Even though you are suffering from serious financial hardship, you may feel that you still need to purchase a car. After all, your financial situation will be even worse if you are not able to drive to and from work. However, it may actually be a good idea to purchase a car if you are filing for bankruptcy, especially beforehand.
Financing A Car May Be Difficult After Bankruptcy
If you file for bankruptcy, you will have a much more difficult time getting a car loan with an attractive interest rate. Therefore, you will want to purchase a car when you can still take advantage of a better credit score. The only upside of purchasing a car after filing for bankruptcy is that you will have discharged your debt and will have a much lower debt-to-income ratio.
Car Payments Will Rebuild Your Credit
Purchasing a car before bankruptcy will provide you with a tool you can use to reestablish your credit. By making regular car payments on time, you will then be able to demonstrate that you can reliably pay bills on time. This will raise your credit score more quickly than anything else.
Your Car Might Be Exempt
All states have a series of bankruptcy exceptions. Most states allow for motorists to protect a certain amount of equity in their cars. Since you will usually not be able to exempt money that is in your bank account, it is better to use that money to purchase a car. However, the courts will usually try to determine whether your purchase is reasonable. This is based on the condition of your car, how old your car is and how necessary it is that you have a reliable car. For example, if you own an old, unreliable car and need a ride to get to work, your car may be exempt from bankruptcy proceedings. Ideally, you will want to purchase a used car at a great price to show that you are not simply trying to spend the money in your bank account to prevent it from being used to pay off creditors.
Finance Rather Than Pay In Full
One of the best ways to avoid losing your car is to have it financed rather than purchasing it in full. Financing it will raise fewer red flags to the trustee and will make your car a secured form of debt, which means that it will be protected from Chapter 7 bankruptcy.
To learn more, contact a used car dealership like Texas Automotive Performance.Share