Bankruptcy Auto Loans are loans for people that are currently in bankruptcy, or have recently been discharged from a bankruptcy. Bankruptcy auto loans are different than normal auto loans because the buyer has recently renounced legal responsibility to all (or most) of their debt. When that happens, every creditor listed in a Chapter 7 Bankruptcy loses a lot of money. Most creditors in a Chapter 13 lose a lot of money, but at least the customer pays some of it back in a 36-60 month plan.

The funny thing is that Chapter 7 Bankruptcies are easier to deal with than Chapter 13 Bankruptcies. Even though Chapter 7 Bankruptcies are much worse for the creditors involved, the discharge process is much quicker, easier, and there is less of a chance that the bankruptcy could be dismissed.

In both types of bankruptcy, the court date (341, or meeting of creditors) is about 30-days after the day you file. (***Important*** It does not matter if you change your mind before your court date. Once you file, the bankruptcy filing will show up on your credit.) At the meeting of creditors, your creditors have a chance to dispute any parts of the bankruptcy plan that they disagree with. For example, in a 13, if they disagree with the amount of money disbursed to them. Or in a 7, if they want to repossess the vehicle or force the filer to reaffirm it.

In a Chapter 7, the discharge is roughly 60-days after the meeting of creditors, as long as there are not complications. In a Chapter 13, the discharge is roughly 60-days after the plan is paid off. This can take years.

How do I buy a car in Bankruptcy?

If you are in an OPEN Chapter 7, you only have to meet some simple requirements, and we can help you buy your next car. The requirements have changed recently, but as of October 31, 2009 the requirements for OPTION #1 look something like this:

• 50% Debt to Income Ratio (including your new car payment)
• 12% Payment to Income Ratio (used to be higher, but the lenders have tightened up recently)
• $2000 Gross monthly income, $2500 total if applying jointly
• Current on all mortgages if you own your home and are keeping it.
• Previous good loan credit. Preferably Auto Loan over $5000 paid for over a year. Mortgage history can often work too.
• At least 12 months of solid work history with no more than 2 employers.

If you are in an open Chapter 7, and you do not think you are going to meet the above requirements, we have Option #2:

• Prove your income (even using last 2 months bank statements)
• 341 Meeting of Creditors has already taken place.
• Have some money down (sometimes as low as $1000, but usually around $1500-$2000)
• Let us show you the vehicles that work.

Option #2 is part of our Guaranteed Credit Approval program. Obviously, the greater the down payment the more options you will have. If you need a car, and you have a little bit of money down, this is a great way to go.

If you are in a Chapter 13, some of the same rules apply with both Option #1 and Option #2. However, here are some that are different:

• You MUST get a signed letter from the judge that allows you to get a car payment up to $xxx.xx per month and a total loan amount of less than $xx,xxx.xx. This is called a Motion to Incur Debt. Without this letter, there is no reason to submit your loan application.
• Some judges now require a purchase order or contract on a vehicle in order to authorize a motion to incur debt. In that case, we will print one on a random vehicle and guess high on payment and interest rate. The real payment can always be less, but the judges do not like having the payments end up higher than originally approved.
• Individuals must make at least $3000 per month (in Option #1) to be considered for a Chapter 13 auto loan. Most people that are in a Chapter 13 earn more than that because if they did not, they would have filed a Chapter 7.
• In Option #1, the lender will require that the plan be officially “confirmed” which may not happen until you are several months into the Chapter 13 repayment plan. Not all of our lenders require this, but some do.

Hopefully this guide helps you understand bankruptcy auto loans. If you would like to know more, please contact WashingtonAutoCredit.com or apply for a bankrupcty auto loan.