Recovery Steps After Chapter 7 Bankruptcy

chapter 7 bankruptcy recovery steps

The day your Chapter 7 bankruptcy is discharged is a wonderful day. The process is over. Most or all of your qualifying unsecured debts have literally been wiped away. You’ve got a clean slate and can now make the fresh start bankruptcy laws were intended to provide. So now what? What specific things can you do to rebuild and restore your credit so you can begin to build up some real financial strength moving forward? This article will outline a number of Chapter 7 bankruptcy recovery steps you can take. But make sure you have realistic expectations. Recovering from bankruptcy will take at least several years. You have to be patient and keep working on it to make progress, but you can do it.

Step 1: Budgeting, Spending Less than You Earn, and Saving

budgeting after bankruptcy

While many people resort to filing Chapter 7 bankruptcy from the unexpected loss of a job or a medical emergency and its huge bills, there are just as many people who got into trouble by routinely overspending and not managing their finances well. For the latter group of bankruptcy filers, now is the time to do better, establish better habits, and keep a closer eye on your financial health moving forward. This is probably the most important of all the bankruptcy recovery steps you take. The big picture aspects of this step are spending less than you earn, making a realistic budget and sticking to it, and beginning to save money ahead of the next unexpected happening in life so you’ll have a cushion to fall back on when needed.

You can get help with this from a certified, reputable credit counseling service. Note that this kind of service is not the same as for-profit operations such as credit repair companies or debt settlement companies. In order to understand the differences and to find a good credit counselor, check out this article from The Balance. You can also visit the Financial Counseling Association of America or the National Foundation for Credit Counseling. And be very careful before spending any money on a credit repair service that makes it sound like they can easily “fix” your credit problems. Learn more in our previous article, Do Credit Repair Services Work?

Step 2: Obtain and Responsibly Use a Line of Credit

use credit responsibly after bankruptcy

Recovering after bankruptcy doesn’t seem like it should include taking on new debt, but it often does. Your credit score going into bankruptcy may have already been very low. Filing for bankruptcy might have caused it to go even lower. When your Chapter 7 bankruptcy is discharged, your credit score won’t immediately jump upwards. Why not? You’d think it would since you will probably have the best debt-to-income ratio you’ve had in while with all that debt wiped away. But while that ratio is important when lenders are considering you for a loan, it’s not very important to your credit score. What plays a much larger role in shaping your credit score is your track record of responsibly using your available credit. That’s what you need to establish moving forward to see your credit score begin to rise.

If your primary type of debts were credit card debts, you might decide to give up on credit cards in favor of paying cash for everything. But that’s not going to help improve your credit score or build a track record of responsibly using credit. Cash transactions aren’t reported to credit bureaus! What gets reported to credit bureaus are when you make on-time monthly payments on a line of credit. And yet here you are with a bankruptcy red flag on your credit report, which means getting that line of credit might be difficult. Here are three ways to accomplish this step:

Secured Credit Card: You give the card issuing bank an agreed upon amount of money, say $200 or $500, and a portion of that amount becomes the credit limit of the card. You can charge things and make your on-time monthly payments to build your credit, and if you were to ever miss a payment, the bank already has the money you gave them to cover the entire credit limit of the card if needed. But remember, the best way to build credit is making on-time payments every month. It’s also a good idea to plan on paying the balance off entirely each month. Carrying a balance from month-to-month isn’t a huge problem as long as you’re making at least the minimum payment on-time since the overall amount of credit involved is very small. But it’s still better to pay it off in full every month, especially because the interest rate is going to be pretty high on this type of card.

Bankruptcy Car Loan: Another option for building credit would be to apply for a loan, such as to purchase a used car. Many lenders will see your Chapter 7 bankruptcy as a big red flag and will reject your application. But there are other lenders who do work with bankruptcy customers. They understand your situation and are willing to take on the risk of making you a loan, although you’ll end up with a higher interest rate. Day One Credit specializes in helping customers with an open or discharged bankruptcy find a bankruptcy car loan to finance the purchase of a used car. Again, once you obtain a new post-bankruptcy line of credit, the key is to use it responsibly by making on-time payments each and every month.

Credit-Builder Loan: This is a special kind of loan not offered at most big banks but can often be obtained at a credit union or community bank. The lender agrees to loan you an amount of money (usually less than $1,000) but doesn’t give you the money. Instead, it puts the money into a savings account it controls. This is an installment loan, and as long as you make the monthly payments on-time, you’ll get all that money back at the end of the loan, and all those payments made along the way will be reported to the credit bureaus, helping build up your credit score and history. As with everything else suggested in this article, for this to have a positive impact on your credit you have to make your monthly payments on-time every time. Late payments hurt your credit score. A credit-builder loan is not only a great way to build your credit, but it also helps you save money as well over the course of the loan. You can learn more about this kind of loan from Credit Karma in Credit-builder loans: What they are and how they work.

Step 3: Monitor Your Credit Score and Fix Your Credit Report

monitor your credit report

This third of our bankruptcy recovery steps is one that many people miss. You’ll want to keep a closer eye on your credit score than you probably ever did before filing bankruptcy. You have to be able to see this score and how it changes in order to know what you’re doing is making a difference. This means looking at your credit report and score more frequently than the free annual check to which everyone is entitled. You should be looking at your score and report on a monthly basis. One way to do this is by signing up for a free credit monitoring service. One of the “big 3” credit bureaus, Experian offers free monthly access to your credit score and report, as does Credit Karma for the other two credit bureaus (Equifax and TransUnion). This monitoring will help you stay on top of what’s happening with your credit score, but it’s up to you to identify and fix errors on your credit report.

Recover from Chapter 7 Bankruptcy with Help from Day One Credit

day one credit bankruptcy car loans

Recovering after bankruptcy can feel like a daunting task, but with a little patience and smart decisions, you can do it. If you’ve recently had your Chapter 7 bankruptcy discharged and need to buy a used car, you might be nervous about whether or not any lender will work with you when they see that big red flag of a bankruptcy on your credit report. Many lenders may reject you because of your bankruptcy, but not all lenders! Day One has established strong working relationships with a network of reputable lenders who are willing to consider lending to those with a recently discharged bankruptcy. If you meet our guidelines and are approved, then you’ve got a great way to start rebuilding your credit by making on-time monthly payments on the bankruptcy car loan we find for you, not to mention the car you need! Got questions about how this works? Check out our Common Questions page, or contact us and we’ll be happy to talk you through your options!

The day your Chapter 7 bankruptcy is discharged is a wonderful day. The process is over. Most or all of your qualifying unsecured debts have literally been wiped away. You’ve got a clean slate and can now make the fresh start bankruptcy laws were intended to provide. So now what? What specific things can you … Continue reading “Recovery Steps After Chapter 7 Bankruptcy”

When Bankruptcy is Not a Good Idea

when bankruptcy is not a good idea

What are your options when your debts are on the rise relative to your income and you feel like you’ll never be able to pay them back or need a new plan to get caught up? Filing for a Chapter 7 or Chapter 13 bankruptcy might be your best bet. But it might not be. In fact, there are a number of situations when bankruptcy is not a good idea. We’ll outline those in this article so you have a better understanding of what you can do about your debts.

Get Advice from a Qualified Bankruptcy Attorney

bankruptcy attorney

The first thing we always want to make clear is that while we understand a lot about bankruptcy because of what we do to help customers get bankruptcy car loans, we are not bankruptcy lawyers. The first place to start when you’re wondering if you should file bankruptcy is by seeking the advice of a qualified, reputable bankruptcy attorney. In the San Diego area, we’re happy to recommend several on our attorneys page. And if you want additional guidance, check out our previous article, Choosing a Bankruptcy Lawyer. A qualified bankruptcy attorney can help you understand whether or not filing a Chapter 7 bankruptcy or a Chapter 13 bankruptcy is the best choice for your specific situation.

Situations Where Bankruptcy is Not a Good Idea

stay away from bankruptcy

There are a number of situations where bankruptcy isn’t necessarily the best option. In a moment of panic or desperation, you might assume filing bankruptcy is your only option, but first pause, take a deep breath, and consider the following examples of when bankruptcy is not a good idea:

Your Income Substantially Exceeds Your Expenses

The tipping point in favor of filing for bankruptcy is when your necessary monthly expenses (including minimum debt payments) total to more than your monthly net income. This may seem obvious, but it’s not always clear to some people who have mountains of debt but could pay it off if they just stuck to a plan. When it looks like a long road to pay those debts down, some would rather just walk away from the debt. But if you have substantial income left over after paying all necessary expenses, then you don’t need to file for bankruptcy, you just need to buckle down and get pay it off over time. Keep in mind it’s not about amount of debt you have, it’s about your debt relative to your income. $10,000 of debt may seem like very little, but it’s a lot if you have no income and no prospects for getting a job or increasing your income. Another option is to enlist the help of a credit counseling or debt management program—just be sure to do your homework and make sure it’s legitimate and has good reviews from independent sources.

You Have Assets You Want to Protect

In most cases, you can protect certain essential assets from the bankruptcy process, typically including the car you need to drive, the house you need to live in, retirement accounts, household items, and so on (there are very specific laws in each state that govern which assets are protected and which are not). But keep in mind that a Chapter 7 bankruptcy is also called a “liquidation” bankruptcy. The reason for this is because the bankruptcy trustee is going to be looking to see if you have assets that could be sold off to pay off at least some portion of what you owe to creditors. For example, you may own land that has been in your family for generations, but if you don’t live on that land, it’s probably not going to be protected and could be sold off by your bankruptcy trustee to pay creditors. If you don’t have any substantial assets, a Chapter 7 filing might be the way to go, especially if the bulk of your debts are unsecured, such as credit card debt. Again, we strongly recommend you spend time talking to a qualified, reputable bankruptcy attorney with your questions about assets you might run the risk of losing in a bankruptcy case.

You Recently Became Entitled to an Inheritance

This one involves some really tricky timing, so pay close attention. Let’s say you’re under financial stress from too much debt and are considering or preparing to file for bankruptcy. Then let’s say someone dies who leaves you money or other assets in their will or a trust. It’s going to take some time for all that to be processed. This is definitely a situation when bankruptcy is not a good idea! If you file for bankruptcy and then you receive the inheritance, the bankruptcy trustee can take it away from you. In fact, even when you file bankruptcy, if you become eligible for an inheritance with 180 days of filing, that money or those assets can be seized to pay your creditors, but then you’re still stuck with a bankruptcy on your credit history.

Your Debts Are Business Related, Not Personal

Note that if your business is a sole proprietorship, then there’s no difference between business debt and personal debt—they’re considered one and the same. However, if your business has been properly set up as a corporation or limited liability company and none of the business debt has been personally guaranteed by you, the creditors will have to be satisfied with the assets of the business and cannot go after you personally. This opens up the possibility that bankruptcy is not a good idea in this specific situation. Be sure to go over the details of your business and its debts with your bankruptcy attorney before deciding on a course of action!

The Types of Debt You Have Don’t Quality for Bankruptcy

This comes as a surprise to many people who don’t know much if anything about bankruptcy, but not all debts qualify to be included in your bankruptcy case. Read the list below carefully as there are exceptions to some of them. Here are a number of types of debt that typically cannot be included in a bankruptcy filing:

Child Support: If you’ve fallen behind on court-ordered or court-approved child support payments, those are debts you have to make good on. Child support debt cannot be included in a bankruptcy filing.

Alimony: Similar to child support, if you’ve fallen behind on court-ordered or court-approved alimony payments to an ex-spouse, that debt also cannot be included in your bankruptcy case.

Taxes: Most taxes cannot be included in your bankruptcy, especially state and federal income taxes. There are exceptions to this, though rare, so be sure to go over the details of any tax debts you owe with your bankruptcy attorney. Any tax debts from recent years will definitely not be included in a bankruptcy, but it may be possible to include some that are older than three years.

Student Loans: Many people have become burdened by huge amounts of student loan debt in recent years, but those are almost never allowed to be included in a bankruptcy filing. Again, there are rare exceptions, but it involves proving extreme hardship, and the bar has been set very high on exceptions. There are many organizations out there, however, that can help those burdened with loads of student loan debt.

As you can see, the decision to file bankruptcy requires considering the details of your specific situation and making sure it’s the right course of action for you to take because there are all those situations where bankruptcy is not a good idea. This is why it’s so important to find and speak with a reputable bankruptcy attorney who knows how it works and can advise you based on your unique circumstances.

Day One Credit: The Keys to Your Fresh Start

day one credit - keys to a fresh start

It’s also surprisingly common for people who file for bankruptcy to suddenly find themselves need to replace their car, which can be an added sources of stress they don’t need at a difficult time. Many people just assume that having an open or recently discharged bankruptcy means there is no way they can get financing to make a vehicle purchase. Not true! There are lenders out there who have car loan programs specifically designed to serve bankruptcy customers. Day One Credit has a assembled a whole network of those lenders so we can help you by finding a bankruptcy car loan to fit your situation. Explore how it works on our Why Day One page, get answers to your questions on our Common Questions page, or feel free to call us directly at 855-475-4725 and we’ll be happy to help!

What are your options when your debts are on the rise relative to your income and you feel like you’ll never be able to pay them back or need a new plan to get caught up? Filing for a Chapter 7 or Chapter 13 bankruptcy might be your best bet. But it might not be. … Continue reading “When Bankruptcy is Not a Good Idea”

How to Plan for Bankruptcy

how to plan for bankruptcy

The novel coronavirus and COVID-19 pandemic has caused a serious economic downturn—and one that may well turn out to be significantly worse than the Great Recession of 2007-2009 that hit with the bursting of the housing bubble and the subsequent collapse of many financial institutions. Given the spike in bankruptcy filings that occurred as result of the last major recession, the current pandemic-induced recession will undoubtedly result in a tsunami of bankruptcy filings. If you’re watching your financial situation deteriorate and think filing for bankruptcy may be necessary, this article provides guidance on how to plan for bankruptcy.

How the Current Recession is Unique and Devastating

current economic recession

Back in June a World Bank report spelled out how this recession is different from all others. It’s the first global recession every caused solely by a pandemic. The overall global economy is expected to shrink by 5.2% in 2020, which is the worst decline since WWII’s devastating impact on the global economy. It also hit faster and harder than any previous recession. For all intents and purposes, national economies literally shut down overnight in a wave that went all around the world. And in spite of everyone’s best efforts, there’s no end in sight until safe, effective vaccines or treatments become widely available.

For the US, the National Association for Business Economics sees a very slow recovery. Economists are saying that GDP (gross domestic product) won’t get back to its pre-COVID level until at least 2022 or even 2023, and same goes for job growth reaching pre-pandemic levels. In fact, many believe that as many as 40% of pandemic business closures will become permanent. According to the Bureau of Labor Statistics, unemployment spiked up to 14.7% in April, and although it’s been falling since then down to 8.4% in July, there’s still a long way to go to get back to the 3.5% unemployment rate we had in February before the pandemic hit, and economists are saying it’s going to take years to fully recover.

Millions of people are hanging on by a thread and are only a matter of weeks away from resigning themselves to filing for bankruptcy. If you fall in this category, there are things you can do to plan for bankruptcy before you file, which we’ll outline below.

What You Can do to Plan for Bankruptcy

if you need to plan for bankruptcy

First and foremost, the best thing you can do to plan for bankruptcy is start looking around for a reputable bankruptcy attorney who can help you determine if bankruptcy is the right option for you, what type of bankruptcy you should file (Chapter 7 or Chapter 13 in most cases), and what you’ll need to do file. See our previous article on Choosing a Bankruptcy Lawyer and be sure to check out our page of bankruptcy attorneys we trust in the greater San Diego area.

It’s also helpful to know some of the main differences between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy in order to decide which one is right for you, although again your bankruptcy attorney will help you figure out which option is better for you. A Chapter 7 bankruptcy (also called a “liquidation” or “straight” bankruptcy) is where any significant non-exempt assets are sold off to pay back some portion of your qualifying debts, and what remains is entirely wiped away when the bankruptcy is discharged. A Chapter 13 bankruptcy is the kind where your debts are reorganized and/or reduced so you can get caught up over the course of a 3-5 year court-approved repayment plan. Because many of the bankruptcies that will be filed as a result of the pandemic-induced recession involve reduced income because of losing a job, the Chapter 7 option will likely be the most common type of bankruptcy filed. But again, follow the advice of a qualified, reputable bankruptcy attorney to help you choose which type of filing is right for your specific situation.

Start Gathering a Mountain of Documentation

bankruptcy documents

When you decide to file for bankruptcy and choose a good attorney to help you, they’re going to need an extensive amount of information from you in order to determine which type of bankruptcy you should file. You can get a jump-start when you plan for bankruptcy by starting on the following list of items that will probably be asked of you in the bankruptcy attorney’s intake process:

Mortgage Information: You’ll need to provide details about each mortgage and home equity line or loan you hold and the relevant properties.

Bank Accounts: For each and every bank account you’ll need to provide specific information about the bank, the type of account (checking, savings, Christmas club, passbook), the account number and balance for each account.

Vehicles (to include cars, trucks, motorcycles and boats, etc.): You will need to describe all your vehicles, along with details on any financing you have on them.

Other Assets: You’ll have to make a list of any and all life insurance policies (term or whole life), along with cash value if any, as well as all Pensions, annuities, 401K plans, 403 B plans, and so on, with complete address and account numbers for each.

Taxes Owed: List all taxes owed to government, including the IRS, state, city or town

Court-Ordered Obligations: Collect all the details related to any child support, alimony, amounts and arrearages, and court ordered property settlements from a divorce, and any wages owed to employee(s) if applicable (name, address, account number of each person owed any such debt, type of debt and balance owed, when the debt was incurred, etc.).

Any and all bills and money owed to anyone: Omit nothing as all debts must be listed and identified, whether or not they end up being included as part of the bankruptcy.

Income Information: Your gross weekly, bi-weekly, or monthly income, a list of all deductions (taxes, insurances, 401k, union dues, etc.) withheld and purpose of said deductions broken down by pay period. Name and address of employer, position, and tenure of employment. If you are self-employed and file a schedule C on your federal income tax return, or if you receive a 1099 tax form as an independent contractor, you’ll need to provide a Profit and Loss Statement (income vs. expenses) by month for past twelve months, or equivalent documentation, as well as a copy of your schedule C and all 1099s received.

Monthly Expenditures: This is your detailed monthly budget including everything you spend money on such as rent/mortgage, insurance (home, vehicles, etc.), heating fuel, phone, cable, internet, food, dry cleaning, electricity, car insurance, uninsured medical expenses, clothing, recreation, charitable giving, transportation expenses (gas, vehicle maintenance, repairs, registration, etc.), and all monthly debt payments. It’s important to include ALL expenses!

And that’s just a sampling of the kinds of information you’ll need to have on hand and provide to your bankruptcy attorney so he or she can see which type of bankruptcy is right for you and then prepare your filing for submission to the bankruptcy court.

When Should You File Bankruptcy, and Can You Do it Yourself?

bankruptcy timing

A surprising number of people try to scrape by as best they can, sometimes for years, with seriously challenged credit before finally deciding to file for bankruptcy. Maybe it’s the stigma attached to filing bankruptcy that makes people turn to it only as a last resort when things get really desperate. Those months and years of stress can take a serious toll. The thing to keep in mind is that bankruptcy laws are intended to provide relief and give you a fresh start when your debts become unmanageable, often due to circumstances entirely beyond your control.

No one knew a global pandemic was coming, nor did most people foresee the severe economic consequences it would have on so many people who have lost their jobs. The direct relief payments from the federal government helped a little but now feel like a drop in the bucket. The extended unemployment benefits both in duration and amount certainly helped, but all that assistance has long expired, and it seems doubtful as to when or even if more aid will be forthcoming from Congress. If you’ve lost your job, have little to no savings, and no prospects to recover gainful employment in the near future, there is really no reason to wait, and no one in in their right mind would criticize you if you decide to file for bankruptcy. In fact, it might be the smartest decision you make in these uncertain times.

Then there’s also the question of whether you can or should try to handle filing your own bankruptcy. Yes, you are allowed to file bankruptcy on your own, without the assistance of a bankruptcy attorney. But it’s also clear that you may be better off with the help of an attorney. As the US courts website states:

Filing personal bankruptcy under Chapter 7 or Chapter 13 takes careful preparation and understanding of legal issues. Misunderstandings of the law or making mistakes in the process can affect your rights.

In other words, unless you have a thorough understanding of both federal and state bankruptcy laws, including the rules of the local court where you would file, you should seek the assistance of a qualified, reputable bankruptcy attorney.

When You Need to Buy a Car During Bankruptcy

buying a car in bankruptcy

Something that happens far more often than you might think is this: You file for bankruptcy and soon after filing you discover you need to replace your car. What to do? You know your credit is bottoming out or you wouldn’t be filing for bankruptcy in the first place. The first thing you need to do is get on the phone with your bankruptcy attorney. Explain your situation and they will let you know if it’s a good idea for you to seek financing at that point in your bankruptcy process.

You might think it would be impossible for you to get any kind of car loan, but there are lenders who do have specific programs for people who need to finance a used car purchase while their bankruptcy is still open or after it has been discharged. At Day One Credit, we’ve spent years developing an extensive network of relationships with lenders who will work with bankruptcy customers. And you don’t have to wait to apply for financing through us. As soon as you have a Chapter 7 case number or a Chapter 13 approved payment plan and the written permission of your bankruptcy trustee, we can help you find the bankruptcy car loan that fits your situation. You can get started right away on seeking a bankruptcy car loan, find out more information on our Common Questions page, or give us a call at 855-475-4725 to find out more about your options!

The novel coronavirus and COVID-19 pandemic has caused a serious economic downturn—and one that may well turn out to be significantly worse than the Great Recession of 2007-2009 that hit with the bursting of the housing bubble and the subsequent collapse of many financial institutions. Given the spike in bankruptcy filings that occurred as result … Continue reading “How to Plan for Bankruptcy”

Pandemic Impacts on Bankruptcy Filings and Car Loans

covid pandemic and bankruptcy

When the novel coronavirus outbreak and COVID-19 pandemic reached the US, it took a while before states were willing to put stay-home orders in place and force the closure of non-essential businesses, not to mention schools. But when the country did go into shut-down, it happened in what felt like the blink of an eye. From mid-March through the first week of June, more than 49 million people filed for unemployment benefits. The official unemployment rate in April was measured at 14.7% (source), which is significantly higher than the peak rate of 10% (source) that occurred during the Great Recession that hit in 2008. What does all this mean for bankruptcy filings and car loans? This article will explain the likely impacts and what you can do if you find yourself on the verge of bankruptcy in the coming months.

Bankruptcy Filings are a Lagging Economic Indicator

bankruptcy filings lagging indicator

At first glance, you might be surprised to learn that bankruptcy filings have gone down in the first couple months of the pandemic. During the month of March 2020, there were a grand total of 62,861 individual bankruptcy filings (source)—this was the lowest number of filings in the month of March for a full decade (! But then there were even fewer filings in April, which registered only 38,425 of new consumer bankruptcy filings, representing a nearly 39% decrease from the March figure, which was already low (source)! What gives? The answer, of course, is that bankruptcy filings are what economists call a “lagging indicator.” In other words, the impact of an economic downturn isn’t immediately seen in bankruptcy filings. For example, in the year the Great Recession hit in 2007-2008, bankruptcy filings did go up in 2008, and then increased greatly for the following two years (2009 and 2010). It wasn’t until 2011 that the rate of filing began falling. Based on this lagging nature of bankruptcy filings, we can safely assuming we haven’t even begun to see the impact yet. It’s just too early.

The Pandemic Recession is Different from Previous Recessions

pandemic recession is different

But the nature of the COVID-19 pandemic complicates this lag-time even further. It’s possible that there would have been a surge in filings in April, but many of the bankruptcy courts were closed much like everything else. Some did allow filings to proceed in an electronic fashion, but it still resulted in a greatly reduced capacity to accept filings, not to mention all the people who really can’t handle an approach that relies on technology.

Besides the reduced capacity of the courts to take on and process cases, there’s also another factor. Everyone notes how unprecedented this whole situation has been in terms of rapid shut-down of the economy and immediate huge waves of job losses. But it has also been unprecedented in terms of how quickly and comprehensively the federal government acted to help people. In addition to sending relief checks directly to many individuals, unemployment benefits were expanded both in the amount people receive and for how long they can receive it. Quite a few people are making more on unemployment right now than did when they were working. Because most people consider bankruptcy to be the absolute last resort, the financial assistance provided by the government may in fact be further delaying the inevitable wave of bankruptcy filings that is sure to come. It might just take a little longer for it to peak than it has in past recessions.

Is a Tsunami of Bankruptcy Filings Coming?

bankruptcy filings tsunami

We certainly hope there isn’t a tsunami of bankruptcy filings. Maybe the federal government will distribute more relief funds to individuals. Maybe it will also further extend unemployment benefits to help those who are struggling. Maybe it will also provide additional help to businesses in order to get more people back to work. But those are a lot of maybes.

One of the strongest correlations is between job loss and bankruptcy filings. Unemployment in the Great Recession peaked at 10% (source), and we’re already well beyond that during the pandemic. April unemployment was 14.7% (source). May unemployment, oddly enough, actually fell to 13.3% when everyone expected it to rise even further (source). There are good reasons to question the accuracy of these numbers (see this CNN article if you want to get into it), but suffice it to say that some experts are saying the unemployment figure for April was probably more like 19.2% and May was something more along the lines of 16.1% (source). Either way you look at it, the unemployment situation is the worst it’s been since the Great Depression! As one reporter put it, “The speed and magnitude of the loss defies comparison. It is roughly double what the nation experienced during the entire financial crisis from 2007 to 2009” (source). In this sense, many think it’s not a matter of if bankruptcy filings are going to go up but when they will go up. Still, we can hope it won’t be a tsunami.

The lag-time in bankruptcy filings is going to be longer than previous recessions for reasons stated earlier (government assistance and bankruptcy court closures), but there’s another one to add into the mix. Another strong correlation to bankruptcy filings is overall household debt-to-income ratio. You might recall that the Great Recession was also referred to as a “financial crisis.” Too many people were playing fast and loose with credit to consumers who should have never been approved in the first place (especially in the mortgage industry). Just before the crisis, the overall household debt-to-income ratio was at an all-time high of 1.24 whereas just before the pandemic it was only 0.95 (source). This means many households were generally in a healthier financial situation going into the current downturn. In other words, this is another factor that might contribute to a longer lag-time in seeing bankruptcy filings increase.

What to Do If You Need to Buy a Car in Bankruptcy

need a car in bankruptcy

It will take months, and maybe even years, before we know to what extent personal bankruptcy filings may increase. If they do rise, a lot of them will be people who have never filed bankruptcy before, among other firsts that people are experiencing thanks to the pandemic (such as filing to receive unemployment benefits). If they’re like most people, they will wait as long as possible. They will struggle for weeks and even months until they finally reach the breaking point and decide they should file. This whole process will leave them feeling frustrated and overwhelmed.

Now imagine all the people who will go ahead and file for bankruptcy at some point in the coming months, only to then discover they need to replace their car. This will add even more stress and anxiety to an already difficult situation. Many will go to one or more dealers or lenders only to discover they aren’t willing to work with them because of their bankruptcy. Now they’ll be feeling downright desperate.

But this doesn’t have to be how any of this goes! At Day One Credit, we’ve established strong relationships with lenders who are willing to work with bankruptcy customers because we and they understand how bankruptcy is meant to be a fresh start to a better financial future. If you find yourself looking for the keys a fresh start in the coming months, please know that Day One Credit is here to explain all your options and guide you through the process of finding a bankruptcy car loan for your specific situation. You can get answers to common questions and apply online now!

When the novel coronavirus outbreak and COVID-19 pandemic reached the US, it took a while before states were willing to put stay-home orders in place and force the closure of non-essential businesses, not to mention schools. But when the country did go into shut-down, it happened in what felt like the blink of an eye. … Continue reading “Pandemic Impacts on Bankruptcy Filings and Car Loans”

Bankruptcy Statistics: Understanding Bankruptcy by the Numbers

Consumer Bankruptcy Statistics

It’s true that the longest post-recession economic recovery is still underway in the history of the US. But there are signs that the economy is beginning to slow, and when that happens there will no doubt be an uptick in the number of people who file for bankruptcy. Understanding how bankruptcy statistics have changed and what those statistics mean helps put bankruptcy in perspective for anyone who has or might soon find themselves needing to file.

Bankruptcies Rise for the First Time in Nearly a Decade

bankruptcies are on the rise

The number of bankruptcy filings have fallen every year since the Great Recession peak in 2010. According to the latest data from the US Federal Courts, bankruptcy filings for the 12-month period ending September 30, 2019 increased 0.4% to 776,674 compared to 773,375 at the same point in 2018. But to get a better sense of what’s been happening in the big picture of bankruptcy filings, you have to step back and look at bankruptcy statistics over time.

Big Changes in Bankruptcy Statistics Over Time

over time bankruptcy trends

The most obvious statistic to look is the total number of bankruptcy filings each year, as assembled from data collected by the US Federal Courts. Here’s one to get us started:

consumer bankruptcy statistics over time

The above chart is a good one to show how a sharp economic downturn can drive up bankruptcy filings. The Great Recession hit in in 2008, so bankruptcies went up sharply that year and the two following years (2009 and 2010). Then the economic recovery got underway, and has continued to be the strongest, longest in US history. But you can also see that the rate of decrease in bankruptcy filings has slowed and leveled off.

Does this mean we’re on the edge of a new recession? Another downturn is inevitable at some point, and the Federal Reserve has been desperately reducing interest rates in an effort to hold it off (three decreases this year alone after it had raised interest rates four times last year). This relationship between bankruptcy filings and the general economy is best illustrated by taking a look at how unemployment rates changed over roughly the same period of time (2007-2018):

unemployment statistics

And the unemployment rate has fallen even further since this graph, all the way down to 3.5% in September. Although it’s a line graph instead of a bar graph, you can see how closely the general “shape” of the curve in both charts is basically the same. Clearly, losing a job is a main driver that causes many people to seek relief from bankruptcy laws. But it’s also helpful to take a broader look at these bankruptcy statistics over time, such as the chart below showing business and personal bankruptcy filings since 1987:

bankruptcy filings by the numbers

The above graph raises the question of what in the world happened in 2005 to cause such as huge spike in bankruptcy filings. As it turns out, 2005 is the year when major changes were made to US bankruptcy laws. The changes were pushed hard by the credit industry and were all geared towards making it harder and more expensive for people to file bankruptcy.

The spike in 2005 can largely be attributed, in our opinion,  to people and businesses who decided to go ahead and file before the changes took effect. This is very revealing because it indicates many people are teetering on the edge of bankruptcy at any given moment. One small thing could push them over the edge such as an unexpected medical expense or home repair not covered by insurance or, in this case, knowing that the laws were about to change. In other words, there are literally millions of people and businesses who could file bankruptcy at any time but don’t for a variety of reasons, such as the stigma associated with it. After all, no one wants to admit financial failure, even when it’s not because of anything they did wrong. The rise in bankruptcy filings over the several years prior to 2005 can probably be attributed to the Dot-Com Crash.

What happens if we back up even further, though, by really zooming out to get the biggest picture possible? If you look at bankruptcy filing data from 1900,  it clear that declaring bankruptcy has been on the steady rise pretty much from the beginning, and have skyrocketed dramatically since 1980. The biggest driver of this trend could be described, in our opinion,  as “easy credit from greedy creditors.” The revolving lines of credit available to consumers through credit cards didn’t really hit the scene until the last 40 years. Back in 1970 only 16% of households had a credit card – a figure which is over 70% today.

When creditors start playing fast and loose with credit to consumers, things can end up getting out of hand. This is what happened in the Great Recession, largely driven by the housing market where lenders were handing out mortgages like candy – mortgages that simply weren’t sustainable for many consumers.

Other Important Bankruptcy Statistics

important bankruptcy data

While the big-picture bankruptcy statistics of annual filings does give a lot of insight into why things are the way they are today, there are a variety of other figures worth knowing, including the following:

67.5%: The percentage of personal bankruptcies caused by medical bills (source).

204%: The percentage increase in rate of bankruptcy filings of those aged 65+ over 25 years (source). This figure is especially concerning because 10,000 Baby Boomers will continue retiring every day through 2021.

60%: The percentage of people who spend all or more than they earn (source). The problem pointed out by this statistic is that people are not actively saving if they’re spending all or more of their income, which means they have no emergency cushion when something goes wrong, which could trigger a bankruptcy filing.

66%: The percentage of people who would have trouble scrounging up $1,000 in an emergency (source). Like the previous statistic, this one just goes to show how vulnerable to “income shocks” people are. It doesn’t take much to drive people on the edge into bankruptcy.

24%: The percentage of Millennials who demonstrate basic financial literacy. Ouch.

This article has presented our opinion on the debt problems of Americans by taking a look at bankruptcy statistics and related numbers. If you’re in the midst of a bankruptcy filing or recently had one discharged and find you’re in need of financing a car purchase, there are options available to you. Day One Credit works with a network of  lenders who have special programs specifically geared towards helping bankruptcy filers get the car they need. Rather than viewing your bankruptcy as some kind of failure, we see it as taking a positive step to getting your financial life back in order and moving forward. A bankruptcy car loan is one way for you to immediately begin rebuilding damaged credit. Learn more in our Bankruptcy Car Loan Guide or get started today with our online application!

It’s true that the longest post-recession economic recovery is still underway in the history of the US. But there are signs that the economy is beginning to slow, and when that happens there will no doubt be an uptick in the number of people who file for bankruptcy. Understanding how bankruptcy statistics have changed and … Continue reading “Bankruptcy Statistics: Understanding Bankruptcy by the Numbers”

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, “too much debt” 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 by 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 they 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 list 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 by finding them a bankruptcy car loan. It’s also one 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: Day One Credit’s 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

spend less

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 once again on the 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

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 a savings account 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

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

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

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

bills

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

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 finding financing for a car purchase through Day One Credit. 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, 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”

Day One Credit’s Guide to Bankruptcy Car Loans

Bankruptcy Auto Loan Guide

No one wants to declare bankruptcy, but sometimes it may be the best course of action. For anyone who has found themselves in a situation where their debt has become completely unmanageable, bankruptcy may suddenly start 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, some people don’t know how to make the most of their fresh start. And that’s why we put together Day One Credit’s Bankruptcy Car Loan Guide.

When You May 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 may 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 my 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 many 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

What 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.

Give you our opinion on when a bankruptcy car loan makes sense and when it doesn’t.

Address many 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 more about a bankruptcy car loan, you can get your copy of Day One Credit’s 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 may be the best course of action. For anyone who has found themselves in a situation where their debt has become completely unmanageable, bankruptcy may suddenly start to look like a viable option. And that’s exactly what bankruptcy laws were designed to be – a way … Continue reading “Day One Credit’s Guide to Bankruptcy Car Loans”

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 an option 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 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, some 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 may not be successful. If you’re on the verge of filing bankruptcy, your credit score is probably already very low, which means most some 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 lenders who do and do not specialize in helping bankruptcy customers. Some 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 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 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 you 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 the 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 may 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

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What does bankruptcy do to your credit report? 

answerHaving a bankruptcy listed in your credit report acts like a big red flag to many 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 other lenders out there who view your bankruptcy as something positive you did to get your debts under control. Those 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

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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 finding bankruptcy car financing through 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 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 bankruptcy car financing through Day One, 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 some 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 through Day One and we send your application out to our network of lenders. They compete for your business and you end up with the loan that fits 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 loan that fits 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 find 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 another possibility when going through bankruptcy.  It is always best to discuss your options with an experienced bankruptcy attorney.

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”