If you've recently completed a bankruptcy, you might be wondering if you can buy a car. In most cases, the answer is yes. If the debts you've discharged in your bankruptcy case have freed up enough income to pay in cash or make a loan payment, you might be in luck. Car loan lenders are often willing to let you finance a car after bankruptcy, however, you should expect to pay high-interest rates if you're taking out the car loan shortly after receiving a bankruptcy discharge.
The option you choose will depend on your circumstances and resources. You might find that after filing bankruptcy and discharging debts, you have extra disposable income. If you're able to save up enough cash after your bankruptcy case, using it will likely be the cheaper option. For example, the bankruptcy may have stopped a judgment creditor from garnishing from your paychecks, or you might not have to make credit card payments or debt installment payments any longer, including old car loan lenders. Also, as long as your bankruptcy trustee didn't claim an interest in your federal or state income tax refunds, you could get extra cash from these refunds.
If you don't have enough cash to buy a car, it's not impossible to get an auto loan despite having filed bankruptcy previously. Lenders will be eager to extend you new credit. Car dealerships may have already mailed you sales cards and letters, inviting you to buy a car with credit. And you are probably eager to re-establish your credit after bankruptcy. Here are some of the pros and cons of taking out a car loan soon after bankruptcy.
Getting a loan can help you re-establish credit. It allows you to make timely installment payments on a big-ticket debt, which can help build a positive credit report. Financing may also be your best option if you need a car but don't have the cash to pay for it.
Unfortunately, many lenders—subprime lenders and "buy here, pay here" outfits—will see your bankruptcy as a bad credit mark, and charge you extremely high-interest rates (sometimes as high as 29%).
However, bankruptcy doesn't carry the stigma that it used to 20 or 30 years ago. Even more mainstream lenders and car dealers will not bat an eye over your bankruptcy and are open to doing business with you. You might even be able to finance a new car at a reasonable rate of interest, especially if you have a steady source of adequate income.
You should research various finance terms and options that dealers, car loan lenders, banks, and credit unions are willing to offer you in your area.
Whether you are using cash or plan to get a car loan, you should wait until after you have received your bankruptcy discharge, or after your bankruptcy case has been dismissed.
In a Chapter 7 case, you should get your discharge notice from the bankruptcy clerk of court about 90 days after your 341 meeting of creditors—the one hearing almost all filers must attend.
If you are in Chapter 13, the process is significantly different. Chapter 13 is a continuous proceeding that typically takes between three to five years to complete. If you need a new car while you are still in Chapter 13, you will need permission from the bankruptcy court before you can buy one. In most jurisdictions, this means filing a motion with the court. Consult with a bankruptcy attorney to get more information about buying a car in Chapter 13.
Once you have received your discharge notice or dismissal, the rule of thumb is simple: The longer you wait to get a new car loan, the better your interest rate will be. However, if you can't wait, you might still be able to find a reasonable new car loan after researching your options.