How Do I Get Financing for a Vehicle After Bankruptcy?
Often, when a person files bankruptcy, they are in one of four situations regarding a vehicle:
They are behind on their payments and must surrender the car (this usually happens in a Chapter 7 bankruptcy).
They drive an older vehicle that is paid off.
They are borrowing a friend or family member’s vehicle.
They are current on their payments and are able to keep their car in a Chapter 7 bankruptcy or they are able to catch up on the payments in a Chapter 13 bankruptcy.
If you fall into the first three categories, odds are, not too long after your bankruptcy is complete, you will need to purchase a new vehicle. Unfortunately, most people do not have enough extra money to pay cash for a reliable vehicle. Instead, they must look at financing an automobile.
If you need to finance a vehicle, you should wait until your bankruptcy has been discharged. If you can, you should then wait a few months and be sure that you pay all of your bills on time – even your utility bills. This will help you to begin rebuilding your credit.
When you are ready to look into financing, be sure to “shop around” at various dealerships to get competitive interest rates and prices. With the ability to do research online many of our clients have had a lot of success by shopping around online. You have the ability to contact a countless number of financing companies to see what opportunities they can provide for you.
Do not look at brand new vehicles – instead, you should be looking at two or three year old vehicles that are new to you. This will help to dramatically reduce your purchase price.
Do not be surprised if you receive an interest rate between 13-20% after your bankruptcy, simply as a result of your bankruptcy filing. One way to compensate for a higher interest rate is to look at vehicles with a lower purchase price – you must ensure that you can afford the monthly payment in your budget. For more on monthly budgeting, look at our budgeting after bankruptcy series.
The biggest thing to keep in mind when obtaining financing for a vehicle after bankruptcy is that you want a reasonable and dependable vehicle – one that you can truly afford, not necessarily the nicest, newest vehicle on the lot. That can come in time after you are able to get a lower interest rate.
What To Look For In A Credit Card After Bankruptcy
Yes, credit cards are the evil culprit for many folks who have had to file bankruptcy, but credit cards are not entirely terrible. Having a credit card helps in many ways to help build your credit, you just need to get the right one that is tailored for you and your needs. For someone who is coming right out of a bankruptcy, all you wish to do is move forward and a credit card is one of your first steps in establishing good credit. There are a few things that you need to look for in one when you are ready to start establishing credit.
What are the start up fees? Are there hidden fees?
Many cards do not have an application fee, but will have annual fees that will be incurred in the future and in many cases, you must pay it when you first sign up for the card. You will want to do thorough research on this, because in some cases, the annual fee may be low, but the hidden fees may hit you hard!
What is your interest rate?
This is a given. Just like you would not want to buy a car with a high interest rate, you do not want a card with one either. Once you leave a balance (i.e.: you do not pay the card off immediately after using it) your credit card company is going to charge interest. Even if you are not using the card, they will still charge interest on the balance of the card.
Keep your balance low
Credit bureaus do not determine your score solely by whether or not you have made your payments on time. They also look into your balances. You do not want to have a high balance on a card because it will bring your score down. A high balance is how much you owe on the card. If you have a card that only has a $300 credit limit, you need to try to keep your balance owed on the card under $150.
Get a secured credit card
This is sometimes, but not always, a great way to start to establish credit. You will have to put money “down” on the card (which is what your credit limit is based upon, for example, you put $300 down, then your credit limit would be $300.) You will need to look into it whether these cards report to the credit bureau. If they don’t, the card won’t help you establish payment history.
Can I Open A New Bank Account After Filing Bankruptcy?
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Yes. There is no law that prohibits a debtor from opening a bank account after filing bankruptcy. However, if you owed money to a bank (i.e. for a credit card, loan, overdraft fees, etc.) and they were included in your bankruptcy, chances are you might have a difficult time opening an account with that institution.
You may need to shop around in order to find a bank that is willing to open a new account.
Prior to filing bankruptcy, if you have an account with a bank that you owe money to, your attorney may recommend that you close that account and open a new account at a bank where you have not borrowed funds or owe money. Generally speaking, it is best to open a new bank account before you file bankruptcy to ensure that you have a bank account with an institution who you do not owe money to.
How To Get Financing For A House After Bankruptcy?
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Many people assume that because they have had poor credit and needed to file bankruptcy to get their fresh financial start that their ruined credit will prevent them from financing and purchasing a home. That is not necessarily the case but certain factors will affect the ease and timing of a new home purchase.
The Waiting Period
Bankruptcy will remain on your credit report for up to ten years but that doesn’t mean you have to wait that long to finance a new home. Through the thousands of cases that we have filed over the years we have seen numerous clients be able to purchase a new home as little as two years after filing bankruptcy. However, that doesn’t necessarily mean that you will get the best rates for your mortgage so soon after bankruptcy. Generally, you can get good rates after four years depending on whether you experienced a foreclosure, deed-in-lieu of foreclosure, or a short sale of your previous home.
The FHA requires as little as 3.5% down after two years to qualify for a loan. Some lenders may even qualify you just six months after bankruptcy but will do so with a higher interest rate and down payment. Fannie Mae and Freddie Mac, the two privately owned companies who dominate 90% of the conventional mortgage industry and are heavily regulated by HUD, have a variety of waiting periods based on various factors. If extenuating circumstances exist such as job loss, serious illness, severe injury resulting from an accident, or death, Fannie Mae and Freddie Mac’s waiting period is 3 to 7 years after foreclosure. Without extenuating circumstances, the waiting period is 5 to 7 years to obtain a conventional loan. If you want to buy after a deed-in-lieu of foreclosure (the exchange of the deed to your house for a considerably smaller sum than what it would cost the bank to go through a lengthy and expensive foreclosure process) the waiting period is 4 to 7 years or 2 to 7 years with extenuating circumstances. You must wait two years after a short sale, i.e. your lender agrees to the sale of your home for less than you owe on the note. Your new home purchase must be a principal residence, not a vacation or rental home.
Improving Your Qualification for Financing a New Home
Bankruptcy, foreclosure, deed-in-lieu of foreclosure, and short sales will have a negative impact on your credit score. Anyone who tells you otherwise isn’t telling you the whole truth. However, you can use the time between filing your bankruptcy an getting a new mortgage to rebuild your credit which, in turn, will improve your financing options.
If your credit reports shows open and overdue balances, contact all three credit reporting agencies and insist that your debt be shown as included (and therefore wiped out) in the bankruptcy. Make sure any other errors on your report are also corrected.
You might want to get a secured credit card, which gives you a credit limit equal to the amount you deposit in the bank. It may only be a $200-$500 limit but it erases any danger of running up your card to uncontrollable levels. Pay your credit card bill every month on time and often the secured credit card can be converted to an unsecured card in 12-18 months for good credit behavior.
Installment loans can help rebuild your credit too. Be prepared for very high interest rates on vehicle loans at first but they can also be refinanced within a few years of good credit behavior. Also, student loan (not discharged in bankruptcy) repayment can be another good way to restore your credit by paying them on time.
For more information on how to rebuild your credit after bankruptcy review our 6 Steps to Rebuilding Credit After Bankruptcy blog post series. This will be important to helping you reestablish your credit so that you can achieve the best financing rates possible for your new home purchase.
