One of the primary concerns for many bankruptcy filers is what happens after their discharge. They want to know what options they will have, whether they can get credit again, how soon they can get credit, and whether they can buy a house or car. When it comes to cars, your options are leasing, buying outright, or financing a purchase. Here’s a look at how bankruptcy and credit scores affect your vehicle choices.
Life After Bankruptcy – Better Than You Expect
When most people file bankruptcy, they are stressed about finances and worried their life is ruined. In fact, filing bankruptcy resets you financially for most unsecured debt. Chapter 7 bankruptcy discharges credit card debt, medical bills, non-collateralized commercial loans, and some older income taxes. Chapter 13 works a little differently because you dig out of debt over time.
The quick answers about getting credit after bankruptcy are contingent on the type of bankruptcy you chose and the effort you put into rebuilding your credit after your discharge. Yes, you can get credit again. Yes, you can get credit fairly soon after your bankruptcy discharge. And, yes, you can buy a home and a car. Chapter 7 is the fastest option and can help your credit score rebound faster.
In fact, studies by the Federal Reserve showed that after filing bankruptcy, credit scores rebound, on average, by more than 60 points. Why? Most people that file bankruptcy are in a debt free fall, and things are getting worse every month, so their credit score drops every month. When you file bankruptcy, the free fall stops and the discharge of debts often triggers a credit score rise right away.
Getting a Car After Bankruptcy
With Chapter 13 bankruptcy, you usually cannot get any new credit while in your repayment plan which lasts three to five years. However, if you need your car for work and yours is on its last leg, you might be able to convince the Trustee assigned to your Chapter 13 case to let you take on a modest car loan but while in bankruptcy, you won’t get the most advantageous terms.
After Chapter 7 bankruptcy, you’ll have more options available, and they’ll be quicker to access. To purchase a car with a car loan, the longer you can wait after your discharge, the better. Why? As your credit score rebounds and gets to a higher number, the more favorable terms you will get. However, if you must have a car sooner rather than later, you still have options.
Borrow Now, Refinance Later?
One choice is to take the most favorable loan that you can and refinance it later when your credit score is better, and you can get a lower interest rate. Another option is to forego financing altogether, scrape together your pennies and buy a cheap used car that will get you from point A to point B for six months to a year and use that time to save up for a down payment and work on your credit score.
Leasing is another option. Most consumers that take out leases have credit scores that average 720. However, you can get a lease with a lower credit score. The important thing to consider with a lease is that it’s often not as advantageous as buying because you build little equity during the lease period. Plus, you may have to put down a sizable up-front payment plus taxes and fees.
Then, when the lease period is up, you have to hand back the car or pay a hefty redemption cost to keep the car. Also, if there’s any damage to the vehicle or you went over the mileage, you’ll face a steep penalty. Leases may be attractive if your company is footing the bill to reimburse you and will pay any overage on mileage. As a rule of thumb, though, leases should be viewed with caution.
To find out more about rebuilding your credit after bankruptcy, contact Credit Score Keys. Call 919-495-2365