Getting a Car Loan with a 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.


, - July 8, 2019

If you’ve already filed a Chapter 7 bankruptcy, you may be wondering what your odds of getting a new car are. Ultimately, it depends on where you’re at during the Chapter 7 process. Luckily,it only lasts a few months, and if you can wait until your bankruptcy is discharged, there’s a better chance you could get approved for auto financing.

Getting a Car Loan during Chapter 7

A Chapter 7 bankruptcy generally only lasts four to six months, so it’s a relatively short process. During this time, your non-exempt property is liquidated, or sold, in order to pay back your creditors, and any remaining debt is wiped clean once the bankruptcy has been discharged.

Because a Chapter 7 bankruptcy doesn’t take long to complete, it’s very difficult to get approved for a car loan during one. Technically, you can apply for an auto loan right after the 341 meeting with your creditors, but most lenders want to see that the bankruptcy has been discharged before accepting applications.

The reason why is because the lender runs the risk of the new debt being included in the liquidation process and losing the vehicle – which isn’t acceptable for them.

Getting a Car Loan after Chapter 7

Once your Chapter 7 is discharged, you have a much better chance of getting approved for a car loan. While you should try to get pre-approved from your bank or credit union first, you’re more than likely going to need to work with a special finance dealership.

There are usually two types of lenders you could work with: a subprime lender, who works through a special finance dealer, or a buy here pay here dealership, who is also a lender. Both are able to offer bad credit auto financing after a Chapter 7 discharge, but you need to meet their specific requirements.

Subprime lenders run credit checks, so they’re going to see the discharged bankruptcy listed on your credit reports. However, they also look at outside factors to qualify you, including your income, employment, residence stability, and down payment. As long as you bring in the proper documentation, you have a better chance of getting approved for a car loan.

As for buy here pay here dealers, they typically don’t run credit checks so they won't be concerned about your bankruptcy. All they care about is whether or not you have the income to finance a vehicle on their lot. You just need to bring in proof of income and a sizeable down payment.

CarsDirect Tip: Although it isn’t required, you should bring in a copy of your discharge papers to the dealership. It can take some time for a discharged bankruptcy to show up on your credit reports, and if a lender sees it’s not there, you can back up your claim by having a physical copy of the discharge with you.

Need Help Finding a Dealer?

If your Chapter 7 bankruptcy has been discharged and you’re looking for a dealer to work with, we want to help. CarsDirect works with special finance dealerships all across the country that can help people get bad credit auto loans, even if they're dealing with bankruptcy. Get connected with a local dealer by filling out our easy and fast car loan request form today.

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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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