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How Does Bankruptcy Affect My Ability to Buy a Car?


Bankruptcy adversely affects your ability to buy a car. There’s no two ways about it. However, the adverse effect normally isn’t that bad. Credit score effect is a good example. Since bankruptcy is usually a last resort, most people already have poor credit scores when they file. So, the filing only moves a credit score from average to below average, at least in most cases. That’s not a crippling effect.

Bankruptcy doesn’t torpedo your chance to buy a car. In fact, a bankruptcy lawyer can clear the way for an in-bankruptcy vehicle purchase, at least in most cases. Typically, a new or used vehicle is a debtor’s first major post-filing purchase. This purchase enables debtors to put their financial troubles behind them and move forward with their lives. An attorney helps ensure that the purchase process goes as smoothly as possible.

Purchases During Bankruptcy

If a debtor drives a used car, files Chapter 13, and the protected repayment period lasts the maximum five years, the debtor will almost certainly need a new ride before the judge closes the bankruptcy. The debtor’s current vehicle might break down altogether or need so many repairs that it costs too much to keep it.

Either scenario most likely affects the debtor’s ability to make monthly debt consolidation payments. People without vehicles usually can’t work. The money for high repair bills must come from somewhere. That “somewhere” could easily be the monthly debt consolidation payment.

So, although they won’t admit it, an in-bankruptcy purchase of a replacement vehicle is in the best interests of the creditors. That is, of course, assuming the replacement vehicle is a true replacement rather than an upgrade.

Before a Santa Ana bankruptcy lawyer files a motion to allow a vehicle purchase, an attorney lays the groundwork. This process includes attaching a dummy vehicle purchase contract to the motion. This contract must include key financial terms, such as the list price, purchase price, interest rate, and monthly payment amount.

As long as the debtor can make the loan payments and the debt consolidation payment, the judge will probably approve the motion.  If creditors raise objections, often based on the argument that the additional funds should be directed toward the debt consolidation payment, these objections may lack merit, as outlined above.

Purchases After Bankruptcy

A bankruptcy filing remains on a credit report for between seven and ten years. However, this entry’s effect on a credit score is usually much shorter.

Payment history and debt amount are the two largest factors FICO uses to determine credit scores. So, if the debtor has made regular payments for about the last 120 days and has not gone overboard on new debt, the debtor’s credit score should rise every month.

However, let’s be realistic. Former bankruptcy debtors have limited purchase options. Additionally, they usually pay higher interest rates. So, while you can buy a car after bankruptcy, it’s important not to get your hopes up.

Additionally, be upfront with the lender. Before the salesperson runs your credit score, tell him/her about the prior bankruptcy. No one likes bad surprises.

Finally, be patient. Many dealers don’t work with damaged credit buyers as a matter of policy. If that happens to you, simply try another dealer. Attorneys often point former bankruptcy debtors in the right direction. Most lawyers have professional relationships with lenders who work with damaged credit borrowers.

Count on a Thorough Lawyer

Regardless of your financial problems, there’s usually a way out. For a free consultation with an experienced bankruptcy lawyer in Santa Ana, contact The Law Office of Charles A. May. We routinely handle matters throughout SoCal.

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