One of the most common questions — and indeed, major fears — that people have when they think about filing for bankruptcy, is whether they’ll be able to buy a car in the foreseeable future.
At the same time, what makes this issue even more confusing and distressing, is that there is a great deal of misinformation out there; especially online, where some companies and consultants that provide so-called “debt solutions” do everything they can to convince people that filing for bankruptcy is basically like entering a financial black hole: you go in, but you never come out.
And so, to help separate fact from fiction and give you a clearer picture of the future will look like, here is what you need to know about buying a car after bankruptcy:
You may be able to buy a car in cash.
You may (and probably will) discover that after filing for bankruptcy you have more disposable income and overall savings — especially if your wages were previously being garnished, or you were paying exorbitant interest rates to service some of your debts. As such, while purchasing a new car might not be realistic (the average price of a new car is just over $36,000), you might be able to comfortably afford a used car, or as dealerships and salespeople like to put it, “a previously enjoyed car.” Either way, as long as it’s safe, reliable and fits your lifestyle, it’s good news for you!
You may be able to qualify for car financing.
If new and used car dealerships put up a stop sign every time they encountered a prospective customer with a bankruptcy in their past (including their recent past), then car sales would plunge to catastrophic levels and the government would probably have to step in with yet another bailout. In other words: dealerships gladly sell many cars to folks with bankruptcies in their past. After all, consumer bankruptcy is common, with around 800,000 filings every year.
In addition, financing your car — and of course, making your required payments on time and in full — will help rebuild your credit score, and demonstrate to future creditors that you’re while you’re driving around, your credit score will be on the rise.
With all of this in mind, it’s wise and often necessary to wait until your bankruptcy case has been discharged before applying for car financing (note that if you file for chapter 13 bankruptcy, then during your 3-5 year repayment plan you can request that the court appointed trustee gives you permission to get car financing). Also, generally speaking, the longer you wait after discharge, the lower the interest rate you’ll be offered.
You may benefit from “swap leasing.”
Right now, there are thousands of people who are eager — and some are desperate — to get out of their car lease. They may need to get a different kind of car, they may no longer need their car, they may no longer be able to afford their car . . . and the list goes on.
Swap leasing is when you take over someone else’s car lease to everyone’s mutual benefit. Often, the other person will provide incentives to make the deal more attractive, such as agreeing to cover two or three month’s worth of lease payments.
Just remember to get all of the details before agreeing to a swap lease agreement. For example, ensure that any pre-existing warranty will transfer over to you, and so on.
The Bottom Line
Don’t get misled by so-called “debt consolidation consultants” who say that getting a car after bankruptcy is an impossible ordeal. They don’t want you to file for bankruptcy in the first place, since that means they’ll lose a customer. As always get the facts you need to make an informed decision that’s best for YOU.
To learn more contact the Law Office of Charles H. Huber. We have over 30 years of experience filing consumer bankruptcy cases.