3 Tips for Refinancing a Car Loan after Chapter 13 Bankruptcy

Chapter 13 bankruptcy filings allow you to reorganize your debt in order to effectively make payments. While a Chapter 7 forces you to liquidate your assets and declare "total" bankruptcy, a Chapter 13 may allow you to keep your possessions and simply restructure your debt payments. A Chapter 13, for this reason, is often more favorable than a Chapter 7. Even though you still have some asset base, you will not find it easy to refinance a car loan for a lower rate after declaring Chapter 13 bankruptcy.

#1 Show Successful Repayment

Since you did restructure your payment plans under your bankruptcy, you should be able to exemplify the fact you are now making regular payments on your debts. In fact, you should have multiple debts return to good standing once your bankruptcy procedure is finalized. Instead of applying for a new loan right away, wait 12 months and make consistent payments during that time frame. This should be enough to show most lenders you have overcome the circumstances that initially lead to your bankruptcy, such as unemployment or other misfortune. If you have not recovered and your debts are still in default status, then you will not likely qualify for a new loan. Many lenders require two years after a discharge so you may have to research many lenders before you find the right fit.

#2 Approach High Risk Lenders

Even though you will be looking for a loan after largely overcoming the negative circumstances that lead to your bankruptcy, you will still find the majority of traditional lenders are not willing to work with you. Having a bankruptcy on your record may immediately disqualify you from receiving loans with a huge number of traditional lenders. Instead of approaching these low-risk lenders, look to high-risk providers. You may find a lender that has a high risk division specializing in post-bankruptcy lending. It is better to work with this type of organization than one that only provides high risk loans. A lender with a more balanced portfolio of borrowers will be better able to accommodate your needs and provide financial protections.

#3 Sacrifice some Options

The bottom line is: a high risk borrower simply has fewer options for loans. This does not only mean you will only be able to work with a small amount of lenders. Even when you find a lender willing to provide your financing, you will find that lender is not as accommodating to you as to a low risk borrower. Instead of standing firm on all areas, consider which options you will be able to sacrifice on and which you are adamant about getting your way. For example, you may be flexible on interest rate but require a low monthly payment. You may also find you are unwilling to provide a cosigner but are willing to place additional collateral to secure the loan. Having these cards to play when you are negotiating with the lender will show you are willing to work for your loan. Holding firm across the board is simply not an option for a borrower who is coming out of a bankruptcy.


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