Auto Loans After Bankruptcy

Bankruptcy is defined as the state of an individual where he/she cannot repay the debts incurred. The American law lays down many ways to file for bankruptcy, namely Chapter 7, Chapter 11 and Chapter 13. Chapter 7 Bankruptcy is the most common form of bankruptcy filing. This is also known as straight bankruptcy or liquidation. In this form of Bankruptcy filing, the debtor appoints a trustee who sells his assets to pay of his debts and the debtor is thus discharged of his debts (Chapter 7 bankruptcy, 2004). According to the law, anyone can file for Chapter 7 Bankruptcy.

It is seen that in case of partnerships or corporation, the individuals associated are immediately discharged from their debts but the corporation or partnership still reels under debt till the limitation period is completed. It is pertinent to note that as this form of bankruptcy entails selling of non exempt assets, businesses might not opt for it. Individuals can file this form of bankruptcy and have the facility of certain assets being exempt from liquidation and are discharged from all debts except debts like child support, fines, taxes etc. (“Chapter 7 bankruptcy”, 2007)

This vast scope of the Chapter 7 bankruptcy has led to it being abused. In order to control the abusive filing of Chapter 7 bankruptcy, legislation proposed certain changes. One of the main changes proposed is that anyone spending more than the allowable limits as ascertained by IRS cannot qualify for filing Chapter 7 bankruptcy. Secondly, unless a person is a resident of a particular State for at least two consecutive years, he/ she cannot file for bankruptcy from that State.

In order to ensure that proper use of loans is made, the law has also suggested financial counseling together with payment to be made in full in case of buying expensive items or receiving cash loan within 60 days of filing for Bankruptcy. Also more kinds of debts are included in the list of non dischargeable debts so as to ensure that the provision for filing bankruptcy is not misused (Chapter 7 bankruptcy Laws, n.d.).

Reasons for filling bankruptcy are numerous, the main one being that an individual wants to start of on a clean slate wiping of all his old debts. The second reason is that people who are on the verge of having their home foreclosed will file for bankruptcy to give them the chance to repay their loan in installments, so also to have their car from being taken away by the auto loan company. Another reason for filing for bankruptcy is when a person’s medical bill is very big and the person cannot afford to pay the same. In such cases, filing for bankruptcy may actually reduce or cancel the entire debt. One of the main reasons is also loss of employment, where the person has lost his source of income, and then he files for bankruptcy (Tim, 2005).

In some cases, it is seen that a person has taken more loans then he can manage at a given time and is constantly harassed by his creditors. In order to stop being harassed by such creditors, people file for bankruptcy so also to challenge the false claims of fraudulent creditors. Filling for bankruptcy also ensures that you get help to repay your educational loan and also to ensure that your essential services are not discontinued and also helps you purchase absolutely essential commodities that one cannot buy otherwise (Bankruptcy, 2004).

The common thought is that once a person files for bankruptcy then he will not be granted a loan immediately nor can he request for a credit card. However, in today’s world this is not the case as most institutions are ready to grant loan or disburse credit cards to persons filing for bankruptcy. These institutions feel that the individual has left his/her old debt behind and has started afresh and can thus be given new loan even though the bankruptcy will stay in his/ her credit note for a period of ten years.

The creditors deal with the bankruptcy information by increasing the rate of interest payable but still lend the money or give them the credit card.  A few creditors might hesitate but their opinion changes once they see that the individual is diligent in repayment. Thus once the repayment schedule is followed properly and without a hitch then the other credit card companies or organizations giving loan will come forward and offer at the same rate of interest as before filing for bankruptcy. It is seen that an auto loan is the best way to rebuild one’s credit in the market (Reeder, 2005).

In case of credit cards, along with increase in rate of interest one might see a decrease in the credit limit available but this again is temporary till the individual’s credibility is restored. Also credit card companies have started issuing secure credit cards to ensure that the credit availed by the person can be repaid.

References

Reeder, C., (2005). Auto Loans After Bankruptcy – How Does a Bankruptcy Affect Your Approval? Ezine @rticles. Retrieved February 14, 2007 from http://EzineArticles.com/?expert=Carrie_Reeder

5 things you can do after bankruptcy. (n.d.). Financeguide 101. Retrieved February 14, 2007 from http://www.financeguide101.com/finance-reports/5-things-you-can-do-after-bankruptcy.html

Chapter 7 Bankruptcy Laws (n.d.). Christianet. Retrieved February 14, 2007 from http://www.christianet.com/bankruptcy/chapter7bankruptcylaws.htm

Chapter 7, Title 11, United States Code. (2007, January 27). In Wikipedia, The Free Encyclopedia. Retrieved 04:42, February 17, 2007, from http://en.wikipedia.org/w/index.php?title=Chapter_7%2C_Title_11%2C_United_States_Code&oldid=103679361

Tim, S. (2005). Top ten reasons people file for Bankruptcy. Ezine @rticles. Retrieved February 14, 2007 from http://ezinearticles.com/?Top-Ten-Reasons-People-File-for-Bankruptcy&id=15274