Obtaining an auto loan post-Ch.7 Bankruptcy

Anonymous · ‎02-05-2018

Hi Everyone!

I just filed Ch. 7 Bankruptcy on 1/23 and my 341 meeting is on the 21st (wish me luck!). Unfortunately, I totaled my car right before filing, so now I'm in a tough spot. I've read up on obtaining an auto loan WHILE you're in BK, before discharge. You have to receive permission from the court, it has to be a certain year, blah blah blah. I'd rather just get one once this is discharged in April. What I'm wondering is how many of you have needed/wanted to buy a car immediately post-discharge? Right now, my scores are in the mid to upper 400's (kill me). Before it was officially filed, my scores were low to upper 500's after my attorney advised me to stop paying on all my accounts. However, I've seen people on here who have seen their scores shoot up pretty significantly (right after the discharge occurred. I just want to get an idea of what I should anticipate. Some of the information I'm looking for is:

1. What your scores were pre-filing, post-filing/pre-discharge, and post discharge

2. Did you see a significant change 1-2 months after discharge?

3. What creditors approved you after discharge, and what were your terms?

I'll have burned NFCU, CapOne and CreditOne. I do have USAA checking/savings now, so I plan to refinance an auto loan through them down the road. I wish I could go back 10 years and slap my 19 year old self in the face, but c'est la vie.

Any guidance or insight is much appreciated! Thanks all!

Anonymous · ‎02-05-2018

I am in the same boat! My husband and I will be filing this week. We need a new car BAD. We tried all last summer and got denied over and over again. We decided to file BK in Oct of last year, and from what I read and auto loan is not too hard to obatin post BK. However, we went to a dealership today to see what steps we needed to take post BK to form a plan and get our ducks in a row., and the financing manager pretty much told us we were out of luck until at LEAST 1 year post discharge. He said banks wouldn't dare look at us. Which is weird because I've read otherwise on here and doing other research. I'm so lost. He said our best bet is to try to finance BEFORE BK (which is impossible, or we wouldn't be here) and just disclude the car from BK. I don't want to do that. Part of me wonders if he's legit, part of me just thinks he wants our business now. Either way, we won't get approved now. But we've got 3 kids and no reliable (or anywhere big enough) vehicle and we are all going insane crammed in this tiny car that doesn't work for crap.

Anonymous · ‎02-05-2018

There's no way! I've done a ton of research on this very scenario, and I've read vague posts about people who have obtained car loans within just a couple of months post-discharge. I know there are dealerships and creditors who work with you because they know you can't file again for almost 10 years, not that most people would file at every opportunity. I myself don't want to go through a car dealership because of their hidden fees and their "fine print". I'd personally like to go through Carmax because it's straightforward and they run your application through multiple servicers. I just hope I'm not screwed for awhile after this is over because I don't want to just buy a rust bucket haha.

shadanat · ‎02-05-2018

I obtained an auto after my 341 but prior to discharge. I didn’t get permission from the trustee. Once I filed I received a ton of offers from dealerships that work with people in my situation. I actually used one of them.

I would be careful using Carnax as they may shotgun your application out but to banks that aren’t bankruptcy friendly. It will add inquiries which can hurt you as well.

Anonymous · ‎02-05-2018

I got auto loan offers from dealers and other subprime lenders right after I filed. I never followed up on them because I assumed the interest rate would be trash until my accounts update after discharge. I’ll be applying for a small 5-10k loan (1 month post) and I’ll see what happens. I’m currently renting a car.

Anonymous · ‎02-05-2018

So for me, I believe my scores were in the low 500's prior to filling, mid-high 500's after filing. I didn't do an amazing job at tracking my scores because -- don't tell the owners of this website -- they didn't matter to me at the time. They matter to me when I'm in the market for credit. I started rebuilding nearly immediately after filing (not waiting for discharge) by getting a loan through Selflender and a subprime card through Credit One. Ten months and a few additional cards later, my score is in the high 600s. Much of what YOUR credit score will look like will depend on your pre-filing history. Late payments, judgements, collection accounts, etc. will continue to impact your credit score after-filing. In my case, I only had 60-day lates reporting after I decided to file bankruptcy, stopped paying, but did not yet file.

Regarding getting an auto loan prior to discharge, check with your attorney. You may not need any approval from the trustee. With Chapter 7 filings, the key date is the filing date. Approval from a trustee is required for Chapter 13 filings, because new debt service payments impact your ability to make CH13 plan payments.

As far as the lenders go, look to lenders that offer 722 redemption loans (Google this). Try to find auto dealership staff that are familiar with BK-friendly lenders.

But don't overlook what your credit report is saying. A reposession will make an auto loan harder to obtain, BK or not. I'd also seriously consider if an auto loan is really a necessity. Can you Uber/Lfty until you have enough money saved for a cheap used car? If not, do you have a 401(k) that you can borrow from to buy a cheap used car? I get that the car is totaled, but also look at your BK as an opportunity to get a fresh financial future. Starting with an auto loan before discharge will immediately put you back in debt.

Anonymous · ‎02-05-2018

Good feedback so far, thanks guys! I have been taking an uber/lyft to work each day and car pooling after work. It's definitely cheaper than my car payment was per month. I did consider borrowing against my 401k, but instead of buying a cheap car that I can buy outright, I considered saving up for a big down payment on one I've been eyeing. Of course I want to go about it the right way and won't even consider it if my payment will be outrageous. I look forward to the day when this is all behind me!

Anonymous · ‎02-06-2018

ANYBODY can get a car loan, but interest rates can be atrocious. And be careful of just saying, "oh, I'll refinance later." You can't refinance a car that you owe more on than it's worth, and that's basically what you end up with when you get a 15%-25% auto loan.

YES to uber/lyft-ing your way around and YES to cheap cash cars. If you start rebuilding the proper way once you are discharged, you can likely get an auto loan with a decent rate 6-12 months post discharge.

NO to 401k loans. They are immediately payable in full should you leave your current job and you don't want this obligation to ever come at you and threaten your financial life that you will be rebuilding.

BK is your chance for a clean slate and leaving bad loans behind you. Don't muck up your fresh start with a bad car loan.

Anonymous · ‎02-06-2018

@Anonymous wrote:
NO to 401k loans. They are immediately payable in full should you leave your current job and you don't want this obligation to ever come at you and threaten your financial life that you will be rebuilding.

I probably should have addressed that in my suggestion: My 401(k) servicer allows participants to continue repaying them over time after separation. Historically, 401(k) servicers required immediate payment upon separation. Anyone considering a 401(k) loan should research this and weigh the impact of that possibility (if it applies) prior to getting a 401(k) loan.

Anonymous · ‎02-06-2018

That is very true and some very good advice/insight. Thank you Steeler and Leonel! I definitely do not want to make the same mistakes I did which is why I'm doing so much research before I make any moves. I'm even hesitant to take on more than one credit card once this is all done. I'd rather have one good CC that is helpful in rebuilding credit that I can pay off every month, as well as a car loan-eventually. The last thing I want to do is financially burden myself again.