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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - October 5, 2018

What’s a bankruptcy car loan, and where can you get one? Getting an auto loan when you’re dealing with a bankruptcy depends on the type of bankruptcy you file, and where you’re at in the bankruptcy process.

Dealerships that Work with Bankruptcies

A bankruptcy car loan is a loan designed to help car buyers dealing with bankruptcy get approved. In order to get approved for one, you need to find a special finance lender. These lenders work closely with special finance dealerships and are familiar with the bankruptcy process. Because getting a car loan during or after a Chapter 7 or Chapter 13 bankruptcy can be tough, they work with bankruptcy car dealerships to offer loans specifically for people in these situations. These special finance dealerships are the best car dealers for bankruptcies because they’re signed up with subprime lenders.

Ideally, subprime lenders like to see that a bankruptcy is discharged before considering a customer for auto financing. But not everyone is able to wait and some may need a car fast. So, if you can’t get approved from a special finance lender, where do you go? One option is to visit a buy here pay here (BHPH) lot, although any new loan still must get approved by the court.

Unlike traditional lenders, BHPH dealers lend in-house and can set you up with a vehicle and a car loan. What makes these dealers great for buyers dealing with bankruptcy is that they typically don’t run credit checks. Instead, they use your income to determine what you qualify for. The biggest downside to these dealers is that most of them don’t report loans or on-time payments to the credit bureaus, but they do report missed payments. So, if credit building is a top priority, you might not want to finance a car from a BHPH dealer.

Keep in mind that the process of getting a bankruptcy car loan depends on the type of bankruptcy you file.

Chapter 7 vs. Chapter 13 Bankruptcy

There are two types of bankruptcies you can file as an individual: Chapter 7 and Chapter 13. Both are designed to help people handle debt, but their qualifications, processes, and time frames are different. So, which bankruptcy should you file? Here are some key differences to keep in mind:

Chapter 7: Also called a liquidation bankruptcy, a Chapter 7 bankruptcy is designed to eliminate most or all of your debt by selling your nonexempt property and lasts three to four months before being discharged. This is the most common type of bankruptcy, and to qualify you must pass the Chapter 7 means test. The key here is that your income must be lower than the median income for similar-sized households in your state. Getting a car loan during an Chapter 7 bankruptcy is typically very difficult. Because it lasts only a short amount of time, subprime lenders want a Chapter 7 bankruptcy to be discharged before they give an auto loan, so there aren’t any complications.

Chapter 13: This type of bankruptcy is a reorganization bankruptcy where the court sets up a repayment plan to help you pay back your creditors. A Chapter 13 bankruptcy lasts either three or five years, but you get to keep your exempt assets. To qualify, you need to have a regular income and can’t have more than $394,725 of unsecured debt or $1,184,200 of secured debt. Getting an auto loan during a Chapter 13 bankruptcy is much more possible, but you have the follow a specific process to get the court’s approval.

Can’t Find a Dealer to Work With?

If you have a bankruptcy listed on your credit reports and you need a car, you might not know where to look for a dealer. Luckily, at CarsDirect, we work with a nationwide network of dealers that know how to handle unique credit situations – including bankruptcy. Get started today by filling out our auto loan request form, and we’ll get right to work on connecting you to a dealer.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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