Car Loans After Bankruptcy Made Easier

Car loans after bankruptcy can be a little more difficult than your previous loan you may have applied for before your financial downfall. This does not mean that it is impossible to get a loan. Now there is good news for those looking for a new car after bankruptcy. Getting car loans after bankruptcy is more likely today for those who find themselves in these circumstances.

There are a few things that you can do to help you get the approval you need for a car loan. Let’s explore a few steps you can take to make car loans after bankruptcy easier.

Begin by double-checking your credit history reports. Pull your credit reports from Equifax, Transunion and Experian and go through them with a fine tooth comb to be sure that all debts that were to be removed in the bankruptcy are no longer on the reports. Sometimes, the bureaus can miss taking off a debt that has actually been discharged through your bankruptcy and this can lower your credit score more than it should.

You may want to draft up a letter to send to each of the three credit bureaus explaining the reasons for filing bankruptcy. If you had a setback due to a divorce, extreme medical bills or a temporary loss of job, this letter could give you a better chance at getting lower interest rates. Potential lenders will be able to read the explanation and may take this into consideration when deciding to grant you a car loan after bankruptcy. In addition, feel free to explain the steps you have taken to begin to rebuild your FICO score.

After reviewing your credit reports the next step would be to take a good hard look at your current finances. Evaluate the monthly payment you can realistically handle for a car loan along with all your other financial obligations. Don’t forget to allow for insurance and maintenance. Do your best to choose a car that will help you stay on track and make your monthly payments on time. Paying your car payment on or before the due date is the quickest way to rebuild your credit history.

Once you have successfully paid the car loan for a year, chances are good that you will have the opportunity to refinance with a lower interest rate. Make a note to yourself to recheck your credit score after the first year and begin to look for refinancing at that point. This could save you money over the balance of the car loan after bankruptcy.

And, finally research a car dealership or auto broker that has expertise in finding car loans after bankruptcy. Some dealerships and brokers have special finance departments. Because of the volume of special loans they secure, these experts can typically find you lower interest rates. And, this will make your monthly payments lower. With the lower monthly payments you will have a better chance to regain your financial borrowing power and improve your overall credit history.

The Need For Speed And Car Loans

These days, everyone has to have a car. Even with global warming on the rise, the demand for cars does not seem to be falling. Instead, we are seeing the development of environment-friendly cars. And people are still rushing to the stores to buy their very own set of wheels. The need for speed has become a necessity today. Snail mail is completely passé as email has taken over from it almost completely. The rise of the Internet has made speed an absolute necessity. Nobody today would walk if he had the option of flying. The twenty-first century is the age of speed.

The need for speed makes it necessary for everyone to have a car, or at least aspire towards one. Moreover, these days most of us can afford to buy a car. Auto loans have become very easy on the pocket. As a result, more and more potential car buyers are rushing to make the most of the current situation. If you own property or some other valuable asset that can act as collateral, you are lucky. Secured car loans generally offer much lower interest rates than do unsecured car loans. Thus, if you can avail of a secured loan, your repayment costs will be reduced considerably.

Of course, unsecured car loans are not necessarily a bad deal. These days, with the proliferation of loan providers on the Internet, it is quite easy to find low-priced car loans. Even people with a history of bad credit can avail of competitively priced auto loans. The loans that are offered to people with bad credit histories tend to charge higher interest rates. But with the immense competition in the field of loans these days, getting a cheap auto loan may not be too difficult.

In fact, while purchasing a car, one must take care to find the cheapest car loans possible. After all, a car will require a good deal of maintenance. You will have to fill fuel and send the car for regular servicing. Moreover, you will also have to invest in some good car insurance. As in the case of loans, cheap car insurance is not too tough to locate these days. However, you cannot just sit around and expect cheap insurance (or loans for that matter) to fall out of the sky. Instead, you must do your share of research before making the final decision on the insurance policy. Only then can one come across the best one.

Auto Repossession Before Bankruptcy

The other day I received a call where an individual asked me whether filing bankruptcy would allow for a car that has been repossessed to be returned. Although my response probably failed to satisfy the caller (the usual attorney response of it depends), here is what is required in California (at least how the courts have viewed the law).

Background

In most vehicle contracts the lender retains a right to repossess a vehicle if the borrower fails to make the scheduled payments. With many contracts, this repossession can be done outside of any court proceedings.

However, once an individual files for bankruptcy many of the rules change. For one, an automatic stay is implemented. This stay prevents most actions against the debtor (individual that files for bankruptcy). Specifically, the automatic stay strictly prohibits any lawsuit or repossession against a debtor that is delinquent on car loan payments. Any repossession after a bankruptcy petition is filed constitutes a violation of the automatic stay, with the repossession void and of no effect. In that case, the lender would be immediately required to return the vehicle to the debtor.

Effect of Bankruptcy on Prepetition Repossession

Section 542 of the Bankruptcy Code requires that entities in possession of “property of the bankruptcy estate” are generally required to turn the property over to either the trustee (in Chapter 7) or the debtor (in Chapter 13). This big sticking point then for this turnover requirement is determining what is “property of the estate.”

Section 541 of the Bankruptcy Code defines property of the estate. This definition includes “all legal or equitable interests of the debtor in possession as of the commencement of the case.” Basically this definition states that whatever rights the debtor has at the commencement of the case continue in bankruptcy. As for the vehicle that has been repossessed, the court has to discover what rights a debtor had when the bankruptcy case was filed.

These rights are determine by state law (California State law). Under the California Civil Code (section 2983.2), a debtor has the right to redeem a repossessed vehicle up until the date the car is sold by the repossessing lender.

Two recent cases have come to different conclusions as to whether turnover of the vehicle is required upon the filing of the bankruptcy petition. First, in a case from the Southern District of California (In re: Fitch, 1998), the bankruptcy court held that while a repossessed car is property of the estate, the right to possess the car was transferred to the lender prior to the filing of the bankruptcy petition. The court interpreted the statutes to mean that the automatic stay freezes the positions of the debtor and creditors. Thus, the lender had the right to maintain possession. The court did state that a vehicle could be returned to a debtor upon the debtor’s giving of adequate protection. In most cases adequate protection means the establishing of proof of insurance and proof that the debtor will be able to make the regular payments on the car.

In the Northern District of California (In re: Cortez, 2010), the Bankruptcy Court interpreted the Bankruptcy Code, and specifically the section on the automatic stay, to mean that a “knowing retention of estate property violates… the automatic stay.” Because a debtor has the right to redeem until the date of a sale by the lender, the vehicle remains part of the estate, and subject to turnover. In this case, the debtor provided adequate protection to the secured creditor. However, the court seemed to say that it was not necessary for turnover.

What to do?

If your car has been repossessed, and you want to make sure you retain possession, bankruptcy may be a solution if you are not able to pay the balance before a lender’s sale. However, while the Northern District seemed to state that adequate assurance is not necessary for turnover, it will ultimately be necessary to avoid a lender’s motion for relief from the automatic stay. Be prepared to show (a) insurance, (b) regular and sufficient income, and (c) an ability to pay for the vehicle.