back to articles | July 21, 2020 | Jeff Good

Categories: Tips & Insights For Car Buying Auto Loans & Financing Buying & Selling Cars

How to Buy a Car After Bankruptcy

Every year, hundreds of thousands of people are forced to file for bankruptcy upon falling into financial hardships. It’s a difficult process for anyone who has to go through it, but one of the biggest concerns most people have while filing for bankruptcy lies in the uncertainty.


Every year, hundreds of thousands of people are forced to file for bankruptcy upon falling into financial hardships. It’s a difficult process for anyone who has to go through it, but one of the biggest concerns most people have while filing for bankruptcy lies in the uncertainty. They think, How long until I can recover? What assets, if any, do I need to forfeit? And when can I make large, essential purchases, like the buying of a new or used automobile.

For most Americans, owning a vehicle is absolutely necessary for their day-to-day activities. Many, especially those not living in large, crowded cities, rely on their car, van or truck to get to work, run errands, or socialize with family and friends. But if you have filed for bankruptcy, or have lost your vehicle during the bankruptcy process, you might worry that you’d have to wait years to file for an auto loan again.

Thankfully, that is not the case. Not only can you buy a car after bankruptcy, but, if you follow the right steps, you can get started in a matter of months, not years.

Your Bankruptcy Must First Be Discharged

There are two types of bankruptcy that an individual can file while in financial distress. A Chapter 13 bankruptcy, which is an arguably “safer” approach, allows you to keep all of your assets, so long as you set up a repayment plan that will eventually result with you paying back most, if not all, of what you owe. If you qualify for this form of bankruptcy, your record remains more intact, though it takes longer to discharge, or finish the bankruptcy process—usually around three to five years.

Chapter 7 bankruptcies are much faster, and more common. They require selling off the assets that are owned by creditors (such as a car). Filing Chapter 7 comes with the benefit of saving money—once you’ve liquidated your assets, any remaining amount is forgiven. The downside, however, is that Chapter 7 bankruptcy stays on your record for much longer than Chapter 13, and you must meet certain criteria to file.

No matter what you file, bankruptcy is a process you must complete before you can apply for a loan—so while Chapter 13 takes years for you to begin looking at new loans, in some cases for Chapter 7, the process from start to finish can take three to five months. Once the bankruptcy has been completely filed, and discharged, you can finally begin looking into how to get yourself able to buy a new or used car.

Rebuild Your Credit

It can take some time to truly rebuild your credit after filing for bankruptcy, but it is important that you take any and all steps to do so. Not only will a higher credit score make you more likely to qualify for a loan, it also will lead to better, lower interest rates. If you’re desperate for a car, this can be a tough pill to swallow—generally it takes about six months for positive changes to reflect on your score.

The most simple and important step to rebuilding your credit is to keep your purchases reasonable, and consistently pay off any debts immediately. That means purchasing on credit cards, and making sure those credit card bills are paid in full for each monthly statement. This is a good approach in general to build good credit, and is essential once you’ve filed for bankruptcy.

If you want to speed up the process, and don’t mind paying to do so, there are numerous credit repair agencies across the country. After making a downpayment, paying monthly fees to these agencies can start to improve your credit in as low as 30-days. The longer you work with them, the faster your credit can rebound.

Shop Around for Loans

If you’ve decided to take the time to rebuild your credit, or feel you need a vehicle right away, it’s always important to shop around for the right loans. Not all loans are created equal, and while some banks might not want to take the risk of issuing a loan to someone who recently filed for bankruptcy, other banks, credit unions, or loan offices might be more forgiving.

The key is to find the rate that works best for you, so you can make your auto purchase decisions with the best partner you can find.

Cheaper Is Better

While you might have your sights set on a flashy sports car or truck, when you’re looking to purchase a vehicle after filing for bankruptcy, you might want to set your sights on more reliable, inexpensive options.

Since your interest rates will be higher, you’ll be spending much more throughout the history of your loan. By focusing on more inexpensive options, you’ll save yourself money in the long run, while also helping to quickly rebuild your credit further by paying off your loan faster.

Pay Your Loan on Time

Most institutions do offer car loans to people who have gone through bankruptcy. However, many will not offer the same support to individuals who have defaulted on their loans more than once. That’s why paying off your new car loan in a timely manner is crucial to both rebuilding your credit score as well as maintaining your purchasing power in the future.

If you begin missing payments, you might find your car repossessed, with your credit taking another massive hit that will be even harder to recover from. That's why it’s truly integral that you make sure the vehicle your purchase is one that you can safely afford.

Remember—filing for bankruptcy does not define you, and it doesn’t have to stop you from purchasing that vehicle that is essential for your daily life. If you’re looking for a new or used vehicle, there are loan advisors who are willing to partner you with to help you make that purchase. Even if you’ve filed for bankruptcy in the past, you can apply for a loan at myAutoloan, and find yourself one step closer to car ownership once again.