Can I Get a Bad Credit Car Loan with an Open Chapter 7 Bankruptcy?

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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.


, - August 12, 2019

A Chapter 7 bankruptcy is a relatively short process, generally lasting around three to six months. Because of this, most automotive lenders like to see that a Chapter 7 has been discharged before considering you for financing, so it can be difficult to get approved for a car loan with an open Chapter 7 bankruptcy.

What to Do before You Apply

Your chances of getting approved for an auto loan decrease with an open Chapter 7 bankruptcy, but you’re not completely down for the count.

There are two things you need to do before you get the car buying process started with an open Chapter 7:

  1. Meet with your trustee – You must complete the initial 341 meeting with your trustee and creditors within 30 days of filing your Chapter 7. Your trustee and creditors examine your debt and assets, and can ask you questions under oath during this meeting. Once it’s done, you’re eligible to apply for an auto loan.
  2. Get permission – You have to get the court’s approval before you can legally take on any additional debt, including a car loan. If you’re approved, you can buy the vehicle. If not, then you have to wait until the bankruptcy has been discharged. Note that if the court finds out you financed a car without their consent, they can force you to surrender the vehicle and/or dismiss the bankruptcy.

When it comes to your car choice, pick something that’s reasonable and makes the most sense. You have a better chance of getting approved if you pick a vehicle that’s affordable.

What Happens if You Don’t Get Approved?

Sometimes, filers with an open bankruptcy think they can cheat the system and buy a car without the court or their trustee knowing by visiting a buy here pay here dealership. It’s true that most of these dealers don’t run credit checks, so they aren’t going to see a bankruptcy. However, you’re still going around the court and behind your trustee’s back by financing a vehicle without their permission, which is illegal.

If you don’t get the proper approval, your bankruptcy could be dismissed instead of discharged, and you could face legal action. You should talk to your trustee about your need for a car, as it’s not worth the time and effort to try and sneak one by the court.

Even if they say you need to wait until your Chapter 7 is discharged, you at least know why you can’t apply for an auto loan at this time.

The Bottom Line

Always get the court’s approval before you finance a vehicle during a Chapter 7 bankruptcy. Without it, you’re breaking the law and putting yourself at risk for legal action.

Although it is tough to get approved for a car loan with an open Chapter 7, it doesn’t hurt to try if you need a new vehicle. If you’re looking for a dealership to assist you with an open bankruptcy auto loan, or bad credit financing in general, we want to help.

At CarsDirect, we’re teamed up with an exclusive network of special finance dealers that have the lending resources available to work with people in all kinds of credit situations, including bad credit, no credit, and even bankruptcy.

Simply fill out our no-hassle, no-obligation car loan request form, and we'll start the process of matching you with a local dealership.

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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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