Bankruptcy and Auto Loan Financing
Most of us have seen or heard of car dealerships in Colorado that claim to approve people with bad credit, no credit or bankruptcy, without a co-signer or money down, for a car lease or auto financing, so that they can buy a new or used car. It’s not that simple. Here are a few things we think bankruptcy filers should know before they apply for car credit.
There are several types of bankruptcies. We will only explain how used car lenders address personal bankruptcy and will not address business bankruptcies. The two types of personal bankruptcies involve either the total liquidation of your assets to pay off creditors or a partial repayment of your debt to creditors over a period of time. The two types are named:
Chapter 7 – When debtors are ordered by the court to liquidate certain assets to pay debts owed to creditors.
Chapter 13 – When debtors agree to partial repayment of debts by a court-approved process governed by a trustee.
During the bankruptcy period, before it is discharged, it is considered an open bankruptcy. Many lenders know how to get you approved for auto financing while in a bankruptcy but only after the initial meeting of the creditors has taken place. This court hearing is legally referred to as the 341 Hearing and it gives creditors time to ask the debtor questions, as well as time for the judge to consider whether to proceed with the bankruptcy or to dismiss it.
The reasons why local car loan companies like Inspire Financial wait until after the 341 Hearing before approving bankruptcy auto loans:
- It prevents debtors from including new debt obligations in their Chapter 7 Bankruptcy.
- If the Judge dismisses the case the debtor is still liable for the full amount of the outstanding debt, which may include wage garnishments and other collection activities.