When potential clients come into my office for a free consultation, they are usually concerned about two things: whether bankruptcy will get rid of their debts and how long will it take to re-establish their credit.
Bankruptcy will get rid of most debts, except: child support and alimony obligations, certain back taxes, student loans, loans obtained by fraud, and court or government imposed fines. Otherwise, bankruptcy will eliminate overwhelming medical bills, credit card debt, repossessed car loans, apartment evictions, payday loans, and other common consumer debt.
A Chapter 7 bankruptcy will remain on your credit report for 10 years, but that doesn’t mean it will be 10 years before you’ll get credit. Shortly after we file your bankruptcy case, you’ll get invitations from car dealerships to visit them to buy a car.
Before you jump into a car loan after you file bankruptcy, there are a few things you should know. First, some lenders will give you a loan the day after you file bankruptcy. Others will want you to wait until you get your discharge order, which the court will issue about four months after your case was filed.
Second, you will be legally liable for any new debt you take on after you file bankruptcy. You should consider whether you can afford to take on new debt, especially after you have just taken steps to eliminate it through bankruptcy.
Finally, you should keep in mind that any car loan you get right after you file bankruptcy will likely come with a very high interest rate. You’ll have to decide whether the added expense of the higher interest rate is worth buying another car. The good news is, the further you get from your bankruptcy filing date, the more your interest rates will improve on new loans.
In some cases there are benefits to buying a car after you filing bankruptcy. One, of course, is that it can help re-establish a positive credit score. The other benefit, if you already have a car loan and the car is worth less than what you owe, is that you can get rid of the existing car loan in your bankruptcy.
What that means is that you will be able to buy a new car that is worth the value of the loan and you don’t have to roll the loan on your other car into the new loan. You can surrender the car you had when you filed bankruptcy anytime without worrying about the lender coming after you for any money as long as you have not signed a reaffirmation agreement.
Image by Thomas Hawk.