Filing bankruptcy can be stressful, especially if you worry about losing your car in the process. We’ll take advantage of the many available exemptions to protect your property, and what happens to your car will depend on whether you’re filing a Chapter 7  or a Chapter 13. Most people are able to keep their vehicle when they file bankruptcy, but it’s good to be prepared with what to expect if your car is taken as part of your case. If you’re faced with a car purchase after your case is resolved, there are a few things you should be prepared for.

Considerations

Having a car is a must for many of us to get to work or school, but I advise my clients not to get into a car loan unless they absolutely have to. Public transportation may be a good idea for a while, but if this isn’t an option in your city or for your particular line of work, you’ll need to get your own transportation. See if you can borrow a car or get rides with people while you save up for your own vehicle. And when it comes time to purchase a car, shop wisely and think practically. You may be able to save up enough to buy a car with cash!

About 2/3 of people who purchase automobiles do so using loans. If you do need to finance a car, be prepared to make a large down payment, and if your credit score is lower than 600, you’ll need to work with a “subprime lender.” About 22% of auto loans are considered subprime, and the delinquency rate on these types of loans is about 10%. Depending on your overall situation and your lender, you could be facing an interest rate that is double what someone with an excellent credit score would pay.

Before authorizing your loan, the lender will need to determine if your bad credit is habitual or situational. Habitual bad credit would be if you have a long history of late or missed payments, loan defaults, or accounts in collections. In these cases, a lender may require you to have a cosigner or you may need to use a “buy here, pay here” lender. This is when the car dealership loans you the money directly, and there are usually very high interest rates associated. Situational bad credit is due to a divorce, medical emergency, job loss, or other unexpected life event. If you had a great credit score and history of timely payments prior to this event, you’ll qualify for a lower interest rate and may need a smaller down payment.

Think Before You Act

No matter what kind of loan you end up dealing with, be sure that you can truly afford the payment before taking out the loan. Take an honest look at your budget, allowing room to save for an emergency fund and for other unexpected expenses. Be thrifty when you shop for a car by considering buying a used, lease return, or former rental car rather than a brand new automobile. Do your research and only work with reputable dealerships and lenders. The last thing you want is to get into debt over your head again.