Can I Buy a Car After Bankruptcy?

If you've recently completed bankruptcy, you might wonder if you can buy a car on credit. In most cases, the answer is yes. If the debts you've discharged in your bankruptcy case have freed up enough income to make a loan payment, you might be in luck. Car loan lenders will often finance a car after bankruptcy. However, you should expect to pay high interest rates if you take out the car loan shortly after receiving a bankruptcy discharge.

Learn more about life after Chapter 7 and after Chapter 13 bankruptcy.

Financing a Car After Bankruptcy

If you don't have enough cash to buy a car, it's not impossible to get an auto loan despite having filed for bankruptcy previously. You'll likely find a lender willing to extend you new credit if you have the income to make the monthly payment.

Car dealerships might have already mailed you sales cards and letters inviting you to buy a car with credit. And you are probably eager to re-establish your credit after bankruptcy. Here are some pros and cons of taking out a car loan soon after bankruptcy.

Pros and Cons of Financing a Car After Bankruptcy

Getting a loan can help you re-establish credit. It allows you to make timely installments on a big-ticket debt, which can help build a positive credit report. Financing may also be your best option if you need a car but don't have the cash to pay for it.

Unfortunately, many subprime lenders and "buy here, pay here" outfits will see your bankruptcy as a bad credit mark and charge you extremely high interest rates. However, bankruptcy doesn't carry the stigma that it used to 20 or 30 years ago. Even more mainstream lenders and car dealers will likely be open to doing business with you.

If you have a steady income, you might even be able to finance a new car at a reasonable interest rate. Consider researching finance terms and options offered by dealers, car loan lenders, banks, and credit unions in your area.

When Should I Buy a New Car?

Whether you are using cash or planning to get a car loan, you should wait until after you receive your bankruptcy discharge or after your bankruptcy case is closed.

Buying a Car After Chapter 7

In a Chapter 7 case, you should get your discharge notice from the bankruptcy clerk of court about 90 days after your 341 meeting of creditors—the one hearing almost all filers must attend.

Buying a Car During or After Chapter 13

If you are in Chapter 13, the process is significantly different. Chapter 13 is a long process, typically taking three to five years to complete. If you need a new car while you are still in Chapter 13, you will need permission from the bankruptcy court before buying one. In most jurisdictions, this means filing a motion with the court. Consult with a bankruptcy attorney to get more information about buying a car in Chapter 13.

Once you have received your discharge notice or dismissal, the rule of thumb is simple: The longer you wait to get a new car loan, the better your interest rate will be, assuming you make good strides in improving your credit score. However, if you can't wait, you might still be able to find a reasonable new car loan after researching your options.