The bankruptcy blog

A question that comes up frequently has to do with the timing of buying a car when there is a bankruptcy involved. Should you buy your next car when your bankruptcy is still open, or should you wait until you receive your bankruptcy discharge? Most people tend to think the answer to this question surely must be that it’s better to wait until you receive your discharge. After all, when you receive your discharge, then the bankruptcy is over and it must be better to buy a car when the bankruptcy is over, right? This article provides guidance on how to answer this question because it’s not as simple as you might think!

You Can Wait for a Discharge, but Why?

If your car dies while you have an open bankruptcy, the answer to the question is clear. You can’t wait for your bankruptcy discharge because you need a car now, unless you can manage to get by on public transportation or asking friends and family for rides everywhere you need to go. That’s not going to work for most people, so waiting for a discharge won’t even be an option in those cases.

Another basic assumption here is that you’ll need to finance your purchase. Most people with an open bankruptcy obviously don’t have thousands of dollars lying around to buy a car. This is what makes buying a car during a bankruptcy tricky. Many lenders won’t give you the time of day with an open bankruptcy, which is why you might need help finding a bankruptcy car loan.

But what if you could wait to buy your next car. Should you? Is there any advantage to waiting for your discharge? Now the answer becomes maybe. The only advantage to waiting is if you can realistically save up money for a bigger down payment as you wait for your discharge to happen. But that’s the only reason. Otherwise, there is literally no reason to wait.

The Reason Waiting for a Discharge Doesn’t Help

At this point, you might be scratching your head, wondering why waiting for a discharge doesn’t help. You think if the bankruptcy is over, more lenders will be willing to give you a car loan, right? Wrong, unfortunately. It’s a scenario many people find out the hard way, and it goes like this. You’ve patiently waited to finally receive your bankruptcy discharge because you want to buy your next car. You find the vehicle you’re interested in and go to your bank or credit union to find out what kind of loan you can get. But the lender rejects you because of your bankruptcy. They say you won’t be considered for a car loan until two years have passed after you received your discharge. Needless to say, this is very disappointing and frustrating for the people who have been waiting for their bankruptcy discharge thinking it would help them get a car loan.

So why doesn’t getting your bankruptcy discharge make a difference? Why do so many lenders want to wait two more years after your discharge before they’ll even consider making a loan to you? There’s no good reason other than it’s the tradition that developed as a way to mitigate risk in their loan operations. Lenders view the bankruptcy customer as a much riskier proposition than lenders with good credit and without a bankruptcy. Most lenders are very “risk adverse.” They want to lend money knowing they’re going to get it back, and then some in the form of interest. The look at a consumer’s past history (credit report) to determine how risky a loan to that person will be. Bankruptcy is seen by them as a such a big red flag that they want to see how you handle paying your bills for at least two years after a bankruptcy discharge to make sure you’ll be able to handle making loan payments.

Buying Before Your Discharge Might Actually Help

At Day One Credit, we tap into a strong network of lenders who have special lending programs designed specifically for bankruptcy customers, including those with an open bankruptcy and those with a recent discharge. You will pay higher interest rates for a bankruptcy car loan because of the higher risk the lender is taking on, but Day One will help you find the loan that fits your situation. It has also been our experience that in some cases, the best rates we can find on bankruptcy car loans are for people whose bankruptcy is still open and not yet discharged.

This is why, in our opinion, waiting for a discharge doesn’t help except for coming up with a larger down payment, which is always a good thing to do if you can. Lenders like larger down payments, and you end up paying less interest the less you finance, so it’s a win-win on that front. If you’d like to make the most of your fresh start, check out our article Your Life After Bankruptcy: 7 Tips for Moving Forward. But we can also find bankruptcy car loans for most customers that don’t require any down payment at all.

Finding a Bankruptcy Car Loan through Day One Credit

At Day One Credit, we make it as easy as possible to help you find a bankruptcy car loan when you need one, whether it’s whether your bankruptcy is open or recently discharged. Here’s how it works:

Get Educated: Check first with your bankruptcy attorney in order to determine whether or not a bankruptcy car loan is a good idea. If it is, we’ll be happy to help!

Apply: All you have to do is fill out our quick online application, which will take you less than five minutes. We’ll review your information and contact you if we need to clarify anything. Then we send your application out to our full network lenders. When their offers come in, we select the one with the best terms to present to you.

Find Your Ride: Once you find your bankruptcy car loan, then you’re free to check out our selection of late-model used cars with low miles and in great condition to find your next ride!

Day One Credit works exclusively with bankruptcy customers, and our team has years of experience helping people find financing for a car purchase in spite of an open or recently discharged bankruptcy. Got questions? We’re always happy to help you understand your options. Check out our Common Questions page, or give us a call at 855-475-4725!

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 some dealers do not work with bankruptcy filers. Why do some 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

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?

Many 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 some 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 difficulty 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. Some 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 Some Dealerships Avoid Bankruptcy Customers

An 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 your community’s dealerships may 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

Even when you’re in a major metropolitan area, though, you still have the situation where some 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. Many 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 familiar with many 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

One final reason why some 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 quite 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!

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 may be able to 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

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 necessarily!

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 many 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. 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 may be 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

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 might make 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

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 can work with.

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

Not all dealerships who help with financing 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 lenders who work with bankruptcy customers, the lenders they do work with may not want to lend to bankruptcy customers.

With all the people filing bankruptcy these days, you might wonder why there aren’t more dealerships willing to work with bankruptcy filers. In part, it’s because of geographical limitations. 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!

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 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 may not get approved. And even if you manage 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 often 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 up 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 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)

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

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 find the car you need and a Chapter 7 Bankruptcy Car loan? Get in touch or jump right in and apply now!

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

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 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 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 potential bankruptcy car loan benefits is the opportunity to get out of the underwater loan and get into a great used car you can actually afford.

Upgrade Your Ride. Other people who have filed for bankruptcy or had one recently discharged 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 may be able to 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 necessarily! People who have a horrible credit score who haven’t declared bankruptcy often 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 may 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.

Why Day One Credit

There are eight more bankruptcy car loan benefits you can gain if you choose to work with Day One Credit to find financing, 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 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 rates and terms that fit 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 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. 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. We work with a wide selection of late model used cars with low miles to choose from.

Many people view filing for bankruptcy as some kind of ending, but you’ll be much better off if you view it 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 way to do that 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 may be just a few clicks away. Get started today!