Buying a Vehicle After Your Chapter 13 is Over
With many Chapter 13 plans lasting five years, you will likely be in the market for a new or used car or truck when your case concludes. You should not wait until you absolutely need a replacement vehicle before thinking about financing. The presence of a bankruptcy filing on your credit report will not prevent you from obtaining financing, but you may find that getting a loan will take more time and require additional paperwork.
There are a number of steps you can take while you are still in your bankruptcy case that will make rebuilding your credit easier when you need to purchase a vehicle. Here are several specific steps that Clark & Washington recommends to our clients:
- Make sure that your Chapter 13 payments remain current. Although Chapter 13 is a form of bankruptcy, it also represents a payment obligation that documents your creditworthiness. If you make your Chapter 13 payments on time, many lenders will use your trustee payment history as a factor in extending credit. Although you do not want to send your trustee lump sums without first talking to us, you should try to scrape together the funds to pay one or two months ahead. If you have a month or two in reserve and you should experience a job loss or illness, your plan payment will not become delinquent.
- If you are paying a creditor directly - such as a mortgage creditor, student loan creditor or taxing authority, make your payments on time and keep records of all your payments.
- Start working on a down payment. When you go to finance a car or truck you will need a down payment - perhaps as much as one to three thousand dollars. Keep this in mind as you make spending decisions while you are in Chapter 13.
- Establish a banking relationship with a credit union or local bank. You are more likely to have success in arranging a vehicle purchase loan with a banker who knows you as opposed to a large vehicle finance company.
- Line up one or more co-signers. Coming out of bankruptcy, you will have very little credit - vehicle lenders may ask for a guarantor or co-signer. A parent or sibling may be willing to help you get back on your feet.
Finally, resist the temptation to buy more car than you can afford. Use your experience as a bankruptcy debtor to learn about money management skills and how to avoid future financial crises.