3 Tips for Getting a Car Loan after Chapter 7 Bankruptcy

Chapter 7 bankruptcy provides for a liquidation of assets in order to cover the expense of outstanding debts. Assets are liquidated by the order of a court, and you do not have control over the process as a filer. If you owned a vehicle, you likely lost it during the process of filing bankruptcy. You may think leasing is the only option for now. However, you can regain ownership of a vehicle if you seek loans that permit for a previous bankruptcy.

#1 Check the Statute of Limitations

All states have a statute of limitations for negative credit records. In most states, a bankruptcy will stay on your record for around 10 years. This means your filing will likely be within the statute of limitations at a time when you need a new car loan. However, if you do find out you are past the limitation on a bankruptcy, you should ensure it has been removed from your initial credit report.

#2 Seek High Risk Lenders

For most traditional lenders, bankruptcy is immediate cause for refusal of a loan. Lenders like banks and dealerships, such as the General Motors Acceptance Corporation, will treat your application harshly if you have a recent bankruptcy. There is a need for auto loans to those who have gone through a Chapter 7 liquidation, though, and special purpose lenders have filled that market need. These alternative lenders deal largely with high risk individuals who cannot qualify for other loans.

You should be aware these lenders are keen to your lack of options. They will not offer  you the most attractive loans, and typically demand high interest rates. If you can pay the expense, though, these loans will help rebuild your credit. Check your local area for independent finance companies and online lenders who advertise bad credit and bankruptcy loans.

#3 Provide Additional Collateral

If you would prefer to use a traditional lender for your car loan, you may have difficulty convincing the lender you offer security against default, but using a cosigner is an option. However, using a cosigner will prevent you from achieving the same benefits to your credit once you pay off the auto loan. Try using additional collateral instead. Of course, the lender will hold on to your auto title until the loan is paid off. After a Chapter 7 filing, you most likely do not own a home or other large assets. You may also offer other personal collateral, though, like stock certificates or a savings account. You should be aware of the high risk you are taking with this option. If you default on your loan, it is possible to lose your car. If you believe you are committed to paying off the loan on time, this may be an option to start rebuilding your credit.

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