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

question

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

bankruptcy lawyers we recommend

 

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

What Happens to My Car When I File Bankruptcy?

my car and bankruptcy

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

Choose Between Chapter 7 and Chapter 13 to File Bankruptcy

chapter 7 or 13 car

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

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

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

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

How Chapter 7 Bankruptcy Affects Your Car

chapter 7 bankruptcy car

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

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

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

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

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

How Chapter 13 Bankruptcy Affects Your Car

chapter 13 bankruptcy car

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

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

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

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

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

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

10 Signs It May Be Time To File Bankruptcy

10 signs to file for bankruptcy

Looking at all the different debts you owe versus what you make in terms of income can be an eye-opening experience. Some people go through life not paying attention to the big picture of their debt and income until something happens that forces them to do it. When the reality of the picture sinks in, it can cause a wave of panic, often followed by despair at what might feel like a hopeless situation. This is when filing for bankruptcy might be your best option to reduce your debts and work towards a brighter financial future. This article describes 10 different signs to help you realize when it may be time to file bankruptcy.

1. Struggling to Pay the Basics

struggle basic needs

If you find yourself having to choose which basic bills you can afford to pay each month and which ones to put off until next time, you’re either not earning enough income to meet your basic needs or have to send off too much of your income to keep up with your debts, leaving less for the basics. This can be the result of losing a job or experiencing a sudden medical emergency not fully covered by your health insurance (if you have health insurance to begin with). If debt payments are getting in the way of meeting your basic needs and normal bills, it may well be time to file bankruptcy.

2. Minimum Payments (or less) on Credit Cards

credit card minimum payments

Missing the occasional payment here and there on a credit card is not a big deal. But if you find yourself in a situation with multiple credit cards and high balances where all you can ever do is pay the “minimum due” amount (and sometimes not even that much), you should definitely look at the rest your finances and see if it all is trying to tell you it may be time to file bankruptcy. Another variation on this problem is when you take a cash advance out on one card to make the payment on another, or if you’re constantly transferring balances to new cards. These are just delaying tactics that won’t solve your credit card debt problems in the longer term. In fact, it typically worsens the problem by allowing the debt to grow over time.

3. Collection Agencies are Constantly Calling

collection agencies

If you’re late on a loan payment, the company holding the loan will probably do an auto-call to remind you to make a payment. If the debt has been turned over to a collection agency because you’ve missed several payments, you can expect the calls to ratchet up in terms of frequency. Ignoring the calls is not a long-term strategy to free you from the mounting pressures of the debts you owe, which means it might be time to file bankruptcy.

4. Using Credit Cards or Personal Loans to Pay for Necessities

personal loans and credit cards

Some people purposefully use credit cards to pay for necessities because they earn rewards for their spending, such as frequent flyer miles and so on. That’s fine if they’re paying off their balance from month to month. But if you’re using credit cards to pay the basics because you don’t have enough money coming in, you run the risk of running up more credit card debt than you’ll be able to handle. This can be a reason to look at whether or not it’s time to file bankruptcy.

5. Debt Consolidation Looks Good

debt consolidation

You’ve seen the offers to consolidate your debt with a company that also promises to lower your overall monthly debt payment. This sounds great from a cash-flow perspective because you’ll have more money each month to spend. It is rarely, however, a good idea in the bigger picture of your financial future. The consolidation gives you a lower monthly debt payment by spreading the payments out over a much longer period of time, which also masks the interest you’ll pay over those years. This can mean you’ll end up paying significantly more than your original debts in the long term. You might be better off exploring whether it’s time to file bankruptcy.

6. Lawsuits from One or More Debt Collectors

lawsuits

If you receive a court summons because you’ve ignored the attempts of debt collectors to get you to pay up, it’s important to understand that you could end up being responsible for all the court costs and other legal fees involved in the lawsuit. Filing bankruptcy will stop the lawsuit in its tracks and help protect you from other actions of debt collectors.

7. Wage Garnishing

wage garnishing

After a lawsuit has been decided in favor of the debt collector, they have legal recourse to do things to get their money, although this varies by state. In some cases they can freeze your bank account. In other cases they can garnish your wages, which means your employer will be required to hold back a certain amount of your paycheck until the debt is paid off. Proactively filing for bankruptcy can prevent these sorts of things from happening. And make no mistake, wage garnishment is not as uncommon as you might think. Some estimates say as many as one in ten Americans have their wages garnished to pay off debts.

8. Foreclosure on Your Home

foreclosure

If you’ve fallen behind on your mortgage payments and foreclosure is looming on the horizon, bankruptcy can be a way to figure it all out and keep your home, either by eliminating many of your debts in a Chapter 7 bankruptcy, or sticking to a reasonable repayment plan over 3-5 years in a Chapter 13 bankruptcy.

9. You’re Tired of Living Paycheck-to-Paycheck

paycheck to paycheck

If every month is a major struggle because of your debt, it’s worth taking time to figure out what’s really going on. If the debts you owe total up to more than half your annual income, it’s unlikely you’ll be able to get your debt under control in the foreseeable future. Missing multiple payments can result in vehicle repossession, student loan default, collection agencies and lawsuits, all of which will keep your credit score going down instead of up. Filing bankruptcy can help you turn that situation around (note that student loan debt is almost never covered by bankruptcy, so you’ll still have to make good on that).

10. Your Income Isn’t Going to Go Up and You’ve Spent Your Savings

savings

Sometimes people who are struggling to keep up with their debts think they can hold out for more income, whether it’s getting a better-paying job or taking on an additional job (or two). But you need to be realistic about this. If the reality is that your income is not going to be going up any time soon, or only by a little bit, then your overall situation isn’t really going to change, which might mean a better approach is seeing it’s time to file bankruptcy. If you look ahead and come up with a real plan to pay off your debts but it’s going to take longer than five years to do it, bankruptcy might be a better option. What often goes along with this is running through all your savings to maintain debt payments and living expenses. If all the savings are gone and you still have more debt than you can manage, it may be time to file bankruptcy. If you haven’t already started spending your savings, then don’t! Protect your long-term financial health and that of your family by exploring bankruptcy as an option.

When one or more of the signs listed above apply to you, then it may be time to file bankruptcy. You’ll need the help of a qualified bankruptcy attorney to ensure it’s the right option for you and to make it happen. Day One Credit is pleased to recommend any of the lawyers listed on our Bankruptcy Attorney Page.  Alternatively, also check out our post on how to choose a good bankruptcy lawyer.

If you are considering filing bankruptcy or have recently filed and realize you need to replace your car, Day One Credit specializes in finding bankruptcy car loans to help you get the vehicle you need without your bankruptcy getting in the way. Our goal is simple: Helping each customer going through bankruptcy find the car and loan they need while also helping them rebuild their credit. Feel free to contact us to speak with one of our friendly customer service representatives to learn more about how we can help. You can also get started right away when you apply online with our easy online application, which will give you an answer in a matter of minutes thanks to our network of lenders who all compete for your business. This is how we find the loan option that fits your situation!

Looking at all the different debts you owe versus what you make in terms of income can be an eye-opening experience. Some people go through life not paying attention to the big picture of their debt and income until something happens that forces them to do it. When the reality of the picture sinks in, … Continue reading “10 Signs It May Be Time To File Bankruptcy”

Common Questions About Filing Bankruptcy Answered

common bankruptcy questions

Filing bankruptcy may be the best thing to do if you’re suffering from an overwhelming amount of debt, whatever the reasons for it might be. But if you’ve never done it before, you probably have many questions about the process. In this article, we’ll cover the most common questions about filing bankruptcy we hear from our customers, including questions about bankruptcy car loans.

General Questions About Filing Bankruptcy

General Bankruptcy Questions

Day One Credit has been helping customers find the bankruptcy car loans they need for years. Along the way, we’ve heard all the questions people wonder about most when they are considering filing bankruptcy. Here are our answers to those common questions:

Question: What is the purpose of filing bankruptcy?

Bankruptcy laws were created in order to provide a way for people to get out from under crushing debts. It is a federal legal process, which means the laws related to bankruptcy do not vary from state to state. The one area of bankruptcy that does vary is this: Each state determines for its citizens what real and personal property is exempt from the bankruptcy process. Non-exempt property and assets might be sold during the bankruptcy process in order to pay off some or all of your unsecured debts (credit cards, personal loans, utilities bills, etc.). How this is handled depends on the type of bankruptcy you file (usually Chapter 7 or Chapter 13). Generally, the property you own that you need to maintain a household and employment will be exempt from the bankruptcy process. This part of the process can be complex, which is why you need a qualified bankruptcy attorney to help you successfully navigate the process. Anyone filing bankruptcy is required to go through credit counseling before filing, and then take a financial management instructional course after filing, providing a certificate of completion to the bankruptcy court before the bankruptcy can be discharged. You also have to pay for each of those required courses (the fee can range from $25-$50 per course).

Question: How does filing bankruptcy help me?

Filing bankruptcy helps you to either eliminate or pay down some or all of the debts that have become overwhelming and impossible for you to get ahead of on your own. When you file, the bankruptcy court assumes legal control of your qualifying debts and non-exempt property. A bankruptcy trustee is assigned to your case to make sure your creditors are paid as much of what you owe them as is possible given your financial situation. Upon filing, an automatic “stay” is put in place that prevents creditors from contacting you directly about your debt or trying to take any of your property. Bankruptcy stops the debt collection process in order to figure out what can be paid and give you a new start without so much debt hanging over your head.

Question: How will I know if I am eligible for filing bankruptcy?

This is one of the many reasons why getting the help of a qualified bankruptcy attorney is so important if you’re thinking of filing bankruptcy. The bankruptcy attorney will want to see documentation on all your different debts and all the property and assets you own. After examining all this information, the bankruptcy attorney can tell you which one of the various types of bankruptcy you qualify for and is the best option for you.

Question: What are the different types of bankruptcy?

The vast majority of bankruptcy filings are for either Chapter 7 or Chapter 13. There is also a Chapter 11 that is for businesses, and a Chapter 12 that is for specifically for family farmers and family fishermen. In a Chapter 7 bankruptcy (also called a “straight” or “liquidation” bankruptcy), your debts are wiped away or discharged after any non-exempt property is sold off to pay creditors. If you don’t have any non-exempt property, all your qualifying debts will be eliminated. In a Chapter 13 or “debt adjustment” bankruptcy, a repayment plan is created that fits your financial situation in order to pay off or get caught up on debt payments based on your income.

Question: Are all debts included?

No. Money you owe for child support, alimony, fines and some taxes are debts not included in bankruptcy. Any debts you fail to list on your bankruptcy filing will not be included. Any loans you obtained by giving false information are not included. Student loans are usually not included unless the court thinks keeping up payments would be an undue hardship. Any debts you have that come from “willful and malicious” harm to others or from criminal activities won’t be included. Your debts for exempt property like your house and car won’t be included unless they are part of your Chapter 13 filing to get caught up on payments.

Question: How much time does filing bankruptcy take?

When you’re working with a bankruptcy attorney, you’ll need to meet several times in order to gather all your documentation and determine which of the types of bankruptcy is right for you. From there, the length of time to completion (discharge) of the bankruptcy process is 3-4 months for a Chapter 7 and 3-5 years for a Chapter 13 because it involves a multi-year repayment plan.

Question: How much does filing bankruptcy cost?

In California, the fee for filing bankruptcy is $335 for a Chapter 7 and $310 for a Chapter 13. If you cannot pay the fee all at once, the bankruptcy court might allow you to pay it with installments. These are just the filing costs. Hiring a qualified bankruptcy attorney to help you through the process is an additional cost that varies depending on what the attorney charges, which in turn depends in part on the complexity of your case.

Question: How much should I pay an attorney for filing bankruptcy?

Most bankruptcy attorneys will handle Chapter 7 bankruptcies for a flat fee that can range from $1,000 to $1,600 or more. In California the average is around $1,560 (the national average is $1,450). Attorney fees for a Chapter 13 tend to be more than a Chapter 7 because a Chapter 13 bankruptcy is more complicated with its required repayment plan. When there is no business involved in a Chapter 13, the southern district of California that includes San Diego assumes that fees in the range of $3,300 to $5,000 are normal and acceptable.

Question: What is a bankruptcy discharge?

The discharge is the end of the bankruptcy process. It is court order issued that says you are no longer required to pay the debts included in your case and creditors can’t go after you anymore because the debts in a Chapter 7 have either been paid off or are wiped away. In a Chapter 13 it means you’ve successfully completed your repayment plan, either paying off debts or getting caught up on your payments.

Bankruptcy Car Loan Question

Bankruptcy Car Loans

If you find yourself in bankruptcy or considering filing bankruptcy but you also need to finance a car purchase, Day One Credit is your go-to solution in the greater San Diego area for all types of bankruptcy car loans. Here are the most common questions we hear from people seeking a bankruptcy car loan:

Questions About Bankruptcy Timing

Timing for Bankruptcy

Question: Do I have to wait until my Chapter 7 Bankruptcy is discharged?

Many Chapter 7 Bankruptcy filers think they have to wait some period of time before they try to get a car loan or wait until the bankruptcy is fully discharged. Not true! As soon as you file your Chapter 7 Bankruptcy and have a case number, you can apply!

Question: Do I have to wait until my Chapter 13 Bankruptcy is discharged?

Many Chapter 13 Bankruptcy filers think they have to wait some amount of time before they try to get a car loan or wait until the bankruptcy is fully discharged. Not true! As soon as you have your Chapter 13 Bankruptcy confirmed payment plan, you can apply! NOTE: You will also need to get authorization from your trustee or judge before you can incur the new debt.

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

Many people have heard that lenders want to wait two whole years after a bankruptcy is discharged before they’ll consider making a loan. That may be true for some lenders, but not for Day One lenders! The day your bankruptcy is discharged, you can apply!

Question: How soon can I get a new loan?

At Day One Credit, filling out our auto loan application  takes less than five minutes. And then you’ll have an answer from us in just minutes!

Questions About Terms and Rates

Terms and Rates

Question: Do I have to put any money down?

While making a down payment is always a good idea if you can do it, we understand that many of our customers can’t, which is why we do not require it. We work with many lenders who have no-money-down programs.

Question: What will be my payment?

Your monthly payment depends on factors such as the price of the vehicle, your down payment (if any), length of the loan, and the interest rate.

Question: What will be my APR?

Your interest rate and APR vary greatly because they depend on many factors, including your credit, the vehicle’s age and mileage, your previous auto history, how many times you previously filed for bankruptcy, the length of the loan, and more. With a bankruptcy, your APR will be higher than customers with good credit. We work with many lenders and are able to shop for a rate among them that is available for your credit situation. To figure out your rate, fill out our quick finance application and we will get back to you in minutes!

Question: Am I going to get a better rate if my BK is discharged?

Maybe, but it depends. If you took specific actions while your BK was open (3-4 months on average for a Chapter 7, 3-5 years on average for a chapter 13) 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. We can also often offer you even better financing if your bankruptcy isn’t yet discharged.

Questions About Our Cars

Best Bankruptcy Cars

Question: What kind of car and amount financed I can get?

Our lenders do have vehicle eligibility guidelines: 2012 or newer and fewer than 75,000 miles are preferred. You can be qualified for as much as $35,000. Most importantly, the vehicle you are interested should be affordable.

Question: Why should I buy a used car?

The goal is to buy a used vehicle because you get more bang for your buck if it’s a newer car with fewer miles. They’re way cheaper than buying brand-new and will cost you less in the long run.

Question: What is going to happen with my old car?

If you have equity in your current vehicle, you can trade it in and apply it as a down payment on your next car. And if you have a negative balance, you may still be able to surrender it to the lender – ask your bankruptcy attorney.

Other Questions About Bankruptcy Car Loans

Bankruptcy Car Loans

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

Yes, 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?

This may be another major advantage of bankruptcy car loans.

Question: What is a Fresh Start Program?

Bankruptcy laws were designed to help people get out from under crushing debt loads and make a fresh start. A Fresh Start Program means a loan program designed specifically to help consumers get the credit they need even though they have filed for bankruptcy. At Day One, that means finding a car loan in spite of a bankruptcy with our network of lenders.

Question: Can you refer me to a good bankruptcy attorney?

We would be happy to refer you to one of the experienced bankruptcy attorneys we know. Check out our Attorney Page to get the help you need! Also read on other aspects of choosing the right bankruptcy attorney.

If you have other questions about bankruptcy car loans, please feel free to contact us to speak with one of our friendly customer service representatives to get the help you need. And when you’re ready, apply at Day One.  Filling out our application is quick and easy, and then you’ll get an answer back from us within minutes! Our network of lenders means we’ll be able to find the loan option for your specific bankruptcy situation, whether it’s a Chapter 7, Chapter 13 or recent discharge!

Filing bankruptcy may be the best thing to do if you’re suffering from an overwhelming amount of debt, whatever the reasons for it might be. But if you’ve never done it before, you probably have many questions about the process. In this article, we’ll cover the most common questions about filing bankruptcy we hear from … Continue reading “Common Questions About Filing Bankruptcy Answered”