Buying a Car after Bankruptcy

Bankruptcy can sometimes be a necessity, an option or a poor choice depending on each individual’s circumstances. Financial status and outlook varies widely and cannot always be accurately judged or accounted for. The vast majority of private individual bankruptcies are filed under Chapter 7 or Chapter 13 bankruptcy. The process of recovering and continuing afterwards also varies widely depending on those circumstances, but also much on the type of bankruptcy chosen.

Chapter 7 Bankruptcy

With Chapter 7 bankruptcy, all assets are placed in possession of the bankruptcy court after a successfully filed petition, and furthermore to the bankruptcy trustee. This form is also referred to as “liquidation bankruptcy,” because the appointed bankruptcy trustee will liquidate the assets in order to repay all creditors in the most effective and fair manner. The debtor is left with minimal debts that are required to be maintained, but is otherwise free for a fresh start.

Federal and state law allows certain property to be retained through the process of Chapter 7 bankruptcy. These exemptions sometimes include motor vehicles, but the total value of retention is limited, often to below $3,000, leaving the debtor forced to sell their vehicle.

Since this form leaves the debtor with a fresh start, purchasing a vehicle may be as simple or as complicated as their first vehicle purchase. All forms of bankruptcy will remain on credit scores for seven to ten years, so attaining loans for a car purchase will be difficult. However, if the debtor has enough money to buy a vehicle outright, the bankruptcy has no effect on the procedure.

Chapter 13 Bankruptcy

In contrast to the more commonly used Chapter 7 bankruptcy, Chapter 13 allows the debtor to retain all assets; however, they also must retain and repay all their debts within three to five years. The exact repayment plan is created through the bankruptcy court, along with the creditors. So, for individuals who had already owned a vehicle, in the majority of cases, there would be no reason for them to lose it.

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However, if a vehicle must be purchased for reasons, such as work transportation or the employment itself, the process will most likely be no different because of the bankruptcy. As, credit is affect by bankruptcy for seven to ten years, a loan for a car is unlikely or will be much higher than prior to the bankruptcy. Because of this, cars that would require payment of more than the debtor can pay outright are uncommon.