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Taking on a new car loan while in bankruptcy Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by providing you with financial calculators and interactive tools, publishing original and objective content. We also allow you to conduct research and compare information for free – so that you can make sound financial decisions. Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The products that appear on this site are from companies that pay us. This compensation can affect the way and when products are featured on this website, for example such things as the order in which they may be listed within the categories of listing and other categories, unless prohibited by law. This applies to our mortgage, home equity and other products for home loans. This compensation, however, does affect the information we provide, or the reviews you read on this site. We do not include the universe of companies or financial offers that may be accessible to you. SHARE: Westend61/Getty Images

5 min read Published June 22, 2022

Jackie Lam Written Jackie Lam Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie is a writer on auto loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain confidence to manage their finances with precise, well-studied and well-researched data that breaks down complex topics into manageable bites. The Bankrate guarantee

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They ensure that what we write ensures that everything we publish is accurate, objective and reliable. We have loans reporters and editors concentrate on the areas that consumers are concerned about most — various types of loans available and the most competitive rates, the top lenders, ways to pay off debt and much more. So you’ll be able to feel secure when investing your money. Editorial integrity

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There are money-related questions. Bankrate has the answers. Our experts have been helping you manage your money for over four years. We continually strive to provide our readers with the professional advice and tools needed to be successful throughout their financial journey. Bankrate follows a strict policy, which means you can be confident that our information is trustworthy and precise. Our award-winning editors and journalists create honest and accurate content that will help you make the right financial decisions. Our content produced by our editorial team is factual, accurate, and not influenced from our advertising. We’re open regarding how we’re capable of bringing high-quality content, competitive rates and useful tools to our customers by explaining how we earn our money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the placement of sponsored products and services, or through you clicking certain links posted on our site. Therefore, this compensation may influence the manner, place and in what order products appear within listing categories in the event that they are not permitted by law. We also offer mortgage, home equity, and other home loan products. Other factors, such as our own rules for our website and whether or not a product is available in your region or within your personal credit score can also impact the way and place products are listed on this site. While we strive to provide a wide range offers, Bankrate does not include specific information on every credit or financial products or services. If you apply for Chapter 13 bankruptcy — also known as repayment bankruptcy credit will take a hit and it will remain on your credit report for seven years. When you file Chapter 13 bankruptcy, you enter a repayment plan approved by the court says Amy Lins, vice president of enterprise learning at, an agency that provides credit counseling for non-profits located in Sugar Land, Texas. “This payment is spread over three to five years, which includes not taking on more debt,” says Lins. “However the court acknowledges that life happens and it could be necessary to buy a vehicle before the completion that Chapter 13 repayment plan.” You may be able to get a car loan however, the options are limited. How to get a car loan while in Chapter 13 bankruptcy If you have enough cash to buy an automobile, you may buy a car for cash without going through the court. You may have to modify your bankruptcy plan and consult with your attorney first. If you’re looking to take out an auto loan even though you’re on your repayment plan and before you’re discharged from bankruptcy, you may be able to do so. There are four steps you can follow, according to Lins. 1. Create a new budget to show that you have the funds to make the cost of your car. You’ll need to prove that you are able to take care of your debt repayment, additional financial commitments and responsibilities , as well as the payment for the car. “If the car purchase likely to affect other aspects of your repayment plan, consult with your lawyer to come up with a new payment plan” says Lins. 2. Find an lender who can work with Chapter 13 bankruptcies There are few lenders and car dealers that will cooperate with people with active bankruptcy however, there are a few that will, says Lins. “Your bankruptcy attorney may be able provide the names of lenders and dealers that are willing to work with you and you should inquire with your local credit union or bank.” Additionally, as your credit score will suffer from bankruptcy, you can expect to pay higher interest rates, fees and less favorable terms. You’ll also need to find an auto dealer that works with you to get your car loaned. Despite your options being slim Do your research and compare rates and terms offered by several lenders. The offer must be submitted, including the purchase price, the monthly installment and interest rate in writing to provide an application to the judge, explains Lins. “Keep the price of your purchase at a minimum and wait to exit bankruptcy and repair your credit before buying a larger vehicle,” she says. 3. File a motion with the court to purchase the car In order to take over the car loan while still paying back your debt, you’ll need to submit a motion to the court to have it accepted. This requires bringing your application and having a solid justification for the need to buy a car and why you’ll have to obtain financing in order to do so. Maybe your previous car broke down and the repairs are so substantial that it’s more beneficial to buy a brand new car. You live in an area in which public transportation isn’t readily accessible. This is something your bankruptcy attorney can assist with. 4. When the motion has been approved by the court, you are now able to apply for a car loan and purchase your vehicle. Start paying the loan off with your other obligations. How do you get a car loan in the aftermath of Chapter 13 bankruptcy Once you complete your court-ordered debt repayment and are discharged, you won’t have to undergo the court process to obtain your approval. And, if you are able to, try to make do with the car you have until you’re at six months post discharge, according to Lins. Improve your credit score There are a variety of ways to improve your credit score , including getting and responsibly using a secured credit card. Obtaining a secured credit card means making a small down payment that acts as collateral. The deposit is then used as the credit line of your credit card. “Charging and repaying smaller amounts over time will help rebuild a positive credit history,” says Lins. You can also look at companies that can report rent as well as other bills such as cell phone and utilities, and streaming services that can help you establish or improve your on-time payment history, says Lins. “These services typically have a modest fee, but they can be free,” she says. “Using your rental and utility bills to build credit histories can be a smart way to start the process of rebuilding.” Keep track of your credit. In addition to rebuilding your credit score, you’ll want to keep tabs on it. This will help you see the progress you are making and what kinds of improvements can be made. Also, monitoring your credit on a regular basis will help you identify any mistakes that could hurt your score in the future. You can order free reports from AnnualCreditReport.com or sign up for a free credit monitoring service. Some credit cards provide the opportunity to check monthly your credit score. Find the right car within your budget. Be sure to select cars that are within the range of what you can reasonably afford is a sure way to stay on top of your obligations. This can in turn help rebuild your credit and ensure that you are on the right track. Check your monthly expenses to figure out the amount of a car payment your budget will allow. As a rule of thumb the car-related expenses shouldn’t exceed 20 percent of your budget for the month — which includes the cost of fuel, maintenance and insurance. It is also possible to set a target price for your purchase using data available on websites such as Edmunds and Kelley, which offer used and new prices for cars, along with insurance cost estimates. Consider a down payment. The greater the amount, the less you’ll be liable to it in the near future. Examine your budget and determine how much you can reasonably be able to save every month towards buying a car. Ideally you should save as much money as you can, but it ultimately boils down to your earnings, expenses and existing obligations. Alternatives to obtaining the new car loan If you’re unhappy with the terms and rates provided for an auto loan or you are having difficulties getting it approved look into other options. Looking for a cheaper car. Even if the rate of interest is very high, your total payment and how much you owe each month will be less expensive. You can finance it later once your credit is better. After you’ve rebuilt your credit, you’ll most likely qualify for a greater range of car loans with lower rates of interest, charges and better terms. Cash out completely. Saving money and paying in cash for a car means that you don’t have to seek a car loan at all and will be able to save on interest charges. However, if you’re in need of a car sooner than later, you may have to get a . The bottom line is that getting a car loan in the course of Chapter 13 bankruptcy is possible. Find an lender that is willing to work with Chapter 13 bankruptcies and create a reasonable budget that allows you to pay off debt while also paying for the car loan. It is also essential to shop around to find the best car for your budget. When you’ve been discharged in bankruptcy, options for financing exist. However, the initial step to take is rebuild your credit score by creating an established track record of paying debt in time. “It’s an old saying but time really does heal any wound, including those in your score,” Lins says. Lins. Find out more

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Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie writes about auto loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to manage their finances by providing clear, well-researched information that breaks down complicated topics into manageable bites.

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