The Possibility of Car Loan while in Bankruptcy

Can one still afford to have a car loan while in bankruptcy? The answer is yes. Although for some it is quite impossible.

Under the Bankruptcy Law, a person could file for Chapter 7 and Chapter 13 bankruptcy. Either way, that person could still be able to get hold and qualify for a car loan while in bankruptcy.

In chapter 13, to qualify for a car loan while in bankruptcy one must obtain an authorization to incur debt from the trustee of the bankruptcy. The authorization should include the monthly payment amount. Without the authorization from the bankruptcy trustee, lenders will not even consider the loan. This is due to the fact that if a lender was to approve a car loan for a person in bankruptcy without the knowledge of the trustee the consumer could add the new car loan lender to the list of creditors in the bankruptcy. By the way, an authorization to incur debt does not guarantee that a lender will approve the loan. The fact is that most lenders will not finance a person in bankruptcy. The few lenders that will approve a car loan while in bankruptcy usually was for the consumer who has completed two thirds of the bankruptcy period.

The basic structure of Chapter 13 is that one agrees to pay what he or she can for three to five years in return for having a large portion of his debt wiped away. Therefore, it makes sense that one would need trustee approval before taking on additional debt — such as a car payment. One favorable factor that he might get a trustee’s approval is when he gets a better paying job then his capacity to pay increases. This is why one had to notify the trustee after getting the job, and if he hasn’t, he needs to do that ASAP.

On the other hand it would be easier to have a car loan while in bankruptcy if it is under chapter 7. Unlike a chapter 13 bankruptcy a chapter 7 relieves the consumer of all the debt included in the bankruptcy. Many lenders will consider lending money to people that have just completed a chapter 7 bankruptcy. The lenders often do not lend directly to the consumer. Instead they offer their services to leading car dealers.

Car loan while in bankruptcy is less difficult through the use of a car loan lender. Car loan lenders make their money by finding a person a loan. Car loan renders work with several financing partners to back loans with all types of credit risk, including bankruptcy.

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