Can I Buy a Car After Bankruptcy? (2024)

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After the unpleasantness of bankruptcy proceedings is finally over, a sobering question may arise: What if I need to buy a car?

There’s good news: It’s possible, especially if the debts your bankruptcy filing has lifted enable you to pay in cash or be able keep up with new loan payments.

Yes, auto loan lenders don’t exclude those who have gone through bankruptcy. However, you’ll pay higher interest rates if you finance the vehicle after receiving a bankruptcy discharge.

A better question to ask yourself is: How can I get a car that doesn’t overextend my budget financially, which is what brought on the bankruptcy in the first place?

How Long after Filing Bankruptcy Can You Buy a Car?

While the effects of bankruptcy hang around for 7 to 10 years on your credit report, that’s not how long you must wait to borrow money. The impact of the penalty decreases each year, and it’s even possible to get a car loan within six months of your discharge.

But that might not be the wisest course of action. The longer you can go without buying a vehicle, the more time you have to improve your credit score, which increases the likelihood of getting a loan at an affordable interest rate. One option: Help yourself out by getting a free copy of your credit report and checking it closely for errors so they can be removed.

If you need a car now, do you have enough cash to buy an inexpensive one to get you through the first 6 to 12 months? It may not be something you’ll be proud to be seen in, but it will give you time to improve your credit score and save for a down payment, both of which will help you get better interest rates on your next car.

Getting a Car after Chapter 7

If yours was a Chapter 7 bankruptcy, that usually takes 4 to 6 months to complete. You should receive notice of your discharge roughly 90 days after your 341 meeting of creditors. After you get this notice, you can get a loan for a car. However, it’s still better to wait so you can improve your chances of being approved for a loan with better rates.

Getting a Car during or after Chapter 13

Chapter 13 bankruptcy is different because, unlike Chapter 7, it’s a 3- to 5-year process designed to let debtors get caught on their loans. While you’re in Chapter 13, you must get permission from the bankruptcy court to buy a car. It’s a good idea to check with your bankruptcy attorney before doing so.

Once your bankruptcy is discharged, you can buy a car without anyone’s permission. The same suggestion applies: The longer you put off such a purchase, the likelier it will be that your interest rate will be less punitive.

Should You Pay with Cash or Credit for a Car after Bankruptcy?

Assuming you’re able, paying with cash is almost certain to be cheaper even if you have a good credit rating, which you certainly do not soon after a bankruptcy. With your old debts discharged, saving the money you would have paid on those old loans and credit cards might allow you to put together enough money to get a car without borrowing again.

Financing a car after bankruptcy will be more difficult, but it’s still possible.

Financing a Car after Bankruptcy

You may have already received letters from car dealerships offering you credit to buy a car, and it’s true. You should be able to get a car loan.

Should you? Think it through.

On the plus side: If you make consistent, on-time payments. A loan is a step for you to re-establish your creditworthiness. If you don’t have the cash needed to buy a car outright, financing may be your only option.

The flip side: Offering you credit doesn’t mean offering you good credit. Expect high interest rates – maybe really high rates. Shop around and see what dealers or lending institutions are going to charge you.

Where to Look for a Good Car Loan after Bankruptcy

Immediately after a bankruptcy, it won’t be easy to get a car loan. Your best bets:

  • The bank or credit union where you’re already a customer. Since your accounts are with them, they may treat you differently from someone walking in off the street.
  • Bad credit auto lenders. Some car lending companies specialize in working with customers with bad credit. Again, you won’t get great rates, but this can still work for you if it fits inside your budget. Check whether having a cosigner – preferably one with excellent credit – would lead to a lower interest rate.
  • Swap leasing. This involves taking over someone else’s lease and payments from them. You pay what’s left on the car and they escape a loan that isn’t working for them. Of course, read the terms closely and check out the vehicle before the exchange to make sure it’s worth buying.

Tips on Buying a Car after Bankruptcy

If you’re going to buy a car following bankruptcy, there’s a lot more to consider than gas mileage and how it corners.

  • Make sure your credit reports are up to date. Following Chapter 7 bankruptcy, your debts should all be discharged, but if your credit report didn’t get the memo, it could lead to even more credit problems. You should dispute mistakes on your credit report with the major credit reporting agencies to have them fixed.
  • Work to rebuild your credit. If you have any loans not settled in the bankruptcy, be sure to pay them on time. Getting a secured credit card, which requires a cash deposit, is a tried-and-true credit rebuilder if you pay on time and keep the balance below the card’s credit limit. Paying on time is true for all your loans, including a car loan if you can’t buy with cash.
  • Get a vehicle that fits your budget and transportation needs, not your ego. When you’re in better financial and credit shape, you can splurge on the car of your dreams. This isn’t that time. Make sure you can afford it. Know how much you can put down and how large a monthly payment you can comfortably handle.
  • Get a fixed interest loan rather than anything that’s adjustable. Certainty is your friend. A loan that might increase your monthly payments in the future, is risky.
  • Don’t finance for longer than 5 years. Longer terms lower monthly payments, but you pay much more interest the longer you finance it.

Have More Questions? Get Help from Financial Professionals

Credit counselors from a nonprofit credit counseling agency, provide advice on budgeting, money management and other finance basics. They can help people who want to buy a car after bankruptcy make sound decisions. And, if you are considering bankruptcy but haven’t filed, counselors can help you weigh the pros and cons of bankruptcy and explore the alternatives – your situation may not be as bleak as you think – or assist with pre-bankruptcy credit counseling.

No matter which side of the bankruptcy questions you’re on, you don’t have to go through this alone.

Can I Buy a Car After Bankruptcy? (2024)


Can I Buy a Car After Bankruptcy? ›

Securing a competitive auto loan rate following bankruptcy is possible but will be more challenging due to the negative marks on your credit report. To get the best possible auto loan, it is important to keep a close eye on your credit score and work to improve it before applying for one.

How long after bankruptcy can you buy something? ›

You'll need to wait 2 – 4 years depending on your loan type. For a Chapter 13 bankruptcy, you may be able to apply immediately or you may need to wait up to 4 years. FHA loans are a great option after bankruptcy because they allow you to buy a home with a lower credit score.

How long after Chapter 7 can I get a credit card? ›

A Chapter 7 bankruptcy takes approximately four to six months after the initial filing to be completed and your debts discharged. After that, you can apply for a credit card. A Chapter 13 bankruptcy, however, can take between three to five years as it's a restructuring of your debt that you pay off over time.

Why is my car loan not showing on my credit report after bankruptcies? ›

Since a bankruptcy wipes out the car loan but not the lender's security interest in the car, your car lender won't report your post-bankruptcy payments to any credit reporting agencies.

What can you not do after filing bankruptcies? ›

For example, you can't discharge debts related to recent taxes, alimony, child support, and court orders. You may also not be allowed to keep certain assets, credit cards, or bank accounts, nor can you borrow money without court approval.

What is the average credit score after Chapter 7? ›

But in most cases, these people already have a bad credit score because of how much debt they have. In fact, the average credit score after a bankruptcy discharge can vary between 400 and 530. The good news is that you can build credit within a short period of time, even after filing for bankruptcy.

What is the minimum amount of debt for Chapter 7? ›

The U.S. bankruptcy code doesn't specify a minimum dollar amount someone must owe to make them eligible for a qualified filing. In short, any debt is enough debt. More important than the size of your debt is the size of your income. How much money you earn affects whether you qualify for Chapter 7.

Is it hard to get a loan after filing Chapter 7? ›

Although bankruptcy can help you recover from debt, it can make it more difficult to secure a loan in the future. Rebuilding your credit can make it easier to qualify for a personal loan after bankruptcy. Some financing alternatives, such as a secured credit card or credit builder loan, may work better for you.

How to get 700 credit score after Chapter 7? ›

Capably managing your credit after bankruptcy could put you back above 700 — the good-risk range — in as few as four years. Again, this means minimizing your credit card balance utilization, paying off balances, and being punctual repaying your debts.

Does Capital One give second chances after bankruptcies? ›

Though some secured cards won't approve people with recent bankruptcy, many will, such as the Capital One Platinum Secured Credit Card (see Rates & Fees) and the OpenSky® Secured Visa® Credit Card. If you filed for Chapter 7 bankruptcy, you should be able to get a secured card as soon as your bankruptcy is discharged.

Does Capital One forgive bankruptcies? ›

Most importantly, having a Chapter 7 bankruptcy on your credit report doesn't make you ineligible. The only stipulation is that your bankruptcy case must be resolved by the time you apply for the Capital One Platinum Secured (see Rates & Fees) Card. Applicants must also be at...

How fast does credit go up after bankruptcies? ›

You can typically work to improve your credit score over 12-18 months after bankruptcy. Most people will see some improvement after one year if they take the right steps. You can't remove bankruptcy from your credit report unless it is there in error.

How high can your credit score go after bankruptcies? ›

On the other hand, if your score is in the 400s or 500s when you file, it's possible that your score may experience a boost from the bankruptcy filing. People in this score range have seen credit score boosts as high as 50 points after filing for bankruptcy.

Do bankruptcies clear repos? ›

So long as your car hasn't already been auctioned or sold, filing bankruptcy can help stop repossession. If you file Chapter 7, the automatic stay gives you time to negotiate new, more affordable loan terms with your car lender. It can also get rid of a deficiency judgment if your car is repossessed and sold.

What happens to my car loan after Chapter 7? ›

The lender may repossess your car if you file for Chapter 7 and aren't in good standing with your auto loan. Your vehicle won't be protected by any exemptions if you haven't kept up with your loan payments. There are two ways you may be able to keep your car: Paying the remaining balance in one lump sum.

How is car value determined in Chapter 7? ›

The most common standard for valuing a car in bankruptcy is the retail replacement value. The retail replacement value is what you would pay for a similar vehicle in a similar condition in the current market, as of the date you file your bankruptcy case.

What if my car was never repossessed after Chapter 7? ›

What Should I Do If My Car Was Never Repossessed After Bankruptcy? If the bank refuses to repossess the car after you give the lender the proper notice of your wish to surrender the vehicle and make the car available, you'll likely be able to keep it.

How long is credit ruined after Chapter 7? ›

Debts such as child support, alimony, most student loans, and certain tax debts are typically not discharged. A Chapter 7 bankruptcy is typically removed from your credit report 10 years after the date you filed, and this is done automatically, so you don't have to initiate that removal.

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