Can Your Credit Score Recover From Declaring Bankruptcy?

Posted by on May 21, 2019 @01:58:34 EDT

Your credit score is the one number you simply can’t get away from as you try to build a life for yourself. Necessary for everything from becoming a homeowner to financing your first car, that three-digit figure is going to underpin every serious step you take. What happens, though, if you’ve declared bankruptcy? Will your credit score recover? Are you going to be able to find workable options for a bad credit car loan?

These questions, and more, stare hundreds of us in the face every single year—and still the subject remains somewhat unclear, and myths about the subject abound everywhere you look. Discussing bankruptcy, and the resultant impact on your credit score, is almost considered taboo in polite society. These things should be seen and not heard, we imply to one another—never mind that it might well happen to any of us, at any time. Bankruptcy can come crashing down onto anybody’s head in a number of different guises. Unforeseen (aren’t they all?) natural disasters can trigger massive collapses in a stock previously considered unshakeable. Medical bills can soar, piling up and up to account for an accident which was no fault of our own.

In the following article, the subject of how exactly your credit can recover from declaring bankruptcy is going to be demystified, once and for all. We’ll start from the ground up, explaining briefly what credit itself is. Next we’ll discuss how bankruptcy can affect it. Finally, we’ll explore some of the best options for helping your score recover, after bankruptcy, all the time keeping in mind the crucial concept of whether bad credit car loans are possible, viable, or even something you should feel confident about tackling.

 Financial calculations with a pen, calculator, and sample budget.

Bankruptcy: What It Is And What It Isn’t

Bankruptcy, at its most basic, is a specially allowed-for legal procedure anybody can make use of to either re-evaluate the structure of your debt, or even eliminate it completely. While it can be helpful as a means to deal with overwhelming financial commitments—and in some cases is even necessary to go on living a reasonable, human life—it’s going to negatively impact your credit score. There’s no point sugar-coating it. While you can recover, the bankruptcy itself (as a matter of public record) typically remains on your credit report for up to a decade after you initially file.

A common misconception is that bankruptcy eliminates all of your debt obligations from your score altogether. This isn’t the case—even though you technically owe nothing, it’s still listed, and as such banks or other lenders will in all likelihood see what kind of situation you’re in, and may deny your application on this basis alone. The good news is that although they’re recorded, the obligations aren’t reported as unpaid: a small but crucial semantic difference, and the cornerstone on which the entire concept of declaring bankruptcy rests.

How To Rehabilitate Your Credit Score

The most important thing to keep in mind is that recovering your credit score from bankruptcy is a time consuming process. There are no quick fixes, which mirrors the fact that the obligations which required you to file for bankruptcy in the first place didn’t happen overnight. You must treat this as a long-term goal which you’ll progress towards in small, incremental steps.

Step One: Re-Think Your Thinking

A good way to frame your thinking for embarking on this journey is to develop an inclination towards behaving responsibly, above all else. You may well need to re-design your entire lifestyle in order to ensure you’re going to be able to live within your means. Pride is one of the most fundamentally human emotions in our entire spectrum, and left unchecked it could turn out to be your downfall.

Step Two: Make A List.

Start from scratch by creating a thorough list of all the debts included in your bankruptcy. Write down when and how each debt began, and create a rough financial timeline in chronological order. Crosscheck this list with the credit reports you receive. Any errors should be immediately reported to the company in question, while negative marks on the report should be dealt with as soon as they appear. Don’t worry if the debts aren’t immediately described as ‘Discharged,’ or ‘Included in bankruptcy filing.’ The accounts can take up to two months to be updated.

A man meditating in nature.

Step Three: Remain Calm

Recovering your credit score from bankruptcy filing can seem overwhelming. After all, it’s not just a few numbers on a page—it’s your entire life. There is light at the end of the tunnel, however. If you focus on the steps above and remember to keep moving forward, no matter how gradually, your credit score could well end up being higher than it was before you had to file.

Cars And Bad Credit

Now, all of this is good to know, and should provide some comfort in the unfortunate instance that you need to file for bankruptcy. If you could live in some sort of isolation chamber where all you have to do is keep checking your credit reports, recovering would be a breeze—a slow-blowing breeze, granted, but a breeze nonetheless.

Here’s the rub, though. You can’t. And the single biggest thing preventing you from that stress-free (if tedious) existence is the humble automobile.

Although we might all wish from time to time that we lived in a world where a car isn’t necessary, that simply isn’t a reality for a large chunk of the world’s population these days. If you live anywhere except a large city with excellent public transport, the fact of the matter is you’re going to need a car, for everything from buying food to traveling to a job interview.

Cars cost money, is the thing. Lots of money. Even the cheapest models are most likely going to require a financing schedule, given that it’s going to be difficult to save up enough cash to pay for one upfront. While you’re in the process of nursing your credit score back to perfect health, this isn’t going to be as straightforward as it might’ve been pre-bankruptcy filing. So what are your options when it comes to securing a bad credit car loan?

Securing Bad Credit Car Loans

As with our advice above, so too comes our advice below: the ability to stay calm and consider your options is of absolutely critical importance at this trying period in your life. There are going to be lenders who’ll see the bankruptcy filing on your report and flat-out deny you a loan. The process of finding a group to help you organise financing for a bad credit car loan is going to be difficult, but there’s plenty of reason to remain hopeful.

If your credit score is below 660—as it almost certainly will be after filing for bankruptcy—most lenders will consider you a subprime buyer. This means that you won’t be offered the kind of interest rates you may have become accustomed to. Even the most reputable lenders are likely to behave this way: it’s part of the game and you shouldn’t take it personally.

What’s not quite so pleasant when it comes to trying to secure a bad credit car loan is the fact that some predatory lenders will often use your own fear against you. Knowing full well that you’re worried about whether you’ll be able to get any kind of loan at all, they’ll charge the highest interest rate they can. What’s more, they might well try to hoodwink you into a long-term plan that charges less per month, but winds up costing a lot more than another deal you might be able to arrange.

A good thing to keep in mind when you’re trying to figure out a bad credit car loan is that these unscrupulous people aren’t your friends. Unlike more reputable lenders, they know you’re in a vulnerable position and have no trouble exploiting that information to wring you dry. But the fact that you have a bad credit score doesn’t mean everything’s hopeless. We’re going to present a few tips to keep in mind as you work towards a bad credit car loan to help you avoid the pitfalls some of these companies are dying for you to fall into.

A man handing over the keys to a new car.

Autoloans.ca’s Top Tips For Making It Happen

Tip One: Budget

Sit down with a calculator and work out what might be a suitable total amount to pay for a bad credit car loan based on your situation. Decide how much you can afford to spend per month. You can typically expect 13-15% / 60 months for a new model and 15-18% / 48 months for a used car, so use that rough guide to work out how much the total cash amount of the bad credit car loan you can afford is. The 20/4/10 rule  is another good way to go about it.

Tip Two: Draw Up A List

Knowing how much of a total loan you can probably afford, browse the web for models that fit your needs and budget. You could check out the local dealerships too, but the Internet is usually a safer bet for unbiased information—after all, websites can’t think for themselves and therefore aren’t trying to sell you anything. This is an important step: any list, no matter how hesitant or rough, is better than no list when it comes to eventually applying for a bad credit car loan.

Tip Three: Window-Shop For Your Best Option

With your list of car models in hand, try asking about a bad credit car loan at a few different places, just to get a feel for the price spectrum you’re working with. Having some specific cars in mind (even if you’re not yet decided on which you’re going to buy) will help offset some of the damage done by the bankruptcy records to your image as a reliable buyer. Without committing anywhere, do your best to research what your eventual bad credit car loan is going to look like. Keep in mind that Autoloans.ca accept applications from everybody who submits one. The more information you can gather, the better your chances will be.

Tip Four: Trust Your Instincts

Shopping around for price tags of various bad credit car loans is also a great opportunity to get a feel for the company itself. First impressions are a crucial aspect of human relationships, and even if it’s not a human you’re dealing with but a website, trusting your gut (once you’ve backed it up with the requisite research and figures) is always going to stand in your favour. While lenders who specialize in subprime loans are often best avoided, the decision about where to secure your bad credit car loan is ultimately yours.

The Final Word

As is hopefully apparent at this point, filing for bankruptcy is a formidable obstacle to erect in front a healthy credit score, but it is by no means insurmountable. The myriad options out there for securing bad credit car loans mean there’s no reason to lose hope—there are plenty of ways to snag yourself the pair of wheels you’ll need to get your finances back up and running.

The single most important thing is to remain calm, as best you can, and consider these matters with a cool detachment. Which is easier said than done, of course; but your search for a viable bad credit car loan is only going to be held back if pride or despair seep in to your financial thought processes.

Autoloans.ca provide car loans for people in all kinds of scenarios, including those struggling with their credit score. Call us today and find out how we can help improve your particular situation.

 

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