You may have heard that if you file bankruptcy you will never be able to buy another car. That is not true — it is simply a bankruptcy myth that has existed for decades. In many cases, people who file bankruptcy are able to buy a car whenever they desire after completing the bankruptcy case.
Debt to Income Ratio
Often, recent Bankruptcy filers are able to qualify for a new car loan after bankruptcy because their debt-to-income ratio is much better than it was prior to Bankruptcy. Basically the lender knows you are more likely to pay for the car because you don’t have all of those defaulted medical bills, or credit cards anymore.
Tips for Financing a Car After Bankruptcy
Financing a car after bankruptcy will help you re-establish your credit and improve your credit score provided you make all payments on time. Finding a lender may be more difficult after filing bankruptcy; however, it is not as difficult as it was 20 or 30 years ago. Bankruptcy does not have the negative stigma it did two or three decades ago. Past lenders assumed that people who filed bankruptcy did so because they did not manage their money wisely and abused credit.
Today, many lenders understand that most bankruptcies are filed due to a financial crisis rather than the abuse of credit and poor money management. Most people file bankruptcy due to a decrease in income, a medical emergency, loss of a spouse, divorce, business failure or other unexpected financial crisis. While you may pay a higher interest rate compared to someone who has not filed bankruptcy, you can still often qualify for a car loan after bankruptcy.
Shopping around is the best way to find a reasonable rate on a car loan. Begin with your bank, especially if you have a long-term relationship with the bank. Credit unions are another good source for a car loan. You should avoid companies that advertise that they “lend to anyone” and “never require a credit check.” These companies often prey on people with poor credit or people emerging from bankruptcy. They charge extremely high interest rates and fees and they rarely report your payments to the credit reporting agencies. This does not help you rebuild your credit after bankruptcy. It is better to choose a well-known, established bank to finance your car purchase.
If you are struggling with overwhelming debt, contact Weston Legal, PLLC to discuss your bankruptcy options. You have options for dealing with your financial problems and we will help you find the solution that is best for you.