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Car Loan after Bankruptcy: How to Recover and Get Approved

I think that we can all agree that filing for bankruptcy is not great for your financial situation, especially the aftermath, but the question is: will you still be able to finance car loans after bankruptcy in Ontario? We'll explain.

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What is Bankruptcy?

You’ve probably heard the term “Bankruptcy” before but it’s possible you don’t actually know what it means, let’s start by getting our definitions clear. Filing for Bankruptcy is basically saying to a debtor that you cannot repay the debt, the debtor still needs to be reimbursed however so you will have to pay with your assets instead.

This could be by liquifying some assets like second homes, or it could be by selling stocks and bonds. Or in extreme measures, it could mean repossessing your belongings. Once it’s done however the debt is clear and you theoretically start on a clean slate, however, it wouldn’t shock you to hear that most lenders aren’t overly inclined to a car loan after bankruptcy in Ontario. By the way, we don't care. You can get approved for a car loan with us no matter what your credit situation is like. Click here to get started.

New beginning: Bankruptcy used to be viewed as the end of someone's financial existence. Something that someone could never come back from. This is simply no longer the case. Anyone can file for bankruptcy (the average Canadian is only $200 away from financial difficulty). Thanks to new laws, people can start over. Anyone can recover from bankruptcy.

Once your bankruptcy is over, your trustee will provide you with a document that serves as your official discharge. This document is extremely important because you can't legally take on any new debts without it.

After you receive this document, this is when you can start to rebuild your credit.

Finance a Car after bankuptcy

Source: MNP LTD

Before you Apply for Car Loans after Bankruptcy

Check your credit report: Knowing what your report looks like and adding explanatory notes to potential issues will not only show you where you are, but a lender too. Knowing what your record says and adding a note to explain what happened can go a long way to helping you get a decent rate on your bad credit car loan.

Improve your credit score: Your bankruptcy will be included alongside any bad debts on your credit score for up to 7 years. Any lender will be very wary of offering you a large sum of money until you have proven that you have the ability to manage your money wisely.

We recommend you apply for secured credit cards such as those provided be HomeTrust and Capital One Secured Master Card. These secured credit cards will help you begin to raise your credit score.
Adjust your car buying budgetWhile improving your credit score, we recommend you concentrate on your budget for a car loan after bankruptcy. Do you know how much cash you have leftover each month that you could put towards a new (to you) car? A great way to keep to a budget is by following the 20/4/10 rule. Aim for a 20% down payment on a car loan of 4 years or less and spend roughly 10% of your monthly income on car related expenses (loan, insurance, maintenance, etc.).
Come up with a payment plan: Having a plan in place to ensure prompt payment of any lending is the final aspect of managing a bad credit car loan. Demonstrating that you can and will allocate payment promptly and regularly will go a long way to being accepted. Servicing the loan in the long term will also help rebuild your credit score.

Financing Car Loans after Bankruptcy

Bankruptcy is more common than you might think, it’s estimated that roughly 1 in 6 Canadians will file for bankruptcy at least once in their life. That is a very high number of people, and so if lenders want to stay in business then they need to deal with people who have filed for Bankruptcy, though they certainly have no desire to make it easy.

Bankruptcy rates Canada. Source: bankruptcy-canada.com

If you are applying for a loan after bankruptcy here are a few things to be prepared for:

They will demand to know every single detail of your financial situation both before and after the incident and the exact situation which led to your filing for bankruptcy, if they don’t like your answers they may not grant the loan, and even if they do there will be a serious premium on it.

Bankruptcy and Low Credit score generally go hand in hand, so your only real option for loans will most likely be lenders who specialize in Poor Credit score loans. Like us! We don't discriminate and would love to help you find your next car loan in Southern Ontario.

The total amount you can take out will be severely limited, you will be able to take out a loan for a car but you will not be able to qualify for anything especially fancy.

How Long do You Need to Wait?

Time is also an important thing to consider, for one if you're trying to apply for a loan while the Bankruptcy filing is still underway that isn’t going to work out well for you. You want to put some serious distance between your bankruptcy filing and applying for a loan. 9 months to a year minimum.


Progress will be painfully slow but you can use this time to try and rebuild your credit. Making credit card purchases regularly and paying them off on time will slowly but surely start to rebuild your credit score. Bankruptcy will still look bad, but at least a rebuilt credit score shows you can still be reliable.


We’d love to help you find options for car loans after bankruptcy in Ontario. Click here to get pre-approved online today and we'll get the process started.


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