If you’re considering bankruptcy, you may be wondering if it will impact your ability to purchase a car. The good news is that you can still buy a new vehicle after filing, but there are a few things you need to know. Below, we look at the common challenges people face when buying a vehicle post-bankruptcy and how to navigate working with an attorney to help get your finances back on track. 

Types Of Bankruptcy And Their Impact On Car Purchasing

Chapter 7 bankruptcy is generally considered the common kind of bankruptcy. If you file for Chapter 7 bankruptcy, also known as liquidation bankruptcy, your non-exempt assets will be sold off to pay your creditors. After your debts have been paid, the remaining debt will be discharged. 

Because your debts are essentially being erased without payment, fewer auto lenders are willing to work with people who have gone through this type of bankruptcy. If you do get approved for a loan, it will likely be at a high interest rate.

Unlike Chapter 7 bankruptcy, which results in the liquidation of assets, Chapter 13 bankruptcies allow debtors to reorganize their finances and repay their debts over time. Usually, auto lenders are less apprehensive about working with people who have filed a Chapter 13, because none of the debts are discharged. Instead, they are paid in full over a period of 3 to 5 years. 

Do Your Due Diligence Before Signing A Car Loan Agreement

Whether you plan to finance or pay cash for your car after bankruptcy, it pays to do some research before signing on the dotted line. Start by shopping around for the best interest rates and terms and compare offers from at least two or three lenders before making a decision. If you have trouble qualifying for an auto loan on your own, you may need a cosigner who doesn’t have any blemishes on their financial record.

Once you’ve found a lender willing to work with you, read over the loan agreement carefully before signing anything so there are no surprises down the road. Be sure you understand all the terms of the agreement, including the length of the loan, interest rate, monthly payment amount, total cost of the loan including interest, late payment penalties, and prepayment penalties, if there are any. By doing your due diligence upfront, you can avoid costly mistakes later on.

Contact the Texas bankruptcy attorneys at Sims Bankruptcy Law, PLLC by calling 469-751-7467 (Dallas-Fort Worth) or 254-304-7161 (Central Texas).