The Different Types of Bankruptcy

Bankruptcy comes in many flavors. Ten or so years ago filing for bankruptcy could erase ALL your debt in one final swoop. Things have changed, the clean slate technique is no longer possible and you will have to pay your creditors a percentage of your debt. There are six types of bankruptcy, and although the details of each vary from state to state the basics are easy to understand. As far as personal bankruptcy goes Chapter 7 and Chapter 13 are the most common.

Chapter 7
This type of claim is also known as a straight bankruptcy. Here the debtor liquidates all non-exempt properties to a trustee who then sells it. The money received is then distributed to the creditors based on the percentage of the debtors overall outstanding balance owed. In many cases, people just don’t have a lot of assets to be sold and are given a clean slate without losing too much.

Chapter 13
Also know as a reorganization bankruptcy, a person filing a Chapter 13 bankruptcy agrees to pay off all their debts in three to five years. This solution is usually chosen by people who have non-exempt assets that they do not want liquidated such as a home. To be eligible for this type of claim the debtor must have a steady and predictable income that is substantial enough to cover their normal living expenses as well as continue making payments towards their debt. With the terms of repayment extended to a period of three to five years, the repayment process becomes a bit easier and enable the debtor to “catch up” on previously missed payments.

Bouncing Back From Bankruptcy

After filing for bankruptcy many people look for ways to regain their credit worthiness. Even though a Chapter 7 or Chapter 13 grants a debtor a fresh start, their financial history is recorded on their credit report and acts as a negative signal to new potential lenders. However life continues, kids need to go to college, homes are needed, and a car is an absolute necessity for people to get to their job regardless of their financial standing. So what is a person to do when their financial history is detrimental to their making any new positive progress? This is where the bankruptcy loan comes into play.

Bankruptcy loans are bad credit or sub-prime loans created specifically for those who are in this exact situation. Like any bad credit loan you should expect higher interest rates and possibly added fees due to your high risk factor. Also, as with any other type of loan, rates and terms will vary depending on the lender. If you plan on applying for and taking out one of these loans be sure to research as many lenders as possible, compare the rates and terms, and choose accordingly. In other words, shop around.

Restoring Your Credit Worthiness

One of the less common ways to use this type of loan is not for a mortgage or a car or for college tuition, rather it is used for no other reason than to pay it back on time. Doing this will improve your credit score so that when the time comes and you do need the money, your rates and terms will be less aggressive and more manageable.

One tactic is to get one of these loans for the sole purpose of paying it back on time in order to increase your credit score and credit worthiness. Once the money is in hand it is used to invest in stocks, or in a high-yield money market, any type of investment vehicle that earns a return on investment. This way, the loan is paid back with as little pain as possible because the interest earned from the investment is used to cover any interest incurred by the loan.

In many cases bankruptcy is caused by financial neglect while in other cases the reasons may be due entirely to circumstances beyond control. Loss of employment, medical problems, or just plain old bad luck can get to any of us. Fortunately the law takes this into account and has provided ways to remedy this type of financial falling out. Rest assured, no matter how bad you may think your situation is, you are not alone. Laws are in place to help you through this difficult stage however, it is inevitably up to you to see the process through and make the effort to come out the same if not better than when you went in.

Refinancing your auto loan: When you’re unable to make your auto loan payments, you can go for a refinance. Refinancing implies replacing your existing auto loan with a new loan secured against the same car. By obtaining a loan that offers a low rate of interest or a longer loan term, you can considerably lower your monthly loan payments. You can also save on closing costs by refinancing with the lender from whom you have obtained the existing loan.

File chapter 13 bankruptcy: If you need debt help to repay your auto loan and thinking of filing bankruptcy, consult an attorney. When you file chapter 13 bankruptcy, the court may reduce the interest rate on your auto loan and this will in turn lower your monthly loan payments.

Selling your car: In most of the states, if you default on your auto loan payment, your lender has the right to repossess the car. The lender will auction the car to recover the outstanding debt amount. Repossession of your car will adversely affect your credit score. So, if you are unable to get debt help to repay your auto loan, consider selling it.
When you find a prospective buyer for your car, compare your outstanding loan balance with the sale price. If you have negative equity, calculate the deficient amount. To transfer the title, take the buyer to your lender and pay him the deficient amount along with the money you’ve obtained as sale price. In this way, you can get rid of your auto loan debt and also save your credit score from severe damage.

It is important to have a plan, especially if you have a bad credit history. Before you go to a dealer get a copy of your credit report and FICO score so that you know whats on it. Check for errors and if there are any, have them removed or corrected. This may take some time but it could mean the difference of getting the loan or being turned away.

There are auto loan companies and banks that offer bad credit car loans and will compete for your business. It is for this very reason that you need to be as prepared as possible. Bad credit leaves many individuals feeling hopeless in their ability to get quotes. Sometimes they’ll just fill out a loan application at the first dealer they visit. When they are shown one or two vehicles the dealer says they qualify for, they are so overjoyed that they actually pulled it off they go for it without even knowing the value of the car or the loan rate. A better scenario is you go to the dealer with a pre-approved auto loan quote and pick out the car you really want. This option is available to you. There are many auto lenders that specialize in helping people with a poor past credit history.

You really need to compare at least three or more auto loan quotes in order to get the lowest auto loan rate and monthly payments possible. This can be done online quite easily. Here you will find well known banks and reputable lenders that want your business and have bad credit auto loan applications that are simple and quick to fill out. You can complete these applications in minutes and get a response very quickly. There are no fees and you are under no obligation to take a loan quote. Once you decide on the quote you like, you can then go to the dealer and purchase a car as if you have cash.

With a small amount of research and a small amount of elbow grease you will have saved yourself a lot of money, possibly hundreds of dollars. More importantly, you will be approaching the dealer from a position of knowledge and strength as opposed to one of vulnerability and weakness. The fact that it is a car loan for people with bad credit makes no difference.

The first thing you should work on is knowing exactly what your credit score is. You’ve seen the nice, smiley guy on TV playing guitar advertising freecreditreport.com, well, its free so why not. There are many other online services that do this as well. However the best place to start is the source. You can get your actual credit report from one, or all of the credit reporting agencies for free as well. They are Equifax, Experian, and Trans Union. These reports may differ slightly because of their methods but you will find a very usefull list of all you past and present debts as well as your standing for each one. That is whether they are paid off, in default, or on going. Be prepared to see mistakes as well. It can be a long process involving lots of paper work to get these things cleared up but it is something you absolutely have to do. These reports, good or bad, follow you for the rest of your life so it is very important to be sure they are accurate. You may not need to get a mortgage or pay for your daughters wedding today but, those days come faster than you think. Take care of your credit reports now. Know your score and what it means.

OK, so you know your credit score and though it’s not so good you still need a car. Pay no attention to the TV commercials! What I mean is do not get attached to any type of car, especially a new one. Zero percent financing sounds great but do you really think a car dealer is going to give up it’s share of the profit. Many times zero percent financing just means that the profits will be made elsewhere, like warranties, or the downpayment, or in any one of the gazillion other details you will go through at lightning speed with the dealer. Keep an open mind and have a realistic idea of what you can afford to pay on a monthly basis. I can pretty much guarantee that on a Friday night you will not be content to sit at home to save the $50 you’d normally spend partying and be satisfied because you have a nice car. I suppose you could sit in the car and it might be a little better but thats not the point. Don’t sacrifice your life for a car.

Research dealerships. Find the one that advertises for bad credit auto loans the most. This is a the dealer that is set up the best for your kind of situation. Remember, each time a credit check is done a mark goes onto your report. This can be bad. By going to several dealerships and getting turned down OR turning down their offer you are accumulating inquiries on your credit report. Find the dealer that is most likely to approve your financing and start there and work with them.

Bad credit is an epidemic and is very anti-climatic to college graduation. Before heading out to the one dealer that carries that awesome car you saw on TV take a few precautions and save yourself a lot of trouble. Know your credit score and make the effort to search out the best auto loans for people with bad credit. Just remember to keep an open mind and get a car that suits your situation not your fantasy.

Even though banks are the most common place to secure an auto or home loan, it is not typical to find a credit union or banking institution that is willing to take the risk of financing an auto loan for people with bad credit. For these lenders that are willing to take a chance in financing a risky buyer, expect to walk in with a down payment of 20 to 50 percent depending on the severity of how bad the buyer’s credit really is. The interest rate will range anywhere from 7% to 22%, and in most cases the period of the loan, referred to as amortization, will generally range from 2 to 4 years. These shortened loans are due to the heightened risk, whereas a buyer with good credit could expect a loan at about 5% for up to 5 to 8 years. It is the price you pay for having spotty credit.

When dealing directly with the dealer, keep in mind they are generally working with a lender described above, just internally. Dealers have the ability to negotiate rates, as they make a profit in the financing department, for all of the loans they approve. So it may be in your best interest to deal with the lender directly so you do not have to haggle an interest rate. One thing to always research before accepting a loan is whether it is a simple interest loan or a compound interest loan. Loans which front-line their interest are not in the best interest of the buyer if they intend to pay off their vehicle early. You will realize you have paid all of the interest within the first half of the loan, meaning you ultimately will pay more then a loan that offers compounded, equally divided interest.

Aside from financing through large lenders, there are dealers who offer in house financing. These dealers do not contact third party financing and take on the risk themselves. It is more common for those who have recently went through bankruptcy or have a charge off or repossession on their credit to finance with this type of dealer. Though the interest rate will be high, and the loan periods low, you will more then likely find an in house auto dealer willing to finance you for specific vehicles.

Although you are not going to be approved for a Corvette or a Hummer, there are bad credit automobile loans available for a majority of borrowers. Do you research on your loan terms and make sure to make an educated decision before making a 2 to 4 year commitment.

Your FICO score is the ranking the credit bureau gives you. 800 is perfect, 600 is barely cutting it and anything below 500… forget about it, pay your bills on time and check back next year. To arrive at this score the credit bureau uses a complex algorithm to compute several pieces of information. One of these pieces of information is your debt-to-income ratio. This compares how much monthly income you have to how much debt you have. If you make $1000 a month but have to pay $500 to cover all your debts then you have a 50% debt to income ratio (DTI). Lenders like to see a 40% DTI on borrowers whose credit score is 600 or below. People with scores above 600 may be able to get approved with a 50% DTI.

Payment to income (PTI) is the monthly payment you will make on your loan in relation to your monthly income. 15% is the norm. In the case of bad credit auto loans, that is if your credit score is below 600 a lender will not want to see a PTI any higher than 15%. You may be able to negotiate your self into a 20% PTI loan but, do you really want to handle that kind of monthly payment?

Loan to value (LTV) is the relation of the amount of the loan you are applying for to the value of the car you want to get. Most lenders who deal with loans for people with bad credit will not want to give you an auto loan with a LTV higher than 140%. If your score is less than 600 your LTV really needs to be less than 125% which means you will need to put up a hefty down payment or negotiate a really good deal on the car you’re buying.

The down payment is simply how much cash you pay up front. The more of a down payment you make the lower you monthly bill will be. Simple as that. For a bad credit auto loan you will most likely be required to make a down payment of at least $1000.

Some of the other variables the lender will consider is how long you have been employed by your current employer, how many inquires have been made to your credit report, whether or not you have recently gone through a bankruptcy and how long it has been since your last car repossession to name a few.

If you have no credit it will always be more difficult to get an auto loan than if you had great credit. This doesn’t mean it is impossible. Knowing about auto loans for people with no credit and what lenders are looking for is your best defense. Your best offense is getting to know what your credit score actually is and to do whatever you can to repair any mistakes or out-dated entries.

Auto refinance loans are very similar to any other type of refinance loan. You just shop for a better interest rate and perhaps longer terms as well, apply, and if you qualify your loan balance is transferred to the new lending company. Lending companies want your business and they will usually go an extra yard or whatever else is necessary to get you to switch over to them. In many cases the reduction of your interest rate can be quite dramatic which makes it an overall smart move to make.

If bad credit is your problem this may actually benefit you in your quest for an auto loan refinance. If you started out with a subprime loan with it’s accompanying high interest rate but you have made steady payments, this will prove to a new lender that you are indeed worthy of a lower interest rate. You may choose to extend the terms of your refinance loan in order to lower your monthly payments as well, however, it may be a good idea to consider paying the same amount as before and be rid of the debt sooner.

The sooner you refinance the better. Most auto loans are structured so that more interest is paid off at the beginning of the loan period and tapering down as the loan approaches full payment. Therefore you should refinance as soon as possible in order to avoid paying more interest as opposed to paying off the principle.

Searching for a bad credit auto refinance lender is not a complex ordeal. You can find several in a few seconds by using the internet. Online applications are easy and verifications are not complex since your previous lender has already accumulated all this information and it will be transferred over along with your account details. And don’t feel bad about transferring away from the old loan, they will be more than happy to receive the balance due on your loan from the refinance company.

Before the internet you would have been limited to the dealers and lending institutions in your local environment while today, on the internet you can search the entire country in minutes. Also, the competition for your business forces all these companies to offer better and better deals, lower interest rates and easier acquisition policies in order for them to stay in business.

The advantages of shopping online for your auto loan:

Most of the steps of applying for and being verified for a loan are automated and are completed very quickly.

Comparing interest rates and loan terms is done very easily and from the comfort of your home.

Loans are available for any type of vehicle in any state, used or new, Maine or California.

If you have bad credit there are lenders who specialize in these types of loans. As a matter of fact there are hundreds of them from which you can pick and choose.

Many of the costs associated with brick and mortar lending institutions are waived. Due to the automation of such processes, application and processing fees do not exist.

The time it takes to go through the entire process is reduced to a few hours, usually less than 24.

Is it safe? Absolutely. Security on the internet is the result of many years and very smart people dedicated to ensuring the safety of these transactions. If the internet was not safe there is no way any bank or merchant would offer online services. In fact it is the opposite, all banks and merchants thrive from the internet and it is in their best interest to make absolutely sure that your information is safe.

Rest assured, searching for and applying for bad credit auto loans online is by far the most efficient way to go. Just do a search on Google for auto loans and you will find pages and pages of lenders whose livelihood depends on offering you a better deal than their competitors. It is safe and you may even have a little fun.

Secured loans are loans for those of us with bad credit. These loans require what is called collateral. Collateral is simply something of value that is placed under contract to be seized by the lender should the loan go into default. In other words, if you don’t pay back the loan, the lender gets your stuff.

Bad credit loans are not generally given by most banks due to the high risk involved in loaning money to people with poor credit histories. There are companies that specialize in bad credit loans and many of them extend secured loans. The internet is probably the best place to start searching but be very careful. I would suggest finding as many as ten online lenders then comparing the rates and terms of each in order to narrow your search down to just a couple. Search their company names for reviews, and plug their names into the Better Business Bureau to see what comes up. Once you have a few legitimate companies on your list, fill out whatever quick forms they might have or give them a call. Do not give up all your sensitive information such as social security number or bank account information just yet. Get a quote first. Also, if they ask you for money up front, run. Once you have a few quotes and have determined which company is the best one for you, go ahead and complete the application process. Another option would be to visit or call local banks or credit unions, just to see what is available. A lending institution with a physical address will make you feel a bit more secure than one with just a web address.

One thing you will want to take care of before you do any of the things mentioned above is to get your credit report and make sure it is up to date and error free. This can be time consuming. Once you are satisfied that your reports are correct you will have a realistic idea of what your score really is. The lower your score, the more interest you will pay and the more collateral you will need to secure the loan.

Discovering that you have bad credit is a drag but know that it does not have to stop you in your tracks. You can repair your credit and you can qualify for a bad credit secured loan. If you do this and if you succeed, your credit score will improve and the next loan you go for will not be such a headache.

Trying to rebuild financial stability with a poor credit score is like trying to build a house on a weak foundation. It is just not a good idea. This is where bad credit lenders become a great resource. Not only can they help you secure the funds you need to buy a house, build a business, or consolidate your debts, they can also provide a means to repair your credit score.

Finding a lender or bank that will deal with a poor credit score is not too hard. Although the larger, established banks might be more difficult as the risk is too great, you can find many smaller companies on the internet though you do have to be more cautious. While a poor credit score does present a greater level of risk to any lender, there are those who specialize in loans for people with bad credit scores. The added risk these companies take will translate to higher interest rates for you as well as strict terms and profound penalties should you miss a payment or default on the loan in some way.

The reasons why someone may have a low credit score vary and are not always due to financial neglect. The recent recession has put a lot of good people out of work, people with college degrees working for established, and credible companies. Medical problems combined with a lack of decent insurance can force a family into bankruptcy. Newly graduated college students entering a recessed market with zero credit and tens of thousands of dollars of school loans to repay. These are just a few examples but the list is quite extensive.

If your score is low because of neglect do not fret, get busy. Get you credit reports from the three national agencies and scrutinize them throughly. Take the time to weed out the errors. There are processes in place that you can follow to have erroneous entries removed. Make sure that all the entries are up to date. Bad credit lenders base their interest rate on your credit score so make sure all the good stuff is there too… if you have a credit card or a car loan that is paid off, make sure that it is listed in the reports as paid in full or in good standing. Get ALL your debts, credit cards, mortgage payments and whatever else you have outstanding paid up to date and make sure they are listed as such. This may take a while but if it brings your score up a few points, it could save you hundreds of dollars in interest. Also, curb your spending for three to six months before applying for a bad credit loan. Remember, as someone with a low credit score, you are a high risk to any lender and as such you and your accounts will be under scrutiny as well.

If you find yourself in a position where you are in need of financial assistance but do not have a credit score worthy of a typical, personal loan, take a deep look into your finances, improve what can be improved, then consider asking your bank if they offer bad credit loans. Try searching for bad credit lenders online as well. Do some shopping around for a good rate and be sure the lenders you are talking to are legitimate businesses. You may even want to research their company name just in case.

Keep in mind that you are not alone and even though it may take time and effort to get through the process from start to finish, in the long run it is well worth it.