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5 min read Published June 22, 2022

Written by Jackie Lam Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie write about automobile loans. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to control their finances with precise, well-studied and well-researched data that breaks down complex issues into digestible chunks. The Bankrate promise

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We are compensated in exchange for the placement of sponsored products and, services, or when you click on certain hyperlinks on our website. This compensation could influence the manner, place and when products are displayed within the categories of listing and categories, unless it is prohibited by law for our loan products, such as mortgages and home equity, and other home loan products. Other factors, such as our own rules for our website and whether the product is available in your area or at your personal credit score may also influence how and where products appear on this website. While we strive to provide the most diverse selection of products, Bankrate does not include specific information on every financial or credit products or services. If you file Chapter 13 bankruptcy — sometimes referred to a repayment bankruptcy, your credit will take a hit and will remain on your credit report for seven years. When you file Chapter 13 bankruptcy, you enter a repayment plan that is approved by the court says Amy Lins, vice president of enterprise learning at , an agency that provides credit counseling for non-profits that is based in Sugar Land, Texas. “This repayment is made over a period of three to five years. This includes not taking on more debt,” says Lins. “However, the court recognizes that life happens and it might be necessary to acquire a vehicle before the completion in the Chapter 13 repayment plan.” You might be able to secure an auto loan however the options are limited. What is the best way to obtain a car loan when you are in Chapter 13 bankruptcy If you have enough cash to purchase an automobile, you may buy a car in cash without going through the court. You may have to amend your bankruptcy schedule, so talk to your lawyer before making any decisions. If you’re looking to take out a car loan when you’re still in your repayment plan, and before you’re discharged from bankruptcy, you can probably take it. There are four steps you can follow, according to Lins. 1. Make a new budget showing that you can afford the cost of your car. You’ll need to demonstrate that you can take care of your debt repayment, the other obligations of your financial life and responsibilities , as well as the car payment. “If the car purchase likely to affect other aspects in your plan for repayment, consult with your lawyer to come up with an alternative arrangement for repayment,” says Lins. 2. Find a lender that will work with Chapter 13 bankruptcies There are very few car dealers and lenders who can work with individuals in an active bankruptcy, but there are certainly some who will, explains Lins. “Your bankruptcy attorney might be able provide a list of dealers and lenders who are willing to work with you and you should inquire with your local bank or credit union.” And because your credit score will be impacted by bankruptcy, be prepared for greater interest rates, charges and terms that are less favorable. Also, you’ll need to find a dealer who works with to get the car loaned. Although your options are limited Do your research and check rates and terms with various lenders. You must have the offer, including the purchase price, the monthly payment and interest rate in writing, to submit to the court, says Lins. “Keep the price of your purchase as low as possible and wait to exit bankruptcy and repair your credit before purchasing a vehicle that is more costly,” she says. 3. File a motion with the court to purchase the car To take on the car loan while still paying back your debt, you’ll need to submit a motion to the court to have it accepted. This involves bringing in your request along with a clear argument for why you’re required to purchase a vehicle and why you’ll have to get financing to do so. Maybe your previous car broke down and the repairs are so significant that financially it makes more sense to buy a new car. Or you reside in an area where public transit isn’t easily accessible. This step is something your bankruptcy lawyer can help with. 4. Make the purchase after the purchase is approved by the court you are now able to apply for a car loan and then get your car. Start paying the loan off along with other obligations. How to obtain a car loan after Chapter 13 bankruptcy Once you complete your court-ordered debt repayment and get released, you will not need to apply to the courts to obtain your approval. If you’re able to, try to take advantage of the car you have until you’re at six months past discharge, explains Lins. Enhance your credit score There are several ways to , including getting and responsibly using secured credit cards. The process of obtaining a secured credit card involves putting down a small deposit that acts as collateral. Your deposit becomes the credit line of credit cards. “Charging and paying small amounts over time can aid in building a positive credit history,” says Lins. It is also possible to look into companies that can report rent and other charges, including cell phone, utilities and streaming services, to help create or maintain an on-time payment history, says Lins. “These services typically have a modest fee, but certain are free,” she says. “Using your utility bills and rental payments to establish credit history could be a smart way to start the process of rebuilding.” Check your credit. In addition to rebuilding your credit, you will want to keep tabs on it. This will allow you to see the progress you’re making and what kinds of improvements can be made. Monitoring your credit on a regular basis can help you spot errors that could hurt your score in the future. You can order free reports from AnnualCreditReport.com or sign up for a free credit monitoring service. A lot of credit cards offer the opportunity to check monthly your credit score. Find a car in your budget Be sure to select a car that’s within your budget and the amount you are able to afford. will ensure you stay on top of your payment. This will help you rebuild your credit and help you stay on course. Check your monthly expenses to determine the amount of a car loan your budget will allow. In general automobile-related expenses shouldn’t exceed 20 percent of your total monthly budget — a threshold that includes the cost of gasoline maintenance, insurance, and. It is also possible to establish a price target for your purchase based on information on the internet via websites like Edmunds and Kelley, which provide used and new price of cars and insurance cost estimates. Consider a down payment. The , the less you’ll owe to it in the near future. Examine your budget and figure out the amount you can afford to stash away every month towards the purchase of a car. Ideally you should save as much money as you can however it all comes down to your income expenditures, obligations and current obligations. Alternatives to taking out the new car loan If you’re not satisfied with the terms and rates offered for the car loan or have difficulty getting your loan approved at all, consider other options. Shopping for a lower-priced vehicle. Even if your interest rate is high, your total amount of payment and the amount you owe each month will be more affordable. You can finance it later once your credit is better. After you’ve rebuilt your credit, you’ll likely qualify for a wider swath of car loans with lower interest rates, fees and more favorable terms. You can pay cash in full. The savings and the in cash for a car will mean you don’t need to get a car loan in any way that will save you on interest charges. But if you need an automobile sooner rather than later, you might have to get a . The bottom line Getting a car loan through Chapter 13 bankruptcy is possible. Find an lender who will collaborate with Chapter 13 bankruptcies and create an appropriate budget that permits you to pay off debt while also paying for a car loan. It is also essential to search around for a car that fits within your budget. When you’ve been discharged from bankruptcy, financing options also exist. However, the initial step to take is rebuild your credit score by creating the habit of making debt payments punctually. “It’s an old saying, but the truth is that time heals any wound, including those in your score,” says Lins. Learn more


Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie write about automobile loans. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping readers gain confidence to control their finances with precise, well-studied information that breaks down complicated subjects into bite-sized pieces.

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