When financial turmoil strikes, and you’re considering filing for bankruptcy, the question of what to do about your vehicle is one of the biggest sources of confusion. While the decision rests on a number of different factors, as well as your financial abilities, we are hoping that this blog will clear at least some of that confusion.
These days, new car dealers will extend financing over 84 months to make payments affordable. That is a really long time to finance such a purchase, especially when you consider the fact that a vehicle is a depreciating asset so it will dramatically fall in value over time. As a result, even after paying for your car for more than a year you could still end up owing a major deficiency balance when looking at what the car is worth compared to what you owe.
Most car loan lenders, in fear of losing the deficiency balance, will let you keep your car and continue your payments through bankruptcy – so if the question of what to do with the car has held up your decision to file, it doesn’t need to. In most cases, you won’t lose your car.
Since a bankruptcy will wash away all unsecured credit, if the vehicle has a deficiency balance and is proving to be too expensive to maintain, you may want to get rid of it with the bankruptcy. But then what do you do about another vehicle?
You have options. This is a specialized field of lending, but you can buy a vehicle and finance it even as an undischarged bankrupt. The key is to find a lender who specializes in extending these types of loans.
Getting rid of the vehicle with bankruptcy. In this scenario, you give back the car and the deficiency loan balance is included in your bankruptcy. You can get a loan to buy another vehicle and start rebuilding your credit.
Maintaining the vehicle loan through bankruptcy. In this scenario, you keep the car and continue to pay according to the contract.
If you have an older car that is paid off, depending on its value, this is another scenario altogether. Depending on the value of the car, you can keep it, but you may have to have to pay a sum to do so. Since you will be bankrupt and perhaps considering buying another car in the coming years, you want to get your credit rebuilt quick. This may include taking out a secured loan against your used vehicle and then using that loan to obtain a secured credit card. You will then have 2 pieces of new credit reporting to your credit report. Then, when you go to buy a new car in the future, even with the bankruptcy on your credit report, you will have more financial options and at that time can trade in your used car.
Bankruptcy doesn’t mean you automatically lose your car. In fact, in most cases you can keep it. The end decision should take in all of the relevant factors. Just be sure that, whatever you chose to do, a strategy to rebuild is developed too.
At Prudent Financial, we can help you better prepare for the years after filing for bankruptcy, including getting you settled with a car you can easily afford.
Call us today at 1-888-852-7647.