For those in serious debt, filing for bankruptcy can take a considerable weight off their shoulders. This process, while not without its drawbacks, can help those struggling to reclaim control of their finances. As such, if you’re considering filing, you may be excited to begin anew, starting with a new car. However, before you start window shopping, it’s important to understand how filing for bankruptcy will impact your ability to buy a car. The following blog explores what you should know about these matters, including the impact this process will have, as well as the importance of rebuilding your credit before buying a car. Additionally, you’ll learn why working with a Montgomery County bankruptcy lawyer is critical during these complex matters.
Can I Purchase a Car Right After Filing for Bankruptcy?
When you file for bankruptcy, depending on the chapter you pursue, the process of buying a car will vary. For example, if you file for Chapter 7, which is a liquidation process, your debts will typically be wiped out within six months of filing. As such, you may assume that you can purchase a car shortly after this discharge. However, bankruptcy can take a significant toll on your credit score, making it difficult to obtain approval for loans.
Chapter 13, on the other hand, is a much more complex process that revolves around a repayment plan that lasts three to five years. As such, if you want to purchase a car during this time, you’ll need to obtain special approval from the court. This is because you are generally prohibited from incurring new debts while Chapter 13 is ongoing.
How Does Bankruptcy Impact My Ability to Finance?
When you file for bankruptcy, you can anticipate that your credit score will drop significantly. This is because this shows an inability to repay loans, which is a factor that makes up a considerable portion of your credit score. As such, a low credit score with a bankruptcy filing is a red flag to lenders, meaning many will deny loan applications. Unfortunately, bankruptcy will remain on a credit report for ten years for Chapter 7 filers, and seven years for Chapter 13 filers.
In the event you find a lender willing to extend a loan for you following bankruptcy, you’ll find that the terms of the loan will likely be unfavorable. This often means that they have higher interest rates, costing you significantly more in the long run.
Should I Rebuild My Credit Before Buying a Car?
If possible, after bankruptcy, one of the best things you can do is to begin rebuilding your credit before making large purchases like a vehicle. This includes opening lines of credit through rebuilder loans, which are intended to help show your ability to repay loans.
In addition, waiting a bit when possible can help you save for a larger down payment, which will ultimately reduce the loan amount and can help you get faster approval.
However, if you cannot wait to purchase a car, you may want to consider finding a co-signer. This is someone who acts as a guarantor that a lender will get their payments in the event you fall behind or default on the loan. An attorney can help you explore this option if you are interested.
Purchasing a car following bankruptcy, though difficult, is possible. As such, one of the most important things you can do during this process is connect with an experienced bankruptcy lawyer with Mudrick & Zucker, P.C. Our firm understands how overwhelming this process can be to navigate, which is why we will do everything in our power to help you fight for the best possible outcome. Connect with our firm today to learn more about how we can help you reap the full benefits of this process and get the financial fresh start you deserve.
