Thomas F. Miles, Attorney and Counselor at Law
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It is possible to purchase a new car after Chapter 7

For many in California, financial struggles have left little choice but to seek bankruptcy protection. However, the decision to file is never an easy one, and many people fear that completing a Chapter 7 bankruptcy will mean that they will have no access to new lines of credit for many years to come. In reality, however, there are plenty of credit opportunities for consumers who have gone through bankruptcy, including car loans.

In order to find a loan for a new vehicle, it is important to know one's credit score. While it is true that bankruptcy will bring an initial drop in credit scores, the damage can be overcome in time. In addition, many people find that there are errors present in their credit reports, and clearing up those matters can help bring up the overall score. For consumers who reaffirmed their existing car loan within the bankruptcy, that account should still be listed as current within all three credit reports.

Before applying for a car loan, it is also helpful to save up for a down payment. Having the ability to put a significant amount of money down when buying a new vehicle shows the lender that the buyer is serious about the purchase, and has taken steps to improve his or her financial standing. There is less risk to the lender, which makes an application easier to approve.

It is also a good idea to shop around when looking for a new car loan. Beware of predatory loans that have hidden costs built in, and look for loans with low interest rates. When applying for loans, make an effort to apply for multiple options on the same day, which can limit the damage that multiple inquiries can do to one's credit report.

Buying a new vehicle after moving through Chapter 7 bankruptcy is a great way to begin rebuilding a solid credit score. In fact, a study done by Equifax suggests that among consumers with very low credit scores, those who took out an auto loan within three years of bankruptcy experienced a median credit score improvement of 52 points, while those who did not saw their scores rise 32 points in the same period of time. For those in California who fear that bankruptcy will eliminate their ability to purchase a new vehicle, this news may help them make the decision to file sooner, rather than later.

Source: CBS News, "How to get a car loan after bankruptcy", Gerri Detweiler, March 30, 2015

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