Readers Success Story: Auto Loan After Bankruptcy
Over the weekend, I got this email from Randi, who thanked us for providing information on this site which helped her. After getting through chapter 7 bankruptcy, she has managed to get an auto loan, correct numerous errors on her credit report and improved her credit score. It is emails like that which really makes the effort we put into this site worthwhile. After reading her email, I asked her to write her story for us to publish. I figured that all of us could learn from Randi’s experience. As a guide, I asked a few questions and asked her to include answers to them in her post. She then actually proceeded to answer them (so this looks more like an interview – Q&A style). Below is the email she sent me followed by her story in her own words (totally uncensored).
Back in February I had posted about needing to obtain a new car loan after a bankruptcy discharge (but had reaffirmed our 2 car loans and mortgage) and the debate between having a co-signor or doing it on our own. I am happy to say that we did wait a couple of months and fixed all the errors on our credit reports and were able to qualify for a decent rate car loan from GMAC for a newer used car. I am grateful for the information we obtained from this blog and it was instrumental in our trying to get the loan on our own. Yes, it probably is at a higher interest rate than we would have gotten if my dad with his excellent credit has co-signed but in the long run, I do believe it will save us money because it will continue to improve our credit post bankruptcy and will make it easier in the future for us to get a loan on our own with better rates.
Thanks again for your wonderful information.
Randi Fechter
These were some of the things that I wanted Randi to share with us and this is her story. Read on to find out
Mr Credit Card : How did you get into bankruptcy (or why)? And which one 7 or 13?
Randi: We got into bankruptcy as a result of several things all combined. The first was having a few months of huge COBRA insurance payments when my husband changed jobs in Spring 2005. Because our younger son and I have asthma and I was in physical therapy for a shoulder injury, we needed to be sure to continue insurance without a gap in order to avoid pre-existing condition restrictions. We did not have any money saved to pay the $1000 per month charge. Up to this point we were living paycheck to paycheck but were able to make a little more than the minimum payments on the credit cards which were not even close to being maxed out. We had stopped using all of them about a year prior to this. Before the cobra payments we always paid everything on time. We would use tax return money and holiday bonus money to get caught up with bills or even send additional money to pay towards the balances due. I am not sure what our credit score was at this time since we had not tried to purchase a vehicle or refinance our home or even obtain new credit cards but figure it could not have been too bad since we were always getting preapproved credit letters.
In addition to the COBRA payments, in late fall of 2005, the Federal Government changed the way the banks had to calculate the minimum payments which then caused our minimum payments to almost double and was just more than we could afford. So, I had to start paying this card this month and that card the next. We continued on this way for a year or more. Eventually it got to the point when I just could not keep up. I repeatedly contacted the credit card companies and tried to work out something with them but they would not work with us. We continued to send them as much as we could but since it was not the minimum amount due, we had late fees assessed every month, credit limits significantly reduced and our interest rates skyrocketed. All three of these resulted in us maxing out our credit limits on each card and caused over-the-limit fees in additional to everything else. Every month or so, I would answer the phone and speak with the collection department in hopes they would work with us to stop the extra fees so that we could get caught up. For some reason we did not qualify for hardship and they would not reduce rates, wave late fees or anything else. They just wanted what we owed them. I would end up in tears and got nowhere with them. I had them tell me to stop stealing from them, that they might sue me for my house or garnish my wages to pay what I owe them or even that my husband and I should get second and third jobs in order to honor our commitment to them. I have since learned that what they did was illegal and I wished I had known then they were not allowed to threaten me that way. We continued to make enough money to pay utilities, mortgage, car payments and purchase food as well as continue to send as much as we could to each credit card company. Our tax return refunds had shrunk and the bonus money became less as the economy started its gradual decline which made it harder to keep up.
This all came to a head in the Fall of 2008 when I just could not take the threats and constant phone calls and no luck working out anything to get caught up. We started getting the threats of “your account is going to charge off and we will report it to the credit bureau”. Unfortunately we still could not pay them what they wanted and they would not work with us so the threat was pointless. One of the cards did charge off and the collection company that purchased the debt, sued us. The others were threatening the same thing. We had 8 credit cards with close to $50,000 in debt – a good 1/2 of that from interest rates, late fees and over the limit fees. The collection agencies would not work with us either to accept the amount we could afford to pay them. I was willing to send them financial statements showing what we earned and what we had after paying basic living expenses. They were not interested.
When we received the first summons in the mail, we decided to consider bankruptcy. We consulted a lawyer and decided that Chapter 7 was the best solution for us. Our attorney even advised us to see if we could secure new cars so that we could include the older cars and their respective loans in the bankruptcy rather than reaffirm them. Either way, we needed to have cars. We did not want to junkers to tide us over so we planned to reaffirm the loans if we were not able to purchase new ones. This was early October. We tried to get a loan to replace one of the cars – The car we were looking to replace all this time was a 2001 Grand Caravan with over 100,000 miles. Due to some poor financial advice we had financed the balance of the lease on the van a few years back which resulted in the loan being for more than the value of the van which did not help our situation. Our credit scores were in the high 400’s/low 500’s and were having a hard time getting a loan for a monthly amount that we would be able to maintain after the bankruptcy so we decided to reaffirm the loans and keep our cars. Since the equity in our house was not excessive, and the mortgage payments were ALWAYS on time, we were able to keep the house. NJ does not reaffirm real property so that was not reaffirmed and therefore included in the bankruptcy but since we continue to pay on time each month, we keep the house. I am still learning about the impact this will have on our credit. We are planning to look into a refinance but want to continue to improve our credit before doing that since our interest rate right now is lower than what they are giving to people with fair credit and what we would probably qualify for at this point would be significantly more than that. I don’t want to pay more in my refinance than I am now.
Mr Credit Card: How did you rebuild your credit after BK? credit cards etc?
Randi: Thanks to the information I have obtained through this blog, I accessed all three credit reports just as the bankruptcy was discharging in February 2009. At this time, our credit scores were 425-475. I started to challenge/dispute all those things that did not belong on our credit reports in the first place, home equity loans that had been closed and paid years ago, authorized users on cards that were included in the bankruptcy, etc. I challenged the way things were listed on there as being charged off but were also listed on there as included in the bankruptcy so they were dinging our score twice with the same account. The loan for the van was being listed as discharged when we had reaffirmed it. The second loan was reported as current which was a good thing and we had decided to keep this car since it was a newer car and working great. I was never able to find out whether the reaffirmed loan should be reported as a current loan so had a statement added to our reports that we reaffirmed it and that we continue to make timely payments on it. Although the mortgage is still listed as included in the bankruptcy, the mortgage company reports that we are making monthly on-time payments which is good for us. I do have one credit card for Chadwick’s that was not included in the bankruptcy but have yet to use it. I want to make sure I have the money to pay it off when I do use it so it will wait a little while longer, not to mention I don’t really need any new clothes right now.
Mr Credit Card: Describe the process and strategy you went through to finally get this auto loan (might as well describe the various auto lenders and their policies as well if you have shopped around).
Randi: After our experience in October 2008 when we tried to purchase the new or used car for a reasonable monthly payment amount with no success, we decided to approach it again in late January to replace the van when my father who has stellar credit offered to help up obtain a new car. He was going to purchase it for us and let us make the payments. He has a GM credit card and had been offered extra points up to $2000 worth toward the purchase of a new car and GM was running amazing rebates but he would have to be the owner or co-signor on the loan in order for us to use his reward points. He had hoped to keep our names off the loan application so that we would get the advantage of his credit score of high 700’s. We found out that my husband and I would not be able to insure or register the car in our name if we were not listed on the loan application and soon realized that since the bankruptcy had not yet discharged that the banks would not even consider us for a loan. We were also hesitant about having my dad co-sign on the loan based on info from this blog about how having a co-signer for one loan could result in needing a co-signer for any loan in the future. So, it was actually a blessing in disguise that the bankruptcy had not yet discharged.
I took the time to continue to monitor our credit and subscribed to the three-credit monitoring so that I could keep an eye on the credit scores and reports. In April, a friend considered purchasing our van which put us into the shopping mode again to replace the van. When they chose not to purchase the van, we decided it was time to shop again and trade it in since the van needed about $2000 worth of maintenance work and was only worth about that much while we owed $3100 on the loan. I did a lot of shopping on the internet to find the best price on a newer used vehicle with low mileage that would suit our needs. Buying used also enabled us to keep our payments at close to the current van loan payment which meant we would be okay paying that loan. We were able to include gap insurance and a 2-year bumper-to-bumper warranty extension in the sale as well.
We did not do any loan shopping prior to arriving at the dealership although I realize I should have done that but was concerned with taking too many hits on our credit report or applying to a scam loan company. The dealership we went to was the one we had worked with in January and had been extremely helpful and upfront with us (as upfront as a car dealership will be I guess). I was very honest about our financial history and bankruptcy. Before having us come in, they ran an initial credit check and their credit manager was confident we would qualify for a loan. So, we headed there this past Saturday, test-drove the vehicle and sent our application to 5 banks – World Omni (Southeast Toyota Finance) which is where our van loan was from, Sovereign Bank (which has our car loan), Bank of America, Wachovia and GMAC (which is actually who has our mortgage). The first three came back as rejected immediately due to the bankruptcy. They would not even look any further into our credit report. Wachovia came back as accepted but wanted to verify income (not a problem with paystubs) and had a high interest rate of almost 15%. Luckily for us, GMAC came back as accepted as well with an interest rate of 9.5% but did not need to verify income since we already had our mortgage loan with them. The interest rate is probably higher than we would have gotten had my dad co-signed but we did it on our own and I am sure that it will now help continue to improve our credit. I hope to try to refinance it for a better rate as our credit scores continue to improve.
Mr Credit Card: What was your credit score before BK, just after, and now?
Randi: Before the bankruptcy, our credit scores were 425-475. Just after the bankruptcy discharged in February, they were 475-525. After challenges/disputes, a little bit of time and some on-time car and mortgage payments, our credit scores are currently 600-675.
I am grateful to the Ask Mr. Credit Card blog for all the amazing advice and information I was able to find on the blog which helped us make some wise financial decisions to start the road to recovery after bankruptcy. It was a VERY hard decision to file the bankruptcy because we did not intentionally incur that debt with no plan to pay it off. We had guilt about not being able to pay it. I tried very hard to make those arrangements. It amazes me to this day that the banks did not want to work with us in any form. They left me with no option but bankruptcy and am now looking to the future to improving my credit and getting on with my life. Lesson learned and we are very careful with our finances. We are working towards saving some money and at some point in the near-future will look to obtain a credit card -whether it be secured or un-secured depending on what we will qualify for to help us continue to improve our credit.
Thanks,
Randi
Final note from Mr Credit Card: I want to thank Randi for her time in putting this together. I hope all of you have found this useful. If you have any questions, feel free to leave a comment and we’ll try to answer them (or get Randi to do so). If you have any success stories about rebuilding credit or any credit tips and you want your story published and shared, please use the contact form here.
