Bankruptcy Discharge and Your Next Car Loan

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - May 17, 2021

Once you're done with bankruptcy the case is discharged, meaning you've completed your process and you're now able to apply for new credit normally. Be aware, though, that your credit score can take a big hit during bankruptcy, so where and how you shop for a car loan might have to change.

Discharge Not Dismissal

Discharge means that you've successfully completed your bankruptcy process, and in most cases, any debt remaining after bankruptcy is wiped away and no longer able to be collected. When you're in a Chapter 7 bankruptcy, a discharge typically comes in four to six months. Chapter 13 is a longer process, taking either three or five years.

On the other hand, dismissal happens when your bankruptcy isn't completed. This can happen either with or without prejudice. This means your bankruptcy case is thrown out incomplete due to either a clerical error or missing paperwork (without prejudice) or through some action, such as lying on your filing paperwork (with prejudice) or failing to make your agreed-upon payments in Chapter 13.

If your case is dismissed without prejudice there's likely no wait for you to file again. However, if your bankruptcy is dismissed with prejudice instead of being discharged, you may face fines, continue to owe on your debts, and may even be barred from filing bankruptcy in the future.

Getting an Auto Loan After Discharge

While the damage from bankruptcy can last for years, bad credit auto lenders are often willing to assist borrowers with a recently discharged bankruptcy. The whole point of filing for bankruptcy is to get your finances in a better position – and by completing the lengthy process of bankruptcy, you show that you’re willing to put in the work to turn things around.

Borrowers with recently discharged bankruptcy are likely to have less debt than they started, making it easier to take on new credit. Once your bankruptcy is discharged you're free to take on credit again without the court’s permission, and it's typically pretty easy to do.

However, since your credit score is likely much lower than it was before the process, you may need the help of a subprime lender or a buy here pay here (BHPH) dealer if your credit isn't up to snuff. These lenders and dealers may be just the solution when you can't meet the requirements of a traditional lender at a bank or credit union.

Subprime lenders work through special finance dealerships and make loans for borrowers who are in tough credit positions, such as just coming out of bankruptcy or having a repo on your credit reports. If your bankruptcy discharge isn't showing up on your credit reports yet, you may need to bring a copy of your discharge papers from the court, or a discharge letter that shows your case has been completed.

If you need a car now and don't have a copy of any of your paperwork, a BHPH dealer may be a good choice, because these dealers don't always check your credit reports. At these lots, the dealer is the lender and they provide in-house financing. However, you can expect to pay a little more here, the dealers often require a large down payment and may charge the highest interest rates they can.

Finding a Subprime Lender

A subprime lender who works through a special finance dealership is often the way to go if you're looking to both get a vehicle and begin repairing your credit score after bankruptcy. These lenders are equipped to handle lenders who've been discharged, and in some cases, may be able to help you finance during bankruptcy, too (with the court's permission, of course).

Since it's not always easy to know which dealers work with subprime lenders, it can take some searching to find the one for you. Or, you can start here at CarsDirect and skip the search. We have a nationwide network of special finance dealerships across the country that are signed up with lenders that can help.

Get on your way toward another vehicle after your bankruptcy has been discharged by simply filling out our fast, free, no-obligation auto loan request form. We'll get right to work connecting you to a dealership in your area that has lenders ready to work with bankruptcy borrowers!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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