What you need to know before buying a car on credit after a bankruptcy, or after bad credit?
They love to say, they will sell you a car with bad credit, of course they will, at 25%, I might sell you my own car.
After a bankruptcy one of the easiest things to do is to buy a new car, or at least a newer car. A new to you car. It sounds too good to be true but oddly enough, it’s not.
If you filed a chapter 7 bankruptcy, the more common type, then your new car creditor knows that you can’t file again for eight (8) more years from one file date to the next. So, they know that you can’t file again, and if you can’t file again, I’d sell you a car too. If you default on the new car loan (for the new car to you which is probably an older car) then we can sue you for another however many of those eight (8) years are left. Then I can garnish your wages, levy your bank account, and record a judgment lien on your house. Creditors love doing all of those things. Especially car creditors, car creditors love to be the first one to sue you. One attorney who represents car lenders told me that if “we’re the first one to sue, maybe the debtor puts up with one wage garnishment, ignores one judgment lien on the ol’ homestead. However, when the second judgment comes along, they call you. ” In fact I might as well mention, if you need a bankruptcy attorney in Southern California, give me a call, 951-200-3613
If you do have to buy a car, and sometimes you must, then your interest rates will be absolute murder. Don’t do it. If you can avoid it, avoid it. However, with a little effort and just a little time, maybe only a couple of months, you can repair your credit enough to buy a car with a decent-ish interest rate.
If you do nothing, and you wait long enough, your credit will be rehabilitated on its own rather like a cut on your finger will get better even if you just do nothing. Keep working in your garden or garage where it’s filthy without washing it, without a bandage, in the filth and dust and dirt and your finger will get infected and in spite of that in the long run, it eventually gets better anyway.
But if you clean it, put some Neosporin or a salve on it and bandage it, and keep it clean, then it gets better a lot faster. And what’s wrong with faster? Nothing of course.
But you just had a bankruptcy, what can you possibly do to repair your credit after a bankruptcy? Bankruptcy is the Credit-Reaper.
There are a few things.
Be sure of course, that whatever credit you still have, whatever debts you still have to pay after your bankruptcy, be sure that credit stays in good condition during the months and years after the bankruptcy is over. Don’t get into any new debt that you cannot handle, if you have reaffirmed any debts from the bankruptcy, make sure that you stay current on those and everything else including your utilities. Utilities won’t report your good payment history but they’ll definitely report your bad payment history if things go wrong.
Good credit is a combination of not too many bad things on your credit reports compared to the good things on your credit reports. Great credit is few or no bad things compared to lots of good things.
You can increase or improve your credit rating by removing bad things and adding good things to your credit reports. One of the easiest things to do to add good credit to your credit score is to buy a car, but you don’t want to do it until you’ve already improved your scores.
Check your credit after your bankruptcy is over. It’s almost a certainty that not all of the accounts included in your bankruptcy discharge are listed in your credit reports as “an account included in bankruptcy” or “bankruptcy” or “bankruptcy discharge”.
Go to AnnualCreditReport.com and check. If even one, just one of the dischargeable accounts that existed prior to your bankruptcy is not listed as included in your bankruptcy, then that account is dragging your score down. You can correct that with the appropriate letters to the creditor or to the credit reporting agencies directly. Prove that they have you listed wrong in your credit reports and they will have to fix it.
Where you do sometimes run into some fun, and by fun I mean it like Michael Jackson did in the 80s when he referred to good things as Bad: What if the account which is bringing down your score is also an account which for some reason was not listed in your bankruptcy in the first place, also called an unlisted or omitted account. Now what do you do?
Unlisted or Omitted Accounts are considered not discharged by the bankruptcy code unless two (2) things didn’t happen. See 11 USC 523 (a) (3). However, you can see from that code section that an omitted debt is nevertheless discharged if those two things didn’t happen. Here’s a hint, there is a case called In Re Beezley in which the Ninth (9th) Circuit Court held that the code section really does mean what it says that it means.
The first thing that had to NOT happen was, 1st) Did the Trustee on your case figure out that you may have assets which means that he would set a deadline called a claims bar date for creditors to turn in a proof of claim? When a trustee finds that you have assets, it’s called an asset case, and if no assets, then it is a no-asset case. In a no-asset case, the Trustee files a report with the court called a No-Asset Report. In the bankruptcy court’s court docket it will probably be listed as a Chapter 7 Trustee’s Report of No Distribution. If the Trustee did impound assets and distribute to creditors and the one you now have found was never listed, then you still owe that creditor his money because under 11 USC 523 (a) (3) it was not included in your discharge.
The second thing that has to NOT happen is 2nd) Even in a no-asset case, did you commit Fraud, Embezzlement or Malicious Injury to Person or Property against that creditor. Then if you committed any of those but you left this debt out of the bankruptcy, then the creditor was never barred from filing a non-dischargeability action against you in the bankruptcy court like would normally happen at discharge time because they never knew that a bankruptcy had been filed. Phew long sentence. Basically, at the beginning of the bankruptcy a temporary restraining order prohibits any collection efforts or lawsuits against you, except for suits in the bankruptcy itself for fraud, embezzlement or malicious injury to person or property. At the end of the case, the discharge order is a permanent injunction prohibiting collections and lawsuits against you even in the bankruptcy court for those same types of actions. A discharge does allow secured creditors to collect cars and houses if you stop paying for them.
If the omitted creditor had been listed in the bankruptcy petition and received a notice of your bankruptcy, and nevertheless, didn’t file that lawsuit in the bankruptcy, then at the end of the case, they would have been included in the discharge. How’s that for irony. Most of them won’t bother once they see how low your income is, how few assets you actually have and they might think that suing you in the bankruptcy court to prove you are a fraudster is throwing good money after bad. But if you left them out of the bankruptcy then, therefore, they can now sue you if they want to. But they would still have to sue you to prove that you did the fraud, embezzlement or malicious injury, that’s not going to be an automatic.
If you’ve just had a bankruptcy and afterwards, if you have no debts, start by going to your bank with a little money, say $300 to $500 or $1000 and ask for a secured credit card. It may take a while to save up, but go ahead and do it. Using it sparingly and then paying it down or off quickly will help your credit scores immensely.
If you can afford to, get two of them, from different banks. Two accounts is much better on your credit reports than only one. However, unless it’s an emergency, don’t buy something unless you have already saved up the money for it first. Here’s a hint: Most things you think are emergencies are not.
In other words: Don’t Buy Stuff You Cannot Afford.
Once you’ve purchased something with your new card, you can pay it off over two or three months that way, because you already have the money saved. Do this and it will improve your credit scores.
Meanwhile, a couple or a few months after the bankruptcy discharge, go to Annual Credit Report and download your credit reports to see what is on them. If there is anything that was included in the bankruptcy that is not showing as “an account included in bankruptcy,” or “bankruptcy” or something like that, then you can ask the credit reports and even the creditor to correct the situation.
If a creditor was left out of your bankruptcy but it pre-dates your bankruptcy, then you can ask them to fix it too by sending a letter explaining the in Re Beezley ruling and that it applies to that creditor.
For specific forms and language to put into those letters, to go The Attorney’s Guide to Credit Repair for easy, fast, guaranteed Credit Repair advice.
Once you’ve taken the opportunity to clean your credit first, then you can buy a newer car than you would have been able to, and with a more favorable interest rate than you would have been offered. That means that you can buy a better car, a safer car and more a more reliable car.