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Bankruptcy filings by individuals and businesses increased by 10% in the twelve months ending June 30, 2023, compared to the previous year.
Non-commercial bankruptcy filings increased 9.5 percent to 403,000, compared to 367,886 the previous year. Most of these cases were not due to reckless spending but rather to financial difficulties, rapid inflation and unexpected circumstances. Filing for bankruptcy can be stressful and, for some, quite embarrassing or dishonorable. This is never something anyone expects or wants to experience, but it happens and it may or may not be extremely beneficial to your future, depending on the choices you make after bankruptcy.
Beyond the obvious need to identify why you got to where you were and the steps you need to take to prevent it from happening again, you will need to readjust your decisions to suit your situation current. Following a Chapter 7 bankruptcy, for example, you may have given up all or most of your assets, such as vehicles you owned or were still making payments on. If you have not signed a reaffirmation agreement for your auto loan, the vehicle will be returned to the lien holder and the debt will be removed from your file. In fact, with Chapter 7, most of your debts would be completely removed, causing your credit report to show that you have little or no debt.
If you lost your vehicle during bankruptcy, you will probably want to find a way to replace it or find transportation. In case most or all of your debts have been eliminated, you now have a unique opportunity. Without any other debt, you will find it much easier to get approved for a new car loan, provided you can show proof of income. Lenders are usually happy to approve someone for a car loan following a bankruptcy because they know you no longer have to worry about other creditors. So, the question now is: should you buy a car after bankruptcy or should you wait and save money to buy one outright to avoid another financial problem later?
The advantages of buying after bankruptcy
As noted above, you may be able to get approved for a car loan after bankruptcy despite having poor or bad credit. Buying a car directly after bankruptcy can be beneficial. First, if you lost your transportation due to bankruptcy, a new car will fill that need. Additionally, since bankruptcy damaged your credit, you’ll probably want to start rebuilding your credit as soon as possible, and buying a new car can help you do that.
Here are the advantages of purchasing a vehicle following bankruptcy:
- Means of transportation – which can be vital to ensuring you have a stable income.
- Can help you rebuild your credit – making regular payments on time will help you build a positive credit history and slowly improve your credit score over time.
- More deals to choose from – after bankruptcy you will likely have dozens of dealers trying to take over your business (they know you filed for bankruptcy and no longer have other debts to share your income with), so you will have more options among which ones to choose to get the best possible deal.
The Disadvantages of Buying a Car After Bankruptcy
Depending on the initial reason you filed for bankruptcy, getting back into debt immediately after filing for bankruptcy could be a risky option. Low-income people filed the majority of bankruptcies. If when purchasing a new vehicle, the car payment puts a strain on you financially, you could find yourself in the same situation you were in before filing your application. If, for example, you were to lose your job or a problem with your new car required costly repairs, you could quickly fall behind on your payments and further damage your credit.
Some disadvantages of buying a car:
- Could add financial pressure to your life
- Late payments could further harm your credit
- Interest rates will be much higher due to bankruptcy
The bottom line is this: weigh your options and if you decide you want to move forward with purchasing a vehicle, make sure you can easily make the monthly payment. Since your credit score will be lower after bankruptcy, you will likely have to accept a wildly inflated interest rate, making your car payments much higher.
Also, be sure to shop around for the best deal. If you lost your car in bankruptcy, you tend to rush. No one wants to be without transportation for very long, however, it is important that you remain patient and find the right car that will suit your needs and budget.
For help with your credit or if you would like to improve your credit score, please contact Credit Absolute today for a free consultation.