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5 min read Published June 22, 2022
Writer: Jackie Lam Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie write about automobile loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to take control of their finances with concise, well-studied information that breaks down otherwise complex topics into manageable bites. The Bankrate promise
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We are compensated in exchange for the placement of sponsored products and services, or through you clicking specific links on our website. So, this compensation can impact how, where and in what order items are listed in the event that they are not permitted by law. We also offer mortgage, home equity and other products for home loans. Other factors, such as our own rules for our website and whether a product is available in the area you reside in or is within your self-selected credit score range may also influence the manner in which products are featured on this site. Although we try to offer a wide range offers, Bankrate does not include information about every financial or credit item or product. If you file Chapter 13 bankruptcy — also known as repayment bankruptcy — your credit score will be affected, and it will stay on your credit report for seven years. With Chapter 13 bankruptcy, you are required to sign a repayment agreement that is that is approved by the court clarifies Amy Lins, vice president of enterprise learning at, an agency that provides credit counseling for non-profits based within Sugar Land, Texas. «This repayment is made over a period of 3 to five years, which is not the time to start taking on additional debts,» says Lins. «However the court does recognize that life is unpredictable, and it may be necessary to acquire a vehicle before the completion in the Chapter 13 repayment plan.» It is possible to obtain a car loan however, the options are limited. How to get a car loan when you are in Chapter 13 bankruptcy If you have the money to pay for a car, you can buy a car for money without having to apply to the court. However, you may need to modify your bankruptcy plan in order to get it changed, so consult your attorney prior to making any changes. If you’re looking to take out a car loan even though you’re on 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 have the funds to make the car loan. You’ll have to demonstrate that you can take care of your debt repayment, the other obligations of your financial life and obligations, and the car payment. «If the purchase of a car is likely to affect other aspects in your plan for repayment, work with your attorney to create an alternative arrangement for repayment,» Lins says. Lins. 2. Find a lender that will work with Chapter 13 bankruptcies There are only a few car dealers and lenders who can work with individuals in an active bankruptcy, but there certainly are some that will, says Lins. «Your bankruptcy attorney may be able to provide a list of dealers and lenders who will work with you, and you can inquire with your local bank or credit union.» And because your credit score will be impacted by bankruptcy, be prepared for more expensive interest rates, higher fees and terms that are less favorable. It is also necessary to locate an auto dealer that works with you to get your car financed. Despite your options being slim take your time and look at rates and terms with a few different lenders. You must have the offer that includes the purchase price, the monthly installment and interest rate in writing to provide to the court, explains Lins. «Keep the purchase price as low as you can and wait to exit bankruptcy and rehabilitate your credit before buying a larger vehicle,» she says. 3. You can file a motion with the court to purchase the car To take on the car’s debt while still paying back your debt You’ll need to file a motion with the court to get it accepted. This entails bringing your order along with a clear argument for why you’re required to purchase a car and why you’ll need to get financing to purchase it. Perhaps your last car broke down, and the repair costs are so significant that financially it makes more sense to buy a brand new car. Perhaps you reside in an area where public transit isn’t easily accessible. This step is something your bankruptcy lawyer can help with. 4. When the purchase has been approved by the court you will then be able to obtain your car loan and purchase your vehicle. Purchase the car and 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 you are discharged, you won’t have to go through the courts to obtain your approval. If you’re capable of it, you should take advantage of the vehicle you own until you are at least six months post discharge, explains Lins. Enhance your credit score There are many ways to do this improve your credit score, such as obtaining and using a secured credit card. A secured credit card means putting down a small deposit which acts as collateral. The deposit is then used as the credit line to your credit card. «Charging and paying small amounts over time can assist in reestablishing an excellent credit score,» says Lins. There are also companies that can report rent and other bills, such as cell phone, utilities and streaming services, to help build or rebuild an timely payment history, claims Lins. «These services typically have a modest fee, but they can be completely free,» she says. «Using your rental and utility bills to establish credit history could be a smart way to start the process of rebuilding.» Check your credit. Besides repairing your credit score, you’ll want to keep tabs on it. This will help you see how far you’ve come and what kinds of improvements could be made. Also, monitoring your credit regularly will allow you to spot any 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. Some credit cards provide a free monthly look at how your score on credit. Shop around for an affordable car. Making sure to shop for a car that’s within the realm of what you can reasonably afford will ensure you stay in good shape with your obligations. This in turn can aid in rebuilding your credit and keep you on track. Review your monthly expenses to determine the amount of a car loan your budget will allow. In general, car related expenses should not exceed 20 percent of your total monthly budget — an amount that covers the cost of gasoline, maintenance and insurance. You may also want to establish a price target to purchase your car using the information available online through websites such as Edmunds and Kelley, which list new and used car prices, and insurance cost estimates. You should make a down payment. The more you pay more you pay, the less you’ll have to pay on it in the near future. Look at your budget and see the amount you can afford to stash away each month to finance the purchase of a car. The ideal is to save as much as you can, but it ultimately boils down to your income, expenses and existing obligations. Alternatives to taking out the new car loan If you are unhappy with the terms and rates that are offered with the car loan or you are having difficulty getting your loan approved at all, consider other options. Looking for a cheaper car. Even if the rate of interest is high, your overall payment and how much you owe monthly will be less expensive. Wait and finance later when your credit has improved. Once you rebuild your credit, you’ll likely qualify for a wider swath of car loans with low interest rates, lower charges and better terms. Cash out completely. Saving up and paying in cash for a car means you won’t have to get a car loan at all that will save you on interest charges. But if you need an automobile sooner rather than later, you may have to get an . The bottom line is that getting a car loan in the course of Chapter 13 bankruptcy is possible. Find an lender that is willing to collaborate on Chapter 13 bankruptcies and create an affordable budget that will allow you to pay off debt and also pay for the car loan. It’s also important to shop around to find a car that fits within your budget. When you’ve been discharged in bankruptcy, options for financing also exist. But the initial step to take is restore your credit score by creating a track record of consistently making payments in time. «It’s an old saying but time really does heal all wounds, including wounds in your score» says Lins. Find out more
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Written by the writer who contributes to the project. Jackie Lam is a contributing writer for Bankrate. Jackie write about automobile loans. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain confidence to take control of their finances through providing concise, well-studied and well-researched content that break down complex topics into manageable bites.
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