Filing bankruptcy doesn't stop difficulties in other areas of your life, just one of which may be the need for a new vehicle. When you've filed bankruptcy, you'll probably have a harder time getting a new car than you would if you didn't file. Even so, your bankruptcy doesn't have to mean you are left without the transportation essential to you.
What Lenders and Dealers Consider
When you approach a dealer about getting a new car, the dealer looks at your credit score and history, which will reflect your bankruptcy. However, this is only part of the auto financing picture. Your dealer also checks your debt-to-income ratio, which is the amount of debt you have divided by the money you have coming in. Another point of consideration is your employment status. All three of these factors help the dealer determine how likely you are to default on an auto loan.
Dealer Preference
Some dealers opt to use bankruptcy as a pre-screening tool; if you filed bankruptcy, you can't apply for a loan. Others are more forgiving because they understand that you can't file bankruptcy again for at least seven years, and that people make mistakes and sometimes need a second chance. Whether you can get a new car may thus depend on which dealer or auto lender you approach.
Time and Proof of Rehabilitation
Although bankruptcy stays on your credit report for up to 10 years, lenders may disregard the bankruptcy if you show proof of financial rehabilitation. For example, you should be able to show items such as statements from other providers that show you've been paying everything in full and on time, a certificate of completion from a debt counseling program, paystubs and other documents from your employer's HR department indicating you're working at a specific pay rate. Some people are able to show this rehabilitation in as little as two years after filing. If you didn't just file your bankruptcy case and can show improvement in your situation, your dealer may work with you.
Bottom Line
Typically, it's difficult to get a new car immediately following bankruptcy because you have not had enough time to rebuild your credit. However, if you wait at least two years and can prove you're on the right financial track, you may be able to find a dealer who will work out a deal with you and who has experience in bad credit financing. Tara Baukus Mello of Bankrate.com suggests that you build some savings as you rebuild your credit score so you can put a larger down payment on the vehicle. This way, you appear as less of a risk to the dealer. However, even if you can get a dealer to work with you, you should expect a higher interest rate than if you hadn't filed.
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