Tips for Getting an Auto Loan While in Chapter 13 Bankruptcy

While going through the process of Chapter 13 bankruptcy is certainly no picnic, it is actually not quite as bad as many people believe if they don’t understand the whole process.

Chapter 13 is different from Chapter 7 in that it is a long term process that does not involve liquidation, and therefore is not as drastic.

During the three to five years that your Chapter 13 may last, it is pretty likely that you will find yourself in need of a new vehicle - but don’t despair because your credit is bad.

Many people in Chapter 13 can and do qualify for vehicle loans on credit, and this is permitted under Chapter 13 regulations in all states. Here’s some advice while you are going about securing this credit.

• Understand that your credit rating has been reduced . Any time you declare Chapter 13, it is a matter of public record and will be counted against your credit record. This means that you can’t expect to be driving around in a new Mercedes, but it doesn’t mean that you have to go without a new vehicle. Many dealerships, loan companies, and manufacturers have loan programs designed for people currently in Chapter 13, although you will have to demonstrate that you have kept your payment plans up to date for at least two years.

• Contact your Chapter 13 trustee . In order to be able to apply for credit on a vehicle, you need the permission of your Chapter 13 trustee. This is required by law so make sure you notify him or her no matter how you apply for that credit!

• Find a co-signer . The problem with many types of loans is that if you are in Chapter 13 you can expect to pay some exorbitant interest rates; it’s how companies cover themselves in the event of a default. You can avoid that type of interest by finding someone who can co-sign on a loan for you. Just make sure that you keep making the payments, or they will be responsible for any default!

• Look at non-conventional loans . Most people will turn straight to the bank or the dealer when they are looking for credit on a car loan, but these are not the only places to get credit. There are many companies out there, and some individuals, who can extend credit to people in Chapter 13 for the purchase of a vehicle. Make sure to do your research so you know the company is on the up and up. Again, be prepared to pay extra interest.

The key thing to remember with Chapter 13 and credit for a car is that first of all, you have to notify the case trustee. Second, make sure that you make your payments in full and on time, or you can set the whole process back by months and probably make things worse for yourself as well!