Qualifying for Auto Loan Discharge in Chapter 7 vs Chapter 13 Bankruptcy

Qualifying for Auto Loan Discharge in Chapter 7 vs Chapter 13 Bankruptcy

Filing for bankruptcy can provide much-needed relief if you are overwhelmed with debt. However, it also makes getting approved for future loans more challenging. This is especially true when it comes to auto loans.

If you file for bankruptcy and want to buy a car, you may be wondering how long you have to wait and what your options are. The answers depend on whether you file for Chapter 7 or Chapter 13 bankruptcy.

Waiting Periods for Auto Loans After Chapter 7

With a Chapter 7 bankruptcy, you can potentially get approved for an auto loan as soon as you receive your discharge. This is usually around four to six months after filing.

However, even though you can start applying once your Chapter 7 discharge goes through, you will likely face higher interest rates and stricter loan terms. Most lenders see bankruptcy as a red flag, so you will be classified as a subprime borrower.

This means you should expect interest rates around 15-20% or higher when trying to get a car loan after Chapter 7 bankruptcy. You may also encounter lenders that require a down payment of 20% or more.

Waiting Periods for Auto Loans After Chapter 13

The waiting period is longer if you file for Chapter 13 bankruptcy. With Chapter 13, you must complete your entire 3-5 year repayment plan before discharged debts can be removed from your credit report.

This means you will likely need to wait the full term of your Chapter 13 plan before applying for auto financing. Most lenders will want to see that you made consistent payments and completed the bankruptcy process.

Christine Twomey

2024-03-21

Just had my Divorce case settled 2 months ago after having a horrible experience with another firm. I couldn’t be happier with Claire Banks and Elizabeth Garvey with their outstanding professionalism in doing so with Spodek Law Group. Any time I needed questions answered they were always prompt in doing so with all my uncertainties after 30 yrs of marriage.I feel from the bottom of my heart you will NOT be disappointed with either one. Thanks a million.

Brendan huisman

2024-03-18

Alex Zhik contacted me almost immediately when I reached out to Spodek for a consultation and was able to effectively communicate the path forward/consequences of my legal issue. I immediately agreed to hire Alex for his services and did not regret my choice. He was able to cover my case in court (with 1 day notice) and not only was he able to push my case down, he carefully negotiated a dismissal of the charge altogether. I highly recommend Spodek, and more specifically, Alex Zhik for all of your legal issues. Thanks guys!

Guerline Menard

2024-03-18

Thanks again Spodek law firm, particularly Esq Claire Banks who stood right there with us up to the finish line. Attached photos taken right outside of the court building and the smile on our faces represented victory, a breath of fresh air and satisfaction. We are very happy that this is over and we can move on with our lives. Thanks Spodek law 🙏🏼🙏🏼🙏🏼🙏🏼🙌🏼❤️

Keisha Parris

2024-03-15

Believe every single review here about Alex Z!! From our initial consultation, it was evident that Alex possessed a profound understanding of criminal law and a fierce dedication to his clients rights. Throughout the entirety of my case, Alex exhibited unparalleled professionalism and unwavering commitment. What sets Alex apart is not only his legal expertise but also his genuine compassion for his clients. He took the time to thoroughly explain my case, alleviating any concerns I had along the way. His exact words were “I’m not worried about it”. His unwavering support and guidance were invaluable throughout the entire process. I am immensely grateful for Alex's exceptional legal representation and wholeheartedly recommend his services to anyone in need of a skilled criminal defense attorney. Alex Z is not just a lawyer; he is a beacon of hope for those navigating the complexities of the legal system. If you find yourself in need of a dedicated and competent legal advocate, look no further than Alex Z.

Taïko Beauty

2024-03-15

I don’t know where to start, I can write a novel about this firm, but one thing I will say is that having my best interest was their main priority since the beginning of my case which was back in Winter 2019. Miss Claire Banks, one of the best Attorneys in the firm represented me very well and was very professional, respectful, and truthful. Not once did she leave me in the dark, in fact she presented all options and routes that could possibly be considered for my case and she reinsured me that no matter what I decided to do, her and the team will have my back and that’s exactly what happened. Not only will I be liberated from this case, also, I will enjoy my freedom and continue to be a mother to my first born son and will have no restrictions with accomplishing my goals in life. Now that’s what I call victory!! I thank the Lord, My mother, Claire, and the Spodek team for standing by me and fighting with me. Words can’t describe how grateful I am to have the opportunity to work with this team. I’m very satisfied, very pleased with their performance, their hard work, and their diligence. Thank you team!

Anthony Williams

2024-03-12

Hey, how you guys doing? Good afternoon my name is Anthony Williams I just want to give a great shout out to the team of. Spodek law group. It is such a honor to use them and to use their assistance through this whole case from start to finish. They did everything that they said they was gonna do and if it ever comes down to it, if I ever have to use them again, hands-down they will be the first law office at the top of my list, thank you guys so much. It was a pleasure having you guys by my side so if you guys ever need them, do not hesitate to pick up the phone and give them a call.

Loveth Okpedo

2024-03-12

Very professional, very transparent, over all a great experience

Bee L

2024-02-28

Amazing experience with Spodek! Very professional lawyers who take your case seriously. They treated me with respect, were always available, and answered any and all questions. They were able to help me very successfully and removed a huge stress. Highly recommend.

divesh patel

2024-02-24

I can't recommend Alex Zhik and Spodek Law Firm highly enough for their exceptional legal representation and personal mentorship. From the moment I engaged their services in October 2022, Alex took the time to understand my case thoroughly and provided guidance every step of the way. Alex's dedication to my case went above and beyond my expectations. His expertise, attention to detail, and commitment to achieving the best possible outcome were evident throughout the entire process. He took the time to mentor me, ensuring I understood the legal complexities involved to make informed decisions. Alex is the kind of guy you would want to have a beer with and has made a meaningful impact on me. I also want to acknowledge Todd Spodek, the leader of the firm, who played a crucial role in my case. His leadership and support bolstered the efforts of Alex, and his involvement highlighted the firm's commitment to excellence. Thanks to Alex Zhik and Todd Spodek, I achieved the outcome I desired, and I am incredibly grateful for their professionalism, expertise, and genuine care. If you're in need of legal representation, look no further than this outstanding team.

Load more

Google rating score: 4.9 of 5, based on 736 reviews

The good news is that your credit score can start to improve during the Chapter 13 repayment period. If you make timely payments each month, it shows financial responsibility.

Qualifying for Auto Loan Discharge in Chapter 7

For Chapter 7 filers, your auto loan balance can potentially be wiped out entirely. However, for this to happen, you must meet specific criteria:

• Your auto loan must have originated at least 910 days (2.5 years) before filing for Chapter 7 bankruptcy
• Your monthly income cannot exceed the state median
• You must pass the Chapter 7 means test

If you meet these qualifications, your auto lender has to write off the remaining loan balance. This is known as cramdown, and it allows Chapter 7 filers to keep their vehicle without continuing to make payments.

The 910 Day Rule

The 910 day or 2.5 year time period is critical. If your auto loan originated more recently, the lender can repossess the vehicle even after you file for Chapter 7 bankruptcy.

The 910 day rule was designed to prevent people from abusing bankruptcy to get out of auto loans on newer vehicles. If your loan is less than 2.5 years old, cramdown will not apply.

State Median Income Requirements

In addition to the 910 day rule, your income must fall below your state’s median level. Each year, the Census Bureau releases state median incomes based on household size.

If your household income exceeds the median, you cannot qualify for Chapter 7 cramdown on your auto loan. This income test aims to limit abuse by higher-earners.

Chapter 7 Means Test

Finally, you must pass the Chapter 7 means test. This review compares your income to average living expenses based on where you live. It determines whether Chapter 7 bankruptcy is appropriate for your financial situation.

If the means test flags too much disposable income, the court can deny Chapter 7 eligibility. Failing the means test would also disqualify you from cramdown on your auto loan balance.

Qualifying for Auto Loan Discharge in Chapter 13

The rules are different if you file for Chapter 13 bankruptcy. Under Chapter 13, total loan discharge is not guaranteed. However, you can potentially reduce your monthly auto payment.

To lower your auto loan payment in Chapter 13, you must file a motion with the court. This requests a cramdown to the current market value of your vehicle.

For example, if you owe $15,000 on your auto loan but the car is only worth $10,000, you can ask the court to reduce the balance to the $10,000 value. This lowers your monthly payment.

Courts typically approve these motions if the vehicle is worth less than the remaining loan amount. However, the judge has discretion to deny the request in some cases.

Finding Lenders That Work with Bankruptcy

If you need an auto loan after bankruptcy, finding a lender that will work with you is key. Some options to consider include:

• Local banks and credit unions – Many are more flexible than large national lenders
• Subprime auto lenders – They specialize in borrowers with past credit problems
• Online lenders – Can offer quick loan decisions without visiting a dealership

No matter where you apply, being prepared will improve your chances. Gather documents that demonstrate your current income and ability to make payments. Also have your bankruptcy paperwork ready to explain the details.

Shopping for the Best Auto Loan Terms

Because lenders view bankruptcy as high risk, it is extra important to shop around for your auto financing. Comparing multiple lenders is the only way to find the best interest rate and loan terms.

Online auto loan marketplaces like LendingTree make this easy. You can complete one application and receive offers from their network of lenders. This allows you to evaluate all your options in one place.

Pre-qualification on LendingTree is also soft, meaning it does not affect your credit score. There is no downside to applying and comparing offers.

Improving Your Credit Before Applying

Another strategy that can help your auto loan chances is working to improve your credit first. Try to wait at least 6-12 months after bankruptcy before applying.

During this time, focus on responsible credit habits such as making other loan payments on time and keeping balances low. Pay off collection accounts if possible.

You can also become an authorized user on someone else’s credit card. This allows you to benefit from their good payment history.

It takes time, but boosting your credit score even a small amount can open up better auto financing options.

Alternatives if You Cannot Get Approved

If you have no luck getting approved for an auto loan, all is not lost. Here are some options to consider if your bankruptcy makes financing impossible:

• Buy an inexpensive used car with cash – Save up to make an all-cash purchase. This avoids the need for financing.
• Ask a relative to co-sign – A co-signer with good credit can improve your chances significantly.
• Try ridesharing – Services like Uber allow you to get around without owning a vehicle.

Talk to your bankruptcy attorney as well. They may know lenders in your area that work with filers. An attorney can also advise you on rebuilding credit or exercising other options.

The Bottom Line

Qualifying for an auto loan after Chapter 7 or Chapter 13 bankruptcy involves patience and perseverance. But with a strategic approach, it is possible in most cases. Be prepared to shop around and explore alternatives if your first attempts are unsuccessful.

If you can show consistent income and financial responsibility, there are lenders willing to work with bankruptcy filers. Seeking their help can put you back on the road to reestablishing your credit.