clear, well-researched information that breaks down otherwise complex subjects into bite-sized pieces. The Bankrate promise
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We are compensated in exchange for the promotion of sponsored goods and, services, or when you click on specific links on our website. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our loan products, such as mortgages and home equity and other products for home loans. Other factors, like our own proprietary website rules and whether a product is available within your area or at your self-selected credit score range could also affect how and where products appear on this site. We strive to offer a wide range offers, Bankrate does not include specific information on every credit or financial products or services. When you apply for Chapter 13 bankruptcy -- also known as repayment bankruptcy -- your credit will take a hit, and it will stay on your credit score over seven years. With Chapter 13 bankruptcy, you sign a repayment plan that has been approved by the court clarifies Amy Lins, vice president of enterprise learning at, an agency for credit counseling that is non-profit based in Sugar Land, Texas. "This repayment takes place over a period of 3 to five years, which means that you are not able to take on any new debt," says Lins. "However the court does recognize that life is unpredictable, and it may be necessary to purchase a vehicle before the completion of the Chapter 13 repayment plan." You may be able to obtain a car loan, but the options are restricted. How to get a car loan when you are in Chapter 13 bankruptcy If you have the money to purchase the purchase of a vehicle, you could buy a car for money without having to apply to the court. However, you may need to amend your bankruptcy schedule and consult with your lawyer prior to making any changes. If you require an auto loan while you are still on your repayment plan and before you're discharged from bankruptcy, you can probably take it. There are four steps you can do, as explained by Lins. 1. Create a budget that shows that you are able to pay for the cost of your car. You'll need to demonstrate that you can manage your debt repayment with other financial obligations and obligations, and the payment for the car. "If the purchase of a car is likely to affect other aspects that you are able to repay, consult with your lawyer to develop a new arrangement for repayment," Lins says. Lins. 2. Find a lender who will accept Chapter 13 bankruptcies There are few lenders and car dealers that will cooperate with people who are in bankruptcy, however, there are a few who will, explains Lins. "Your bankruptcy lawyer may be able to provide an inventory of dealers and lenders who are willing to work with you and you can inquire with your local bank or credit union." Additionally, as your credit score will take a hit from bankruptcy, expect more expensive interest rates, higher fees and less favorable terms. It is also necessary to locate an auto dealer that works with you to get your car financed. Although your options are limited, do your due diligence and look at rates and terms offered by several lenders. You should have the offer with the purchase price, monthly payment and interest rate in writing, to submit for the courts, says Lins. "Keep the purchase price as low as you can and wait to exit bankruptcy and rehabilitate your credit before purchasing a vehicle that is more costly," she says. 3. File a motion with the court to buy the vehicle. to pay off the car's debt while still paying off your debts and settling it, you'll have to make a motion to the court in order to get it approved. This requires bringing your application and having a solid argument for why you're required to purchase a car and why you'll need to obtain financing in order to do so. Perhaps your car was damaged in the last down, and the repair costs are so costly that it is more sensible to buy a new car. Or you reside in an area in which public transportation isn't readily accessible. This is something your bankruptcy attorney can assist with. 4. When the purchase has been approved by the court you are now able to apply for a car loan and purchase your vehicle. Make the purchase and begin paying the loan off with your other obligations. How to obtain an auto loan after Chapter 13 bankruptcy Once you finish your court-ordered debt repayment and are released, you will not need to go through the courts to get your approved. And, if you are able to, try to use the vehicle you own until you're at six months after discharge, according to Lins. Enhance your credit score There are many ways to do this , including getting and responsibly using secured credit cards. The process of obtaining a secured credit card means the deposit of a small amount which acts as collateral. Your deposit becomes the credit line of credit cards. "Charging and repaying smaller amounts over time will assist in reestablishing a positive credit history," says Lins. There are also services that report on rent and other charges, like cell phones and utilities, and streaming services that can help you build or rebuild an punctual payment history, according to Lins. "These services typically charge a modest fee, but they can be completely free," she says. "Using your utility bills and rental payments to build credit histories can be a smart way to start the process of rebuilding." Monitor your credit Besides rebuilding your credit score, you'll need to keep track of it. This will let you know the progress you're making and what kinds of improvements are possible. Also, monitoring your credit regularly will allow you to spot any errors that can ding your score down the line. You can order free reports from AnnualCreditReport.com or sign up for a free credit monitoring service. A lot of credit cards offer an annual free look at the credit scores of your customers. Look around for a car in your budget Be sure to select cars that are within your budget and what you can reasonably afford is a sure way to stay on top of the obligations. This can in turn help rebuild your credit score and help you stay on the right track. Check your expenses for the month to determine the amount of a car payment your budget will allow. In general automobile-related costs should not exceed 20% of your budget per month. This is an amount that covers the cost of gasoline maintenance, insurance, and. You may also want to determine a budget for your purchase using information on the internet via websites like Edmunds and Kelley, which offer used and new price of cars along with insurance cost estimates. Make a down payment The more you pay, the less you'll have to pay to it in the future. Examine your budget and figure out the amount you can afford to stash away each month to finance purchasing a car. The ideal is to save as much as you can however it all comes to your income expenditures, obligations and current obligations. Alternatives to taking out the new car loan If you are unhappy with the terms and rates offered for the car loan or you are having trouble getting approved altogether you should consider alternatives. Shopping for a lower-priced vehicle. Even if the interest is very high, your total payment and how much you owe monthly will be more affordable. Be patient and pay off the loan later, once your credit is better. After you've rebuilt your credit, you'll most likely qualify for a greater swath of car loans with lower rates of interest, fees , and better terms. Cash out completely. The savings and the directly for your car means you won't have to apply for an auto loan at all, which will save you in interest fees. But if you need a car sooner then later may require the loan . The bottom line Getting a car loan during Chapter 13 bankruptcy is possible. Find a lender who will deal in conjunction with Chapter 13 bankruptcies and create a reasonable budget that allows you to make debt repayments while also paying for the car loan. It is also essential to search around for the best car for your budget. After you are discharged of bankruptcy, finance options also are available. But the primary goal is to repair your credit score by establishing an established track record of making debt payments on time. "It's an old saying but time really does heal any wound, including those in your score" Lins says. Lins. Find out more
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Written by the writer who contributes to the project. Jackie Lam is a contributing writer for Bankrate. Jackie is a writer on auto loans. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to manage their finances through providing precise, well-studied information that breaks down otherwise complex topics into digestible chunks.
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