Top 7 Reasons People Declare Bankruptcy

top reasons for bankruptcy

Last year 750,489 individuals filed for bankruptcy. This is a number that has thankfully been going down year after year as the Great Recession becomes an increasingly distant yet still very painful memory for so many people. But it does beg the question – what are the main reasons that lead people to declare bankruptcy? It’s not an easy decision to make because it does impact your credit history and score for years afterwards. For many, it is only done as an absolute, final resort when they’ve hit rock-bottom, which is never a good place to be. But knowing what it is that forces people to file bankruptcy can help anyone be more vigilant and hopefully avoid it themselves. Here are the top 7 reasons people declare bankruptcy:

Reason #1. Debt Collection Litigation

debt collection litigation

If you’ve ever seen other lists about the reasons people declare bankruptcy, you might have expected to see something like medical bills as the number one cause. But you have to dig a little deeper to really figure out what’s going on with bankruptcy filings. For example, you could have one and only one reason on the list – too much debt, right? What people want to know is more about the kinds of debts that make people file bankruptcy. In a way, that’s just the big picture of the issue. What is it that actually triggers people to file? Most people have multiple kinds of debt, so what is it that suddenly makes their debts unmanageable? When you take a closer look, for many it is when a lawsuit is filed against them for one or more debts. That often ends up being the proverbial last straw that makes them realize they need to file bankruptcy.

The way this usually plays out is that a specific consumer debt is sold at a deep discount to a “debt buyer” who then aggressively pursues collection of the debt because they will make a handsome profit if they can collect even a portion of it (because they paid so little to take over the debt). These debt buyers often resort to litigation if their pestering debt collection efforts aren’t working.

Debt buyers file millions of lawsuits against consumers every year in their attempts to make a profit on the financial misfortunes of consumers. One study of this phenomenon, A Study of the Causes of Consumer Bankruptcy, found that for 78% of bankruptcy filers, it wasn’t about the amount of debt or all the debt collection calls they were getting, it was when debt collection litigation was started against them that made them declare bankruptcy. This is why many people argue that the most effective way to help prevent consumers from feeling like they have to file bankruptcy would be abatement of debt collection litigation.

The impact of all this debt collection litigation is huge. When a person has a debt collection lawsuit/judgement listed on their credit report, it can hurt their chances of getting a job. Background checks in the hiring process these days often include a credit check, and people with a debt collection lawsuit/judgement on their credit history is reason enough for many HR managers to not make the hire.

Reason #2. Medical Bills

medical bills

Having identified the biggest of the reasons people declare bankruptcy, it is also true that one of the specific kinds of debt that triggers people to file is when they suddenly find themselves saddled with huge medical bills they weren’t expecting. Although there hasn’t been any recent research on this one, the classic study cited for it is one by Harvard University that found more than 60% of bankruptcy filings were driven by medical expenses in 2007, as opposed to only 46.2% in 2001.

The unfortunate way this scenario tends to run is that an unexpected medical incident prevents a person from working. When they lose their job, they lose their employer-provided health insurance coverage. That double-whammy of losing a job and losing health insurance is what forces many to declare bankruptcy in the face of huge medical bills.

The twist on this one that’s becoming increasingly apparent in recent years is the mounting number of older people who are filing bankruptcy:

“The rate at which Americans at least 75 years old filed for bankruptcy more than tripled from 1991 to 2016, while filings among those between 65 and 74 ballooned more than 200 percent, according to a recent study from a group of professors working with data from the Consumer Bankruptcy Project… More than 62 percent of respondents also indicated medical expenses were ‘a catalyst for bankruptcy.’ And 4 in 10 respondents indicated missing work for medical reasons was a primary factor in their decision to seek bankruptcy protections. (source).”

A more recent investigation into medical-related bankruptcies found that not much has changed even though the Affordable Care Act (Obama-care) helped a lot more people get health insurance. The same high percentage of bankruptcy filers are reporting medical expenses as a main cause for declaring bankruptcy (source).

Given the out-of-control cost of healthcare today, it’s not at all surprising that medical bills are among the major reasons people declare bankruptcy, or that it’s especially a problem for the growing number of retired people as the Baby Boomers are retiring at a rate of 10,000 every day!

Reason #3. Loss or Reduction of Employment

employment

People who are just managing to get by with their debts based on their current job income can find themselves turning to bankruptcy if they lose their job. The phrase “one paycheck away from bankruptcy” rings true for all too many people. With the sudden reduction in their income from being laid off or let go, often with little in the way of emergency savings, declaring bankruptcy becomes the only way to keep creditors at bay and reduce or eliminate their worst debts.

As you might expect, the rise in unemployment from the Great Recession caused a huge spike in bankruptcy filings, with 1.53 million individuals filing bankruptcy in 2010. That was the peak, and that number has come down by half since then. But plenty of people are still at risk in spite of the longest post-recession economic recovery in history. After all, it’s only a matter of when, not if the next recession occurs.

Reason #4. Divorce or Separation

divorce

Most people underestimate the financial impact that happens when two people who were previously a single household become two separate households because of separation and/or divorce. There are legal fees to be paid for a divorce, which can be substantial if it is a contentious divorce involving a lot of litigation and the expensive attorney fees that go with it.

But the legal fees are the just the beginning. Each newly separate party now becomes responsible for all their own household expenses without the benefit of a second income. Add on alimony and child support payments and either party can find themselves really hurting financially. It’s also important to know that alimony and child support debt are not covered by bankruptcy, so people are still on the hook for those debts even when they file bankruptcy.

Reason #5. Excessive Credit Card Debt

credit card debt

Most people have some amount of credit card debt. Credit standards before the Great Recession had become very loose, which meant it was easy to get multiple credit cards with surprisingly high lines of available credit. Yes, some people are just not good about using credit. They rack up of a ton of credit card debt without thinking of the consequences until it’s too late. For others, however, the accumulation of credit card debt was a way of dealing with one of the other items on this list – losing a job, having unexpected medical expenses, going through a divorce, and so on. They were able to make ends meet for a time by playing the credit card game, but it’s not a strategy that can be sustained for long.

The good news is that unsecured credit card debt is among the easiest to reduce or entirely eliminate through the bankruptcy process. Filing for bankruptcy in these cases is often the best way to get your financial life back on track and heading in a better direction. It’s also worth noting that a lot of people try to avoid filing bankruptcy by getting into some kind of debt consolidation plan, of which there are no shortage available. But those plans often end up failing and only delaying the inevitable. If one of the root causes of your financial situation is poor budgeting and the inability to control spending, then a debt consolidation plan simply isn’t going to work over the long haul.

Reason #6. Unexpected Expenses (Disasters, Theft, Accidents)

unexpected expenses

This one is all about the sudden and unexpected loss of property that you have to replace. In many cases, this has to do with losing a home entirely or having a home severely damaged in some kind of disaster. This is another instance where insurance comes into play. Most home insurance policies do not cover some kinds of disasters. Floods and earthquakes are the two most common disasters not covered by home insurance. But you need to read your home insurance policy carefully to find out about other kinds of disasters that probably aren’t covered, such as nuclear accidents, landslides, mudslides, sinkholes and so on.

As you can imagine, it’s not just the expense of repairing or replacing your home, but also many or all of your personal possessions if those were destroyed as well. Losing everything can easily force anyone into bankruptcy. In other cases where people are living on the edge financially, even the loss of a single important piece of property or possession due to theft or an accident of some kind can be enough to lead to bankruptcy.

Reason #7. Student Loan Debt

student loans

There is more than $1.53 trillion in student debt floating around out there. It’s an ongoing challenge faced by one out of every four Americans. Like alimony and child support, filing for bankruptcy will not eliminate or reduce your student loan debt except in very rare cases of extreme hardship. But the constant presence of that large debt can be what leads many people to file bankruptcy so can address their other debt concerns even though they’ll still have to make good on those student loans.

In the final analysis, it’s rare for just one of the items on this to be the cause of someone filing bankruptcy. Most people could point to several of the reasons people declare bankruptcy as applying to them. If you are among the hundreds of thousands of people declaring bankruptcy this year and find you also need to get a car, please know that help is available! Day One Credit specializes in working exclusively with bankruptcy customers to help them get the car they need and can afford with a bankruptcy car loan. It’s the fastest way to get back on track to rebuilding a better credit score whether you’ve filed for a Chapter 7, a Chapter 13, or have a recently discharged bankruptcy. If you want to learn more about how all of this works, please download our recently-published resource: The Ultimate Bankruptcy Car Loan Guide. If you need more information about bankruptcy car loans, please feel free to contact us, but if you’re ready to get your keys to a fresh start, go ahead and apply online today!

Last year 750,489 individuals filed for bankruptcy. This is a number that has thankfully been going down year after year as the Great Recession becomes an increasingly distant yet still very painful memory for so many people. But it does beg the question – what are the main reasons that lead people to declare bankruptcy? … Continue reading “Top 7 Reasons People Declare Bankruptcy”

Your Life After Bankruptcy: 7 Tips for Moving Forward

life after bankruptcy tips

Once you file for bankruptcy, you have some breathing room. Your creditors will stop trying to collect the debts you owe them as the bankruptcy process sorts out what is going to happen with these debts depending on whether you filed for a Chapter 7 or a Chapter 13 bankruptcy. And when your bankruptcy is eventually discharged, you’ll feel even freer when your worst debts are reduced, eliminated, or brought back up to date. But it’s also important to make the most of your life after bankruptcy by doing things a little differently to hopefully ensure it never happens to you again.

After Bankruptcy, Make the Most of Your Fresh Start

fresh start tips

Deciding to file for bankruptcy is an agonizing event for most people, even when what causes you to file is something totally out of your control. But the best way to think of bankruptcy is how it gives you a chance to make a fresh start regardless of how you got to this point. Once you file, your life after bankruptcy is a big opportunity to do the important work of getting your financial life back on track and moving in the right direction. Keep the following 7 key tips in mind:

Tip #1: Spend Less Than You Earn. The most important thing you can do after bankruptcy is change your overall financial pattern. Your overriding goal has to be spending less than you earn. If you go right back to spending all or more than you earn every month, you’ll soon find yourself on edge of financial disaster. Granted, there are things that happen beyond your control that can throw a wrench into the works, but if you keep your eye on spending less than you earn, you’ll be able to build up an emergency cushion of savings to get you through rough patches when they come up.

Tip #2: Open a Savings Account. If you can get used to the previous tip, then you need to put the money you save somewhere – and forget about it until and only if you absolutely need it. Having a separate savings account that isn’t easily accessible is a great way to do this. Adding just a little bit to on a weekly or monthly basis will add up quicker than you think, and could be a lifesaver when something unexpected happens.

Tip #3: Use Less Credit. Few people can get by on an all-cash budget, but if you can then more power to you. The only problem with this approach is that once you’ve declared bankruptcy and your credit score is still damaged, one of the few ways you can easily improve it is by getting a new line of credit and using it responsibly. When you pay for everything in cash, nothing is reported to the credit bureaus and it will take your credit score much longer to recover. But if you’re the type of person who has trouble managing credit wisely, then the less you use it, the better.

Tip #4: Be Careful with Credit Repair Services. Many people want to jump-start rebuilding their credit after bankruptcy and turn to one of the many different offers available from credit repair services. Please be careful before doing this! Many credit repair companies are not legitimate. Learn more in our previous article: Do Credit Repair Services Work?

Tip #5: Better Budgeting. It’s hard to improve your financial life after bankruptcy if you don’t get a firm grasp on how you tend to spend and making a real plan for your monthly spending. Yes, you need to create a budget and then stick to it with as much consistency as you can manage. You can do this in either a low-tech or high-tech way as it suits you best. US News and World Report has a great list of 10 Simple and Free Budgeting Tools.

Tip #6: Pay Bills On Time. If you regularly pay recurring bills late, such as your utilities, these are often reported to the credit bureaus and hurt your credit score. Make paying your bills on time every time your goal!

Tip #7: Educate Yourself. Basic financial literacy and household budgeting are mystifying topics to many people because they haven’t been taught in schools in decades. But you can educate yourself. Check out 7 Free Online Courses to Improve Your Financial Literacy or try one of several different Financial Literacy Games for a lighter approach (the ones listed there are designed for kids, but that probably makes them especially fun, too).

Yes, there is life after bankruptcy. As it turns out, the fresh start bankruptcy gives you is the perfect time to adopt the seven tips listed above to improve your financial health. And if you want to quickly rebuild your credit score with a new loan, consider financing a car purchase with a Day One Credit bankruptcy car loan. We work exclusively with bankruptcy customers to help them make the most of their fresh start, whether it’s a Chapter 7, a Chapter 13, or a recently discharged bankruptcy. Feel free to contact us for more information, download our Ultimate Bankruptcy Car Loan Guide, or jump in and fill out our online application today!

Once you file for bankruptcy, you have some breathing room. Your creditors will stop trying to collect the debts you owe them as the bankruptcy process sorts out what is going to happen with these debts depending on whether you filed for a Chapter 7 or a Chapter 13 bankruptcy. And when your bankruptcy is … Continue reading “Your Life After Bankruptcy: 7 Tips for Moving Forward”

The Ultimate Bankruptcy Car Loan Guide

Bankruptcy Auto Loan Guide

No one wants to declare bankruptcy, but sometimes it is simply the best course of action. For anyone who has found themselves in a situation where their debt has become completely unmanageable, bankruptcy suddenly starts to look like a viable option. And that’s exactly what bankruptcy laws were designed to be – a way to greatly reduce or eliminate the worst of your debts so you can make a fresh start. But because there are so many misconceptions and stigma linked to filing bankruptcy, many people don’t know how to make the most of their fresh start. And that’s why we put together The Ultimate Bankruptcy Car Loan Guide.

When You Need a Car in Bankruptcy

buying car in bankruptcy

A scenario that happens all too often is when a person declares bankruptcy and then discovers they also need to replace their car. Many people in this situation wrongly assume there’s no way they can finance a car purchase while they’re in bankruptcy. Not true! This guidebook walks you through the when, where, how and why of getting the vehicle you need through a bankruptcy car loan.

download Ultimate Bankruptcy Car Loan Guide

When You Want to Rebuild Your Credit

rebuild credit

Even if you’re not in an emergency situation regarding your car, a bankruptcy car loan is one of the fastest ways to restore your damaged credit. The credit bureaus want to see how you handle a new line of credit, but traditional lenders are reluctant to do business with you. Getting a bankruptcy car loan is a great way to make the most of your fresh start.

download Ultimate Bankruptcy Car Loan Guide

Everything You Need to Know About a Bankruptcy Car Loan

bankruptcy car loans

The guide book we’ve assembled is chock full of useful information and will do the following for you:

Help you understand how important it is to make the most of your fresh start.

Coach you on when a bankruptcy car loan makes sense and when it doesn’t.

Guide you in deciding whether to keep or ditch your current car.

Show you how to avoid costly mistakes when buying a car in bankruptcy.

Answer all the common questions people have about bankruptcy car loans.

Describe the benefits of getting a bankruptcy car loan through Day One Credit.

If you’re ready to learn everything you need to know about a bankruptcy car loan, you can get your copy of The Ultimate Bankruptcy Car Loan guide here:

download Ultimate Bankruptcy Car Loan Guide

And when you’re ready, Day One Credit is here to help!

No one wants to declare bankruptcy, but sometimes it is simply the best course of action. For anyone who has found themselves in a situation where their debt has become completely unmanageable, bankruptcy suddenly starts to look like a viable option. And that’s exactly what bankruptcy laws were designed to be – a way to … Continue reading “The Ultimate Bankruptcy Car Loan Guide”

Common Questions about Bankruptcy and Buying a Car

bankruptcy and buying a car Q&A

When people need relief from crushing debts, there are two main types of bankruptcy available to them: Chapter 7 and Chapter 13. Many of the most common bankruptcy questions people ask are about how filing bankruptcy affects the car they already have, or what their options are when they have filed for bankruptcy and discover they need to replace their car. In this article, you’ll find answers to many of the common bankruptcy questions, and especially those that relate to buying a car during or after a bankruptcy.

One of the first questions people often ask is this: What is a fresh start program? You’ll see this phrase a lot when you’re exploring information about bankruptcy car loans. Bankruptcy laws were designed to help people reduce their debts make a “fresh start.” A Fresh Start Program means a loan program designed specifically to help people get the credit they need even though they have filed for bankruptcy. Among the most common fresh start programs are those to help bankruptcy filers get a car loan when they need to purchase a car in spite of an open or recently discharged bankruptcy.

Chapter 7: Common Bankruptcy Questions

chapter 7 q&a
A Chapter 7 bankruptcy, also called a “straight” bankruptcy or “liquidation” bankruptcy, is best for people who definitely don’t have enough regular income to ever realistically pay back the debts they owe. Keep in mind that not all debts qualify for inclusion in a Chapter 7 bankruptcy. Student loans, back taxes, child support, and alimony are typically not included (although in rare cases they may be included).

You will be required to sell off or liquidate any available property or assets to pay back as much of your debts as possible. But you don’t have to sell “exempt” property such as your car or house since you still need a place to live and way to get around. After any non-exempt property and assets are sold, any remaining qualifying debts will be wiped away entirely, giving you a fresh start. Here are the common bankruptcy questions people ask about Chapter 7 and how it relates to their car and buying a car:

Does Chapter 7 cover car loans? 

answerA Chapter 7 bankruptcy can include your current car loan if you want it to. If you include your current car loan in your Chapter 7 bankruptcy filing, then you will have to surrender the vehicle. The upside to doing this is that it allows you to walk away from a car and loan you can’t afford because any remaining debt will be eliminated. The downside, of course, is that you won’t have a car. However, you then have the option of seeking a more affordable vehicle through a bankruptcy car loan.

Does Chapter 7 stop repossession? 

answerYes! If you’re behind on your payments and are on the verge of having your car repossessed, filing a chapter 7 bankruptcy will stop the debt collection and repossession process through what’s called an “automatic stay.” But it’s only a temporary halt to repossession and debt collection. During your Chapter 7 bankruptcy process, the lender can ask the court to lift the automatic stay so they can repossess your car. One option for you is to work with your lender on a plan for how to keep the car. The lender may be willing to reduce your payments, your interest rate, or even your principal balance because they know the debt will be entirely discharged if it ends up being part of the bankruptcy. Another option is to come up with the money to get current on your car loan, which tends to not be an option for most people in bankruptcy. You can also go ahead and surrender the vehicle and walk away from the loan, but then you don’t have a car at all (although a bankruptcy car loan is an option).

Can you keep a financed car in Chapter 7? 

answerYes! But you don’t have to. If part of the problem is that you really can’t afford the car you have, it’s worth considering including it in the bankruptcy, surrendering the car, eliminating any remaining debt you owe, and then getting a bankruptcy car loan for a vehicle that’s more affordable for you. There are lenders out there who see your bankruptcy filing as a positive step to getting your finances back on track. These specialized lenders may be willing to give you a bankruptcy car loan.

Can I buy a car after filing Chapter 7? 

answerYes! You can apply for a car loan at any time, regardless of your bankruptcy status. However, most traditional lenders won’t work with you because of your bankruptcy status, which they see as a huge negative risk factor. But there are other lenders who see your bankruptcy through a more positive lens, so the moment you file for a Chapter 7 bankruptcy, you might be eligible for a bankruptcy car loan from a lender who is willing to work with bankruptcy customers.

Can I buy a car before filing Chapter 7? 

answerYou can try to buy a car before filing a Chapter 7 bankruptcy, but you probably won’t be successful. If you’re on the verge of filing bankruptcy, your credit score is probably already very low, which means most traditional lenders won’t take a chance on you. But since you haven’t actually filed for bankruptcy yet, the specialized lenders who work with bankruptcy customers also won’t work with you because they haven’t seen you take the positive step of filing for bankruptcy to make a fresh start.

Can I buy a car after chapter 7 discharge?

answerYes! But once again you have to make a distinction between traditional lenders and lenders who specialize in helping bankruptcy customers. Most traditional lenders will tell you to wait at least two years after your bankruptcy discharge before applying for a loan with them. They still see you as a very high-risk case when it comes to loans. But the specialized lenders who work with bankruptcy customers see your discharge as your fresh start and may be willing to work with you.

How long do you have to wait to buy a car after Chapter 7?

answerYou don’t have to wait at all. If you need to, you can apply for a bankruptcy car loan the day you file for bankruptcy. As soon as you have a Chapter 7 case number, you become eligible to work with the specialized lenders who specifically serve bankruptcy customers. You can apply as soon as you file, at any point while your bankruptcy is open, or after your debts are discharged.

What happens to your car when you file chapter 7?

answerWhen you file for a Chapter 7 bankruptcy, there are three basic things that can happen to your car. First, can just surrender it and walk away from the loan, as previously described. Second, you can “retain-and-pay” where you include the car loan in the bankruptcy so the lender can’t go after you or your car but you continue to make your payments and keep driving the car (not all lenders go for this arrangement, but many will). Third, you can sign a “reaffirmation” agreement where the loan is not included in the bankruptcy and your promise to make good on your payments moving forward, which means you’re still personally liable and can have your car repossessed if you fall behind in your payments.

Chapter 13: Common Bankruptcy Questions

chapter 13 Q&A

In a Chapter 13 bankruptcy, the idea is that you have enough regular income that you can get caught up on your debts if you just had some extra time. Filing Chapter 13 will stop all the debt collection efforts by those you owe. Then you’ll work with a bankruptcy court trustee to come up with a reasonable payment plan to repay your debts or get caught up on your debt payments over the course of 3-5 years. A Chapter 13 bankruptcy is also called an “adjustment of debts” or “reorganization” bankruptcy because in working out the payment plan with those you owe, many of the qualifying debts will be adjusted in some way, such as reducing the interest rate, the principal, or the payment amount. Giving you this kind of break on your debts, along with extra time, is what allows you to get caught up and back on track with a court-approved payment plan.

Can I surrender my car in Chapter 13? 

answerYes! But you don’t have to. In a Chapter 13 bankruptcy, you’ll have a repayment plan that lasts 3-5 years, during which time debt collection efforts are stopped and you have the chance to get caught up on your debt payments. If at any time during the years of your open Chapter 13 bankruptcy case something changes and you need to get rid of the car, you can surrender it and then at the end of the bankruptcy any remaining debt owed will be discharged.

Can my car be repossessed during Chapter 13? 

answerNo! When you file a Chapter 13 bankruptcy, an “automatic stay” will be issued by the bankruptcy court that stops most if not all debt collection efforts on qualifying debts, including repossession of your car. There is some lag time between when you file for Chapter 13 and the creation of your repayment plan. During this time, you need to pay at least enough towards your car loan to show you’re making an effort. The lender can also ask to have the automatic stay lifted. If successful, the lender could then go after your car. If your car was repossessed right before you filed for Chapter 13 bankruptcy, you might actually be able to get your car back. You would want to immediately discuss what to do with your qualified bankruptcy attorney helping you with your case.

Can I get a car loan in Chapter 13?

answerYes! Once you have a confirmed payment plan in place, you might be eligible to work with specialized bankruptcy lenders who see your bankruptcy as a positive step to improve your situation. Keep in mind, however, that you will need to obtain written permission from the bankruptcy court through your bankruptcy trustee that allows you to incur new debt. The bankruptcy trustee will want to make sure you can afford any new debt within your court-approved payment plan. If your current car dies or is totaled in an accident that wasn’t your fault, the bankruptcy court understands you need a car and will work with you to make it happen. But the car you get will need to be one you can afford.

Can I get a car loan after chapter 13 discharge? 

answerYes! Because your credit score will still be low even after meeting the payment plan of your Chapter 13 bankruptcy, you’re best chance of being approved will be by applying for your loan with a bankruptcy car loan company. There will still be eligibility criteria you need to meet, and you’ll need to provide proof of your Chapter 13 discharge if it’s not already showing up on your credit report.

Can I keep my car if I file Chapter 13? 

answerYes! A Chapter 13 bankruptcy is designed to help you get caught up on payments for things like your car and house so you can keep them. The bankruptcy court will do what it can to reorganize and adjust your debts, such as getting interest rates reduced or having the principal decreased in order to give you a chance to get caught up over several years.

What happens to your car when you file chapter 13?

answerIn a Chapter 13 bankruptcy, there are three basic options for what happens to your car, assuming you still owe money on a car loan for it. First, you can surrender it. When you do this, the car will be sold and applied towards the outstanding balance of your car loan. You still have to keep paying on what’s left, but it will now be considered unsecured debt, and in a Chapter 13 bankruptcy payment plan, you only end up paying back a portion of your unsecured debts based on what your income can handle, not the full amount. At the end of your payment plan all remaining unsecured debts are eliminated through the discharge process.

Second, you can get caught up on what you owe. If you’re several payments behind, then those can be lumped together and spread out over the course of your payment plan of 3-5 years. You still have to keep up your regular monthly loan payments, and then add the arrears amount on top of that, but because it’s spread out over several years, it’s usually a small enough amount that you can handle it.

Third, you might be able to “cram down” your car loan to eliminate negative equity. For example, if your car is worth $6,000 but you owe $10,000 on it, your principal could be “crammed down” to match what the car is worth ($6,000), which eliminates $4,000 of the debt. The new principal amount is then worked into your 3-5 year payment plan as part of your unsecured debt. But in a Chapter 13, you typically only end up paying back a percentage of your unsecured debts, and what’s left at the end of the payment plan will be wiped away. This means you’ll own your car free-and-clear when your Chapter 13 bankruptcy is discharged. Keep in mind, however, that recent car purchases don’t qualify for cram down. The purchase must have been made at least 910 days (about two-and-a-half years) before filing your Chapter 13 bankruptcy.

Can I sell my car while in Chapter 13? 

answerYes! You always have the option of selling your car at any time during your Chapter 13 bankruptcy. If selling the car doesn’t cover what you still owe on your car loan, then the remaining debt can be included as “unsecured debt” in your payment plan. You will end up paying some of what you owe based on your income, but probably not all of it. What’s left at the end of your payment plan will be wiped away in the bankruptcy discharge.

General Common Bankruptcy Questions

question

What does bankruptcy do to your credit report? 

answerHaving a bankruptcy listed in your credit report acts like a big red flag to most traditional creditors, who will see you as such a high-risk customer that they won’t extend you any credit at all. But there are also specialized lenders out there who view your bankruptcy as something positive you did to get your debts under control. Those specialized lenders may be willing to give you a loan if you meet their eligibility requirements, although the rates and terms will not be as favorable as those enjoyed by customers without a bankruptcy in their credit history.

How long is bankruptcy on your credit report? 

answerWhether you file for Chapter 7 or Chapter 13 bankruptcy, it will show up on your credit report. And it will stay there a long time. The public record of a bankruptcy stays on your credit report for 10 years from the date it was filed. But with a Chapter 13 bankruptcy, you can request the credit bureaus (Experian, TransUnion, and Equifax) to remove it after 7 years. The various accounts listed on your credit report that were affected by your bankruptcy stay on your credit report for 7 years from the time the account first went delinquent and was then never again brought current.

How do you remove bankruptcy from your credit report? 

answerYou cannot remove a legitimate bankruptcy from your credit report before the time allowed by the law, and any credit repair service who claims otherwise is telling you a lie. The removal of your bankruptcy from your credit report should happen automatically after 10 years from the date it was filed. If it was a Chapter 13 bankruptcy, you can ask the credit reporting agencies to remove it as early as 7 years after it was filed. This is a “reward” for having used Chapter 13 to pay back some of your debts. You should check the timing of when your bankruptcy was filed to make sure it really does get removed on time. If 10 years have passed since you filed bankruptcy and you’re still seeing it in your credit report, get in touch with the credit bureau and request that it be removed.

Questions About Day One Credit Bankruptcy Car Loans

bankruptcy lawyers we recommend

 

If you find yourself needing a car when you have an open or recently discharged bankruptcy, Day One Credit is here to help! Here are some of the common bankruptcy questions people have specifically related to getting bankruptcy car loan from Day One Credit:

How soon can I get a new loan?

answerAt Day One Credit, filling out our car loan application takes less than five minutes. And then you’ll have an answer from us in just minutes! We send your application out to our specialized network of bankruptcy lenders and then choose the one that has the best rate and terms. When multiple lenders compete for your business, you’re the one who wins!

Do I have to wait until my bankruptcy is discharged?

answerNo! A lot of people think there is some special period they have to wait before applying for a bankruptcy car loan. Whether it’s a Chapter 7 or a Chapter 13, you do not have to wait until your bankruptcy is discharged. As soon as you have a Chapter 7 case number or a Chapter 13 confirmed payment plan and permission from your bankruptcy trustee or judge, you are free to apply for a Day One bankruptcy car loan, provided you meet our eligibility requirements.

If my bankruptcy is discharged, do I have to wait two years?

answerMany people have heard that lenders want to wait two whole years after a bankruptcy is discharged before they’ll consider making a loan to you. That may be true with many traditional lenders who see your bankruptcy as a negative and consider you too risky, but it is not true for the lenders who are part of the Day One network! If your bankruptcy was recently discharged and you meet our eligibility requirements, you are free to apply.

Do I have to put any money down?

answerMaking a down payment when financing a car purchase is always a good idea if you can do it. But at Day One we understand that many of our customers simply can’t, which is why we do not require it. Many of the lenders in our specialized bankruptcy network have no-money-down programs to help you get the car you need.

What will be my payment?

answerWe cannot predict ahead of time what your monthly payment will be. The amount of your payment depends on factors such as the price of the vehicle, your down payment (if any), the length of the loan, and the interest rate. These all become clear once you apply for a bankruptcy car loan at Day One and we send your application out to our network of lenders. They compete for your business and you end up with the best possible rate and terms for your situation.

What will be my APR?

answerYour interest rate and APR vary greatly because they depend on many factors, including your credit history, the vehicle’s age and condition, the length of the loan, and more. When you have an open or recently discharged bankruptcy, your APR will be higher than customers with good credit. But we work with many lenders and are able to secure the best rate available for your credit situation. If you meet our eligibility requirements, you can apply for a Day One bankruptcy car loan and see what kind of deal we can get for you.

Am I going to get a better rate if my bankruptcy is discharged?

answerThis is hard to answer because it depends on what you did or didn’t do when your bankruptcy was an open case. If you took specific actions while your bankruptcy was open to improve your credit or save up money for a down payment, you might get a slightly better rate. But many people simply can’t wait to get the car they need, and waiting may not make much of any difference at all. In many cases, the best rates Day One can get for your bankruptcy car loan are when you apply before discharge, when the bankruptcy case is still open.

What kind of car and amount financed I can get?

answerThere are no restrictions on the type of car you buy, except that you have to be able to afford it! Affordability depends on your payment-to-income and debt-to-income ratios, which are what lenders look at when evaluating your application. For most bankruptcy customers, what makes the most sense is to look at newer used cars with low miles that are in great shape. You get more bang for your buck and will have an easier time affording a good used car. New cars are so expensive these days that they’re often not a realistic option for bankruptcy customers.

What is going to happen with my old car?

answerIf you still have a car, Day One will give you a fair trade-in value for it, which will help you get your next ride! And if you still owe money on a car loan for it, we can help you figure out the best course of action.

If I signed a reaffirmation agreement can I still get a new loan?

answerYes, you can! When you signed a reaffirmation agreement, all it meant was that you were committing yourself to continued payments on your vehicle’s loan. But you still have the freedom to sell that vehicle and get another if you can qualify for the new loan. That may be difficult if you owe more on your vehicle than it’s worth (being “underwater” or “upside-down” on the loan), but we’ve successfully helped many customers with this exact situation.

Can I get out my current underwater car loan?

answerYes! This is a major advantage of working with Day One. We’ll help you get out of that upside-down loan and get you into a high-quality used car that’s more affordable.

Now that you know the answers to many of the common bankruptcy questions as they relate to your car and financing a car purchase with a bankruptcy car loan, we invite you to explore the Why Day One page to see what we can do for you. If you still have any questions, please feel free to contact us. And if you’re ready, go ahead and apply now!

When people need relief from crushing debts, there are two main types of bankruptcy available to them: Chapter 7 and Chapter 13. Many of the most common bankruptcy questions people ask are about how filing bankruptcy affects the car they already have, or what their options are when they have filed for bankruptcy and discover … Continue reading “Common Questions about Bankruptcy and Buying a Car”

What Happens to My Car When I File Bankruptcy?

my car and bankruptcy

When people get to a point where they decide they need to file bankruptcy because their debts have become too much for them to handle, those who are unfamiliar with the process and what it involves typically have a lot of questions. One the most important questions many people want to know about is what will happen to their car when they file bankruptcy. This article outlines all the different possibilities so you can decide which option is right for you.

Choose Between Chapter 7 and Chapter 13 to File Bankruptcy

chapter 7 or 13 car

If you don’t know much of anything about filing bankruptcy, you should work with a qualified bankruptcy attorney to help you with the process.  One of the many things a bankruptcy attorney will help you with is deciding which form of bankruptcy filing is right for you. The two most common options for individuals is a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.

A Chapter 7 bankruptcy is also referred to as a “straight” bankruptcy or “liquidation” bankruptcy. If you have significant non-exempt assets/property, those will have to be sold off or liquidated in order to pay down the debts being included in the bankruptcy. Property and assets typically considered exempt from this include your house (because you still need a place to live) and your car (because you still need to get around, commute to work, etc.). If you are still paying on a car loan for your vehicle, that debt may or may not be included in the bankruptcy (more on that later).

After liquidating non-exempt property/assets to pay creditors, any remaining qualifying debts will be wiped away entirely, giving you a kind of “clean slate.” There are, however, various debts that do not qualify to be included in a bankruptcy, such as students loans, alimony or child support payments you owe, and any recent federal/state/local taxes you haven’t paid. Chapter 7 bankruptcy is the best option for those whose income is limited enough that there’s basically no way they’d ever be able to repay their qualifying debts, which is why they get wiped away.

In a Chapter 13 bankruptcy, the idea is that your income is high enough that you just need some time in order to get caught up on your debts. The bankruptcy court acts as a go-between between you and your creditors to hit the “pause” button on your qualifying debts and set up a reasonable repayment plan. Over the course of 3-5 years, you’ll be able to get caught up on your debt payments. During that time, creditors are not allowed to start or continue any debt collection actions. The bankruptcy court consolidates the qualifying debts into a single monthly payment you pay to your bankruptcy trustee, who then distributes it among your creditors, meaning you don’t have to have any direct contact with them.

How Chapter 7 Bankruptcy Affects Your Car

chapter 7 bankruptcy car

If Chapter 7 ends up being the right choice for you to file bankruptcy, there are three basic options for what happens to your car if you’re still making payments on a loan for it, each of which is outlined below:

Surrender: If what you want to do is get rid of your car and the loan you’re still making payments on, you can just surrender the car to the lender and include the car loan in your Chapter 7 bankruptcy filing. You can literally walk away from the loan, even if you owe more on the loan than the car is worth. If the debt is included in the bankruptcy, then it will be wiped away. The downside to this option, of course, is that you then won’t have a car. So why would anyone ever choose this option? Because it’s a way of getting out from under the burden of car you can longer afford. Surrender the car that’s too expensive for you when you file bankruptcy and then you have the option of getting a bankruptcy car loan for something you can afford.

Retain-and-pay: This is also common in a Chapter 7 bankruptcy. Your car loan is included in the bankruptcy, which means the lender can’t come after you, but you go ahead and keep making payments and hang onto the car. Yes, there will be a lien placed on the vehicle, but as long as you keep making your payments, you get to keep driving the car. Once you’ve paid off the loan, then you can get the lien removed so you’re free and clear. However, not all lenders will go for this type of arrangement. Some will demand what’s called a “reaffirmation agreement.”

Reaffirmation: Some banks and credit unions want you to “reaffirm” your car loan if you intend to keep driving your car during a Chapter 7 bankruptcy. It basically means you promise to keep making payments on your loan, and remain personally liable for the debt, which means your vehicle could get repossessed if you fail to make your payments.

Which of the above options is right for you? Talk it over with your bankruptcy attorney, who will help you decide which option you should go for, or which option you have to go for based on your situation and the lender who has your car loan.

How Chapter 13 Bankruptcy Affects Your Car

chapter 13 bankruptcy car

Remember that a Chapter 13 bankruptcy involves a repayment plan to help you get caught up on your debt payments. Below are the three basic options for what happens to your car and loan in a Chapter 13 bankruptcy:

Principal Reduction: This option is how you “cram down” your car loan. You can only do this if you took the loan out at least two-and-a-half years before filing bankruptcy. In this approach, the lender is willing to accept a reduction in the principle balance on the loan down to what the car is actually worth (fair market value). Instead of being “upside down” or “underwater” on the loan, where you owe more than the car is worth, after the cram down you’ll only owe what the car is worth. If you still owe $10,000 on the car but it’s only worth $7,000, the outstanding principal that you owe will be reduced or “crammed down” to $7,000.

Interest Rate Reduction: Another option is get the interest rate reduced on your loan. If part of your struggle to pay your car loan is because it has a high interest rate, this could be reduced by as much as 4-6%.

Arrears Catch-Up: If you’re several payments behind on your car and it hasn’t been repossessed yet, then you can take the total past due amount and stretch out repayment over the course of your Chapter 13 bankruptcy of 3-5 years. This can end up being a very small monthly payment that is easy to handle on top of the current monthly payment you have to continue making.

If you need to file bankruptcy as well as replace your car, Day One Credit is here to help. We’ve spent years developing a great network of the best lenders who specialize in serving bankruptcy customers. When you apply for a bankruptcy car loan at Day One Credit, we send your application out to all the lenders in our network because when they all compete against each other to get your business, you end up being the winner with the best possible rates and terms! Learn more by visiting our Why Day One page, find answers to common questions, feel free to contact us for anything else you want to know, or go ahead and apply now!

When people get to a point where they decide they need to file bankruptcy because their debts have become too much for them to handle, those who are unfamiliar with the process and what it involves typically have a lot of questions. One the most important questions many people want to know about is what … Continue reading “What Happens to My Car When I File Bankruptcy?”

Why Most Car Dealerships Avoid Bankruptcy Customers

dealers avoid bankruptcy customers

Filing for bankruptcy is a big step, but one that will ultimately help you get your debt under control so you can make a fresh start and move forward. But what happens if you file bankruptcy and then realize you have to replace your car? You might go to one of your local car dealerships, only to find out they can’t or won’t help you get the car you need as most dealers do not deal with bankruptcies. Why do most dealerships avoid bankruptcy customers? This article will explain why, as well as what you can do to still get the car you need even when you’re in the midst of a bankruptcy.

Reason #1: Few Lenders Willing to Finance Bankruptcy Customers

not many bankruptcy lenders

The first thing to understand is that there really aren’t that many lenders who are willing to make car loans (or any kind of loan, for that matter) to people with an open or recently discharged bankruptcy. Why is this the case?

Most traditional lenders like to restrict their loans to people who have a great credit score and solid credit history of making payments on time. They make money on these loans by charging interest and fees for making money available to you to buy a car. In other words, they want to get their money back, and then some. People with great credit are the ones who are most likely to repay their loans. The better their credit, the less likely they will default on the loan. They represent the lowest possible risk of the lender losing any money.

Another way of putting this is that traditional lenders are “risk-averse,” meaning they don’t want to take a risk by working with bankruptcy customers. The lenders see bankruptcy customers as a higher-risk group of people who are more likely to encounter difficult in repaying their loan. They simply don’t want to take the risk. When they look at a bankruptcy customer, they see someone who has failed. They see a glass that’s half-empty, to borrow a well-used metaphor.

This is a shame, really, because the whole point of filing bankruptcy is to give you a way to get your financial life back in order. The good news is that there are lenders out there who look at a bankruptcy customer and see a glass that’s half-full. They understand that filing bankruptcy is a positive step to reduce or eliminate your worst debts so you can get back on your feet. These are the lenders who have fresh start car loan programs and are willing to work with bankruptcy customers. Yes, it will cost you more in terms of higher interest rates to get a bankruptcy car loan, but that is understandable since the bankruptcy lender is taking on a higher level of risk by lending to you.

Although it would be nice if there were more lenders willing to work with bankruptcy filers, the reality is that it remains a limited pool of companies. Many dealerships avoid bankruptcy customers because there simply aren’t that many lenders they can work with, and it takes time and effort to develop relationships with those lenders. For many dealerships, it just doesn’t feel like it’s worth the time and effort to try and make this happen.

Reason #2: A Small Market Means Many Dealerships Avoid Bankruptcy Customers

small market for bankruptcy car dealers

And additional reality to layer on top of the lack of lenders who are willing to work with bankruptcy customers is how in most places, bankruptcy filers who need to finance a car purchase represent a small, niche market. In smaller communities, there really aren’t very many people filing for bankruptcy, and not all of them need to finance a car purchase. When you get down to this level of segmenting an audience for marketing purposes in smaller cities and towns, there simply aren’t enough people to justify the time and effort a dealership would have to make in order to set up the relationships with lenders (that are already scarce) and to conduct marketing activities to try and reach those few people. This is unfortunate if you’re a person declaring bankruptcy in a smaller place and need to replace your car because it’s likely your community’s dealerships avoid bankruptcy customers.

But this often situation changes when it comes to larger cities and major metropolitan areas. The market of people filing bankruptcy who need to finance a car purchase becomes big enough that some dealerships see an opportunity to serve a group of people who otherwise will be left out of the process altogether.

Reason #3: Lack of Experience is Another Reason Dealerships Avoid Bankruptcy Customers

lack of bankruptcy financing experience

Even when you’re in a major metropolitan area, though, you still have the situation where most dealerships avoid bankruptcy customers for the simple reason that they lack the experience needed to do it. If a dealership’s experience is mostly working with customers who already have great credit, the idea of learning how to work with bankruptcy customers is a big step. They need to understand the ins and outs of bankruptcy laws and how the process works in order to serve bankruptcy customers.

This is important because people filing bankruptcy or who are considering bankruptcy often don’t know much about the process or what their options are. When they also realize they need a car, they will have lots of questions not just about how they can get a car, but about bankruptcy in general. In other words, there is a certain level of expertise needed in order to serve the needs of bankruptcy filers. Most dealerships simply don’t have the expertise or experience.

At Day One Credit, we’ve been working exclusively with bankruptcy customers for years. We’re deeply familiar with all the different common questions and concerns people have when declaring bankruptcy and how to finance a car purchase in spite of a bankruptcy.

Reason #4: It’s Difficult and Costly to Market to Bankruptcy Customers

marketing to bankruptcy car shoppers

One final reason why so many dealerships avoid bankruptcy customers is that marketing to them as a group is both difficult and costly. A lot of people in the midst of bankruptcy just assume there’s no way they could finance a car purchase, so they try to keep their current car going if they can, or rely on the help of family and friends for rides, or try to get by on public transportation even when it’s impractical and inconvenient. How can a dealership that is willing to work with bankruptcy customers reach them to let them know there are options available to them such as a bankruptcy car loan?

Because filing bankruptcy is a federal court proceeding, there is a public record in the public domain about your filing. Anyone can access these public records through a system called PACER, though very few do it. But a company that does provide services to bankruptcy filers can pay a fee (typically 8 cents/record) to access these records, including the mailing address of anyone who has filed for bankruptcy. One way to reach these potential bankruptcy car loan customers is through direct mailers. That is why most bankruptcy filers receive so much mail after filing for bankruptcy.  These mailers are quote costly for advertisers. Besides paying for each record from PACER, there are then all the costs to design the direct mailer, have it printed, and then mailed out to bankruptcy filers. The expense of this kind of marketing campaign is substantial, and the results are often not very good, often being 1% or less for many campaigns. The difficulty and expense of marketing to this group of consumers is another reason why so many dealerships avoid bankruptcy customers.

At Day One Credit, we are devoted to serving customers who need to finance a car purchase even though they have an open Chapter 7, an open Chapter 13, or a recently discharged bankruptcy. Discover more about how it works, read customer reviews, reach out through our contact us page if you have questions, or feel free to apply now!

Filing for bankruptcy is a big step, but one that will ultimately help you get your debt under control so you can make a fresh start and move forward. But what happens if you file bankruptcy and then realize you have to replace your car? You might go to one of your local car dealerships, … Continue reading “Why Most Car Dealerships Avoid Bankruptcy Customers”

How to Get a Chapter 7 Bankruptcy Car Loan

If you’re in the process of deciding you need to file a Chapter 7 bankruptcy in order to get relief from large amounts of debt, what should you do if you also realize you need to get a different car? Maybe your current situation has made you realize the car you’re driving now is more expensive than you can afford. Or maybe your current vehicle needs too many expensive repairs or just died altogether. Whatever the reason may be, the combination of needing a car and needing to file bankruptcy can feel overwhelming. But don’t worry, you can get a Chapter 7 bankruptcy car loan to get the vehicle you need even while getting a fresh start through bankruptcy. Here’s how to do it in just 7 steps:

Step 1: File for Bankruptcy BEFORE Applying for a Bankruptcy Car Loan

file for chapter 7 bankruptcy

One of the biggest myths out there is that filing for bankruptcy does so much damage to your credit score that if you need to finance a car purchase, you should hurry up and apply for that before you file for bankruptcy. Not true!

If your financial situation and debt load has gotten to the point where you need file for bankruptcy, your credit score is probably already very low. In fact, it may be so low that you you’ll be rejected by traditional lenders. But there are lenders out there who specialize in helping people finance a vehicle purchase once you have filed for bankruptcy, but not before. Before you file bankruptcy, you’re just another person with bad credit. But after you file bankruptcy, then you become a consumer who is taking action to improve your debt situation. With a Chapter 7, a big chunk of your debts are going to just be wiped away entirely. Specialized bankruptcy lenders are the ones willing to recognize that your situation is getting better, and are willing to help you finance the vehicle purchase you need to make.

When you’re on the verge of filing bankruptcy and need a car, getting a bankruptcy car loan is your best option, but you do have to file for bankruptcy first in order to be eligible for one!

Step 2: Assess Your Car Needs Prior to Seeking an Open Chapter 7 Auto Loan

your car needs

Before you apply for a Chapter 7 bankruptcy car loan, it’s important to spend some time thinking through your current car situation and what your vehicle needs are, as well as whether or not you meet the eligibility requirements for whatever bankruptcy lender you end up working with. If you choose Day One Credit, below are the eligibility requirements to keep in mind. Most bankruptcy lending services will have similar eligibility requirements, though these will vary by location and company.

Minimum monthly income: You need to show you’ve got at least a gross income of $2,200 in order to apply for a bankruptcy car loan. If your income is unstable or you know it’s going to be dropping (or your expenses are going to going up, or both), then you probably shouldn’t apply.

Valid license: Your driver’s license must be current and not under any kind of suspension.

You don’t already have the right car: This should be obvious, but if the car you’re currently driving is newer, has low miles, is in great shape, meets your needs, and you can afford to keep making on-time payments on your current loan, you should stick with it! At Day One Credit, our goal is to help get you into a high-quality used car you can afford that will meet your needs.

If your car is already dead, then you clearly need to get something to replace it. You might also notice that your current car is old enough that it seems to need constant repairs, which are starting to cost you more than you can afford. This is another case when it makes sense to go for the bankruptcy car loan. Maybe your family is growing and you need a bigger car. Or maybe you just got a new job that’s further away and you want to get a car with better fuel efficiency than the one you’re driving now. These are all legitimate reasons to try for a bankruptcy auto loan.

Step 3: Consult Your Bankruptcy Attorney

bankruptcy attorney

Most people need the help of a qualified bankruptcy attorney to do the filing. You should feel free to reach out to your bankruptcy attorney and get their advice if you have to replace your current vehicle. Your attorney may know of a reputable lender you can work with in your area.

If you’re looking for a bankruptcy attorney because you haven’t filed yet, visit the Day One Attorneys page for our recommendations on who you should work with.

Step 4: Find a Dealership/Lender that Works with Bankruptcy Customers

dealers who work with bankruptcies

Very few dealerships who work with traditional lenders are willing to work with bankruptcy customers. Most dealerships simply don’t have experience working with bankruptcy customers, so they don’t have an understanding of their needs or how to deal with them. In addition, unless the dealership has specifically developed a network of specialized lenders who work with bankruptcy customers, the traditional lenders they work with won’t want to lend to bankruptcy customers.

With all the people filing bankruptcy these days, you might wonder there wouldn’t be more dealerships willing to work with bankruptcy filers. In part, it’s because of a geographical limitation. In smaller cities or rural areas, there aren’t enough people filing bankruptcy for most dealerships to bother going through the work of learning how to serve bankruptcy customers or develop a network of bankruptcy lenders. In major metropolitan areas, however, it’s a different story. In big cities there is enough of a market for some companies to specialize in serving bankruptcy customers.

Step 5: Apply, Get Approved, and Go Car Shopping!

get approved

Once you find the dealership and lender combination that is ready, willing, and able to work with you as a bankruptcy customer, then you can apply, get approved and go car shopping! But it’s also very important for you to avoid making some of the most common and worst mistakes people make with their open Chapter 7 auto loan, which all revolve around buying the wrong car. Whatever you do, don’t buy one of the following:

An older car with high miles. When you settle for an older vehicle with high miles, you often end up paying a lot more in repairs that you expected. When you add all those repair costs to the what you’re already paying for the car, you might have been better off paying a higher price on a newer vehicle with fewer miles that doesn’t need to be in the repair shop all the time.

An expensive luxury car. Filing for bankruptcy gives you the chance to make a fresh start, but it’s up to you to be responsible and buy a car you can afford if you want to rebuild your credit. If you go for an expensive luxury car, you probably won’t get approved. And even if you managed to get approved, what will you do if your circumstances change and the car becomes too expensive for you to keep? Be realistic about your circumstances and what you can truly afford.

A brand-new vehicle. Buying a brand-new vehicle is a bad idea because of the depreciation factor. In the first several years your new car loses 15-25% of its value each year, which means you’ll be “underwater” or “upside” down on the loan for years to come. When you buy a high-quality used vehicle, it’s the previous owner who already took the big hit on depreciation, which means you’re getting a great car for a lot less money!

A salvage car. Salvage cars are cheap, but almost always come with a host of problems that will start popping up and costing you tons of money in repairs.

A car you can’t afford. The last thing you want to do with your fresh start from bankruptcy is buy more car than you can really afford. If you experience any kind of hiccup with your income, you could end up in trouble. You should avoid even going for anything that results in a monthly payment that would be a stretch for you to make. Set yourself up for success by shopping for vehicles that are well within what you can afford.

A lemon. Cars with prices that seem too good to be true are probably just that! There could be hidden frame damage, flood damage or all kinds of other safety issues that will end costing you way more than you bargained for.

At Day One Credit, we serve as the go-between to meet all your needs, both in terms of finding you the best Chapter 7 bankruptcy car loan from our top-notch network of lenders as well as helping you find the right car for your bankruptcy situation.

Step 6: Surrender Your Current Car (if you have one)

surrender your car

If you have positive equity in your current car, any dealership you work with on purchasing your next car should be willing to take your current vehicle off your hands, even if it’s no longer running, and also offer you a fair price for it as a trade-in. It’s probably wise to get the dealership to value your trade-in before you even say you’re shopping for another vehicle. This forces them to make you as fair an offer as they’re going to make rather than low-ball an offer and divert your attention away from that by focusing on the car you’re going to buy from them.

If you have negative equity in your current car and/or do not want to trade it in, you can surrender your vehicle to your lender.  Ask the dealership you are working with if they can help you with the process as it may take time for the lender to pick up the vehicle.

7. Enjoy Your Ride and Make All Your Payments On Time

timely payments

Your last step is to enjoy your ride! But not just that. You recently filed for bankruptcy, so you know the painful reality of struggling financially. Now you’re getting a fresh start through bankruptcy, which means you can immediately start to rebuild your credit and boost your credit score by making all your car payments on time, every month.

Ready to find out how Day One Credit can help you get the car you need with a Chapter 7 Bankruptcy Car loan? Get in touch or jump right in and apply now!

If you’re in the process of deciding you need to file a Chapter 7 bankruptcy in order to get relief from large amounts of debt, what should you do if you also realize you need to get a different car? Maybe your current situation has made you realize the car you’re driving now is more … Continue reading “How to Get a Chapter 7 Bankruptcy Car Loan”

10 Bankruptcy Car Loan Benefits

bankruptcy car loan benefits

No one wants to declare bankruptcy. There’s a good deal of stigma attached to it. It’s stressful, and even more so when people make you feel like filing bankruptcy is some kind of failure. While it’s true that some people find their way into bankruptcy because of bad choices and poor spending habits, there are many more who have to file through no fault of their own. In fact, the most common reason people declare bankruptcy is because of an illness or accident that leaves them with staggering medical bills they will never be able to pay. Health insurance is great, but it doesn’t always cover everything, and the costs of medical care continue to spiral out of control. Now imagine how you’ll feel if you file for bankruptcy and then discover you need to replace your car as well. More stress! But this is when you need to find out about the 10 Bankruptcy Car Loan Benefits.

General Bankruptcy Car Loan Benefits

general car loan benefits in bankruptcy

There are several bankruptcy car loan benefits that can be gained from any provider who serves up loans to people with challenged credit, including the following:

Improve Your Credit Score. When you realize filing for bankruptcy is the only way you’ll be able to get your debts under control, your credit score will probably be as low as it’s ever been. And then you find out that the bankruptcy will be on your credit reports for at least 7-10 years for other lenders to see. How will you ever get a new line of credit if you need one? But the moment you file is when you have the opportunity to start rebuilding your credit history and moving your credit score up instead of down. There are specialized lenders who recognize that filing bankruptcy is a positive thing. It will either result in your worst debts being totally eliminated (Chapter 7 bankruptcy) or create a reasonable repayment plan that will get you back on your feet (Chapter 13 bankruptcy). Financing the purchase of used car with one of these specialized lenders offers you the opportunity to show the credit bureaus how you can make on-time payments on a new line of credit. This is how you get your credit score moving in the right direction!

Get Out of a Bad Loan. Lots of people in a bankruptcy situation feel trapped by an “underwater” or “upside-down” car loan, meaning they owe more on the vehicle than it’s worth. One of the best bankruptcy car loan benefits is the opportunity to ditch the bad loan and get into a great used car you can actually afford.

Upgrade Your Ride. Other people have filed for bankruptcy or had one recently discharged and are struggling to keep their older car with lots of miles on the road because it keeps needing more repairs, which add up to be quite expensive over time. You can use a bankruptcy car loan to drive a better car with fewer miles on it in good enough shape that it will actually cost you less in the long run!

Better Loan Rates. You might think that being in a bankruptcy situation automatically means you’ll have to settle for the highest interest rates out there on a used car loan. Not so! People who have a horrible credit score who haven’t declared bankruptcy get the worst rates of all. Why? Because as previously mentioned, the lenders who specialize in serving bankruptcy customers realize that declaring bankruptcy is a sign you’re taking action to improve your situation. When some of your worst debts are wiped away or part of a reasonable repayment plan, your debt-to-income ratio goes down, and bankruptcy lenders reward you for that with better rates than people with bad credit who haven’t filed. Their debt-to-income ratio is higher and they have no prospects of improvement.

Day One Credit Bankruptcy Car Loan Benefits

day one credit bankruptcy car loans

There are eight more bankruptcy car loan benefits you can gain if you choose to work with Day One Credit, including the following:

Deep Experience. Day One Credit was founded by the same people who started the Auto City used car dealership in El Cajon more than a decade. Working with with bankruptcy customers to find the financing they need has been a part of the core mission of this team from the very beginning.

Robust Network of Lenders. We’ve spent years putting together the most incredible network of lenders you can imagine. The lenders we work with have special programs to serve bankruptcy customers of all kinds.  When we get all these lenders competing for your business at the same time, you end up with the best rates and terms possible for your credit situation.

Affordability. We help many of our customers find bankruptcy car loans that don’t require any down payment at all. Of course, if you’re able to make a down payment, you definitely should. But if you can’t make a down payment, that doesn’t have to keep you from getting the loan and car you need. We’ll also help you make sure you end up with a car and loan you can afford. It doesn’t do any good to you or us if you stretch yourself too far and end up delinquent on your payments.

Trusted. The good work we have done on behalf of our bankruptcy customers has not gone unnoticed. In fact, great bankruptcy attorneys in the San Diego area recommend us and refer their customers to us if they need a car when they’re also filing for bankruptcy. Needless to say, our customers are super-appreciative of the results we get for them, as well as our excellence in customer service. We treat each and every customer like a VIP!

Know-How. Because we’ve been doing this work for so long, we know all the common questions people tend to ask, and we are always ready to give the answers that help our customers navigate the bankruptcy car loan process. Our goal is always to educate our customers so they feel confident they are making an informed decision.

Getting a Great Car. The top-notch inventory of used cars we offer through Auto City can’t be beat. Each and every vehicle comes with fair up-front pricing (no haggling, ever), a 6-month warranty, and 3-day test drives including a 3-day no-questions-asked money-back guarantee. You’ll be hard-pressed to find any bankruptcy car loan company that also offers all these perks to get you into the used car that’s right for you.

Many people view filing for bankruptcy as some kind of ending, but you’ll be much better off if you view like a new beginning. Bankruptcy laws were designed to give you a fresh start. You owe it to yourself to make the most of this fresh start. And one of the best things you can to do with it is to start rebuilding your credit. Instead of thinking of bankruptcy as something that’s holding you back, think of it as the launching pad into a brighter financial future, because that’s exactly what it is. Now that you know about all 10 bankruptcy car loan benefits, what are you waiting for? The loan and car you need are just a few clicks away. Get started today!

 

No one wants to declare bankruptcy. There’s a good deal of stigma attached to it. It’s stressful, and even more so when people make you feel like filing bankruptcy is some kind of failure. While it’s true that some people find their way into bankruptcy because of bad choices and poor spending habits, there are … Continue reading “10 Bankruptcy Car Loan Benefits”

How Reaffirmation Affects Bankruptcy Car Loans

Filing for bankruptcy can be a confusing process for first-timers, which is why we always recommend working with a qualified bankruptcy attorney if you want get a fresh start and regain control of your financial life. One thing people often don’t understand about bankruptcy is what reaffirmation means. In this article we’ll explain what you need to know about reaffirmation, as well as how reaffirmation affects bankruptcy car loans when you need to replace your car with an open bankruptcy case.

What is Reaffirmation During a Bankruptcy?

When you file for either a Chapter 7 or Chapter 13 bankruptcy, one of the things you have to do is decide which debts are going to be included in the bankruptcy filing and which ones will not be included. Typically, you’ll be including most or all of your unsecured debts (credit cards, personal loans, etc.). But there are some things you own and are making payments on that you need to keep – like your car. If you want to keep your vehicle in bankruptcy, the way you do it is to enter into a reaffirmation agreement with the lender. The reaffirmation agreement means you’re committed to keeping up your payments on your car loan and will not include that debt in the bankruptcy. After all, you still need a vehicle to get around, right? You should only enter into reaffirmation agreements on debts that are for things you really need to keep – and make sure you can afford to keep up the payments and make those payments on time. Also keep in mind that when you sign a reaffirmation on a car loan, the lender may not report your loan payments to the credit bureaus while the agreement is in place, essentially forcing you into several more years of payments to pay off the car, but without those payments helping to improve your credit score.

Check to See if Your Car is Exempt from Bankruptcy

Depending on how much real equity you have in your car, it might fall into the exempt property category in California. If your car is exempt, then you get to keep it during bankruptcy without going through the reaffirmation process. In California, you get to choose between two different exemption schemes. Your bankruptcy attorney can help you figure out which one is best for you depending on all the different kinds of property you own. But when it comes to your car, here’s what the two different schemes consider exempt: In System 1 (704) up to $3,050 in car equity is exempt and in System 2 (703) up to $5,350 in car equity is exempt. These figures are updated every three years. Since these are the figures from 2016, new figures will be in April of 2019 to account for changes in the cost of living.

Your equity in the car is the difference between what you owe on the loan and what the car is worth. If you owe more on the loan than the car is worth (meaning you’re “upside down” or “underwater” on the loan), then you have no equity in the car and it cannot be exempted from the bankruptcy. If you want to keep that car, you’d want to enter into a reaffirmation agreement on that debt. But, if you have a car that’s worth $10,000 and you only owe $7,000 on it, then you have $3,000 of real equity in the vehicle, which falls under the threshold of both exemption systems. This means your ownership of the vehicle is protected from creditors during bankruptcy as long as you keep making your payments on time.

Note that if you choose System 2 (703), there is an additional “wildcard” exemption of $1,425 that can be applied to any property you want. Let’s say you have that same car mentioned before that’s worth $10,000 but now you owe only $3,500 on the loan. You have equity of $6,500 in the car, but the vehicle exemption is only protecting $5,350 of that equity. What about the other $1,150 of equity you want to protect? If you want to have it all exempted, you could take $1,150 of your wildcard exemption and apply it to the vehicle so all of your equity is protected from the bankruptcy.

Does Reaffirmation Affect Bankruptcy Car Loans?

It’s important to make sure you understand one aspect of reaffirmation that a lot of people get wrong. Many people think that if they sign a reaffirmation on their car loan, they are somehow “locked-in” on that loan and have to ride it out to the bitter end. Not true! You are totally free to sell that car and get another vehicle if that’s what you need to do, but you need to be careful.

What you need to pay special attention to is whether you have positive or negative equity in the vehicle. If you’ve signed a reaffirmation agreement, some lenders require you to first cover all or at least half of the balance before they will offer you a new loan, and even then the terms may not be very good. If you have positive equity in the car, you should have no problem getting the bankruptcy loan you need, as long as you meet the other eligibility requirements. You can use the positive equity as a down payment towards your next loan. You can also cancel a reaffirmation agreement and then apply for a bankruptcy car loan through a fresh start lending program. The window for canceling a reaffirmation agreement is either before your bankruptcy is discharged or within 60 days of when you the reaffirmation agreement was filed with the court (whichever date is later). If you’re past both those dates and want to cancel a reaffirmation agreement, enlist the help of an attorney.

For example, let’s say you signed a reaffirmation agreement on your car loan. By doing so, you committed to keep making your payments on the car loan. But what if you realize keeping up the payments is going to be harder than you thought? Or what if your family is growing and you need a bigger vehicle? Having positive equity in your current vehicle is the best way to ensure you can get a new loan to buy your next car, but even then there is no guarantee. You’ve been making your loan payments and thinking your credit is improving, but if the lender has not been reporting those payments to the credit bureaus, your credit score might be worse than it was before the bankruptcy! And, as mentioned earlier, if you have negative equity in the car, a lender could require you to cover 50% to 100% of the balance of the loan before they will consider giving you a new loan with better terms.

As you can see, this aspect of bankruptcy that’s about property exemptions and reaffirmation agreements can become complex if you have a lot of different kinds of property. You have to figure out which of the two different California exemption schemes is the right one for you, and then also determine if you should do a reaffirmation on your current car loan. This is why Day One recommends you work with one of the bankruptcy attorneys we know will treat you right . And if you need to replace your current vehicle after filing bankruptcy, Day One is your best choice for bankruptcy car loans. Our process is fast and gets incredible results for you. Contact us for more information or start our online application now!

Filing for bankruptcy can be a confusing process for first-timers, which is why we always recommend working with a qualified bankruptcy attorney if you want get a fresh start and regain control of your financial life. One thing people often don’t understand about bankruptcy is what reaffirmation means. In this article we’ll explain what you … Continue reading “How Reaffirmation Affects Bankruptcy Car Loans”