The quick answer to this question is yes, you absolutely can buy a car while filing for bankruptcy (unless you live in Tennessee, sorry). In fact, it’s more common than you might think. However, in order to avoid getting into a financial rut, there are some recommended steps you should take before, during and after the car buying process. Let’s take a look at them.
Create Realistic Expectations
So, let’s face it – filing for bankruptcy is not fun and likely something you’ll never want to have to do again. To avoid creating further financial burden, it’s essential to create realistic expectations.Think about why you need a car and how much you can afford. Also, you’ll need to factor in additional costs, like insurance and maintenance, prior to starting the purchase process. If you’ve filed for a Chapter 7 bankruptcy, you must at least wait until you’ve completed your initial 341 meeting. Without completing this initial phase of the process, the majority of lenders will not consider you for a loan.
Contact Your Bankruptcy Trustee
If you have filed for a Chapter 13 bankruptcy, you’ll need to inform your bankruptcy trustee that you need a car. Plan to provide a detailed list of your income and expenses to your trustee in order to prove you’re capable of managing car payments. If your bankruptcy trustee agrees, he or she will need to provide you with a written authorization detailing the maximum amount you can afford to pay monthly for a car.
Prepare to Make a Down Payment
Prior to deciding to purchase a car, it’s a good idea to prepare to make a down payment, if possible. This serves two purposes. First, it will lower your overall monthly payment, making it easier for you to maintain your loan or lease agreement for the life of the contract. Second, it will reduce the amount you will need to borrow towards a vehicle purchase. If you are unable to make a down payment, make sure that your bankruptcy trustee is aware.
Ideally, you should try to wait until you’re in the second year of bankruptcy before applying for a car loan. Not only will this increase your chance of approval, but you may end up with a lower interest rate. In addition to your credit rating and bankruptcy details, lenders also often look at your payment history. If you’ve generally been responsible with making payments, but had to file bankruptcy because of a special circumstance, many lenders will view your application more favorably. On the other hand, if you’ve never made a payment on time in your life, expect to be offered a higher interest rate.
Buy Here, Pay Here Lenders
If you’re in the middle of filing for bankruptcy, many private lenders will be hesitant to work with you. Additionally, if you have a bankruptcy trustee, you may not be allowed to use certain lenders. It’s best to review the requirements with your trustee prior to seeking funding. If you are able to choose your lender, make sure you choose one that reports to all three credit reporting agencies. This will improve your chances of rebuilding good credit.
Do you need a car, but have credit concerns? Contact your nearest DriveTime today to find out about our financing options.