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Getting a Loan After Bankruptcy

Filing for bankruptcy relief is not the end of the world. Many people seek help from the bankruptcy system to recover from a financial crisis. A financial crisis may occur when you lose your job, are injured in an accident, go through a divorce, are sick for a long time, or get in over your head with credit card debt. Bankruptcy gives you a fresh start so that you can get back on your feet, including getting a loan after bankruptcy.

Why Are People Worried About Getting a Loan After Bankruptcy?

You might assume that someone who files a Chapter 7 or Chapter 13 bankruptcy would never want to go into debt again. However, loans are a reality for many people. The typical consumer needs a loan to buy a house or buy a car. Therefore, it is natural to worry about getting a loan after bankruptcy. 

The good news is that bankruptcy does not prevent you from qualifying for loans in the future. Continue reading to learn about:

  • Can You Get a Loan While In Chapter 7 or Chapter 13?
  • Getting a Loan After Chapter 13 or Chapter 7
  • Best Loans for Discharged Bankrupts

Can You Get a Loan While In Chapter 7 or Chapter 13 Bankruptcy?

Can you get a loan while in Chapter 7 Bankruptcy? 

In most cases, you will not qualify for a loan while in Chapter 7 because of a lender’s underwriting policies. If you were to qualify for a payday loan or other non-conventional loan while in Chapter 7, your current Chapter 7 does not discharge the new loan. You will continue to owe the debt after you receive your bankruptcy discharge. It is always best to talk to your bankruptcy lawyer before taking any steps to obtain a loan while in Chapter 7.

The good news is that most Chapter 7 bankruptcy cases are discharged and closed within four to six months after the filing date. After your Chapter 7 case is closed, you are free to apply for loans as you need them.

Can you get a loan while in Chapter 13 Bankruptcy? 

Getting a loan while in a Chapter 13 repayment plan is possible, in some cases. Courts recognize that most Chapter 13 plans take three to five years to complete. During that time, a debtor may need to obtain a loan. For example, a debtor may need another vehicle if their vehicle breaks down and the cost of repair exceeds the value of the vehicle. 

A debtor in Chapter 13 must petition the court for approval to incur new debt during a Chapter 13 case. The court reviews the reason for the debt, how the debt payments impact the ability to repay the Chapter 13 plan, and other relevant factors when deciding whether to approve the petition to incur debt. As with a Chapter 7 case, always talk with your bankruptcy lawyer before taking any steps to get a loan while in Chapter 13. 

It is possible to incur new debt while in bankruptcy, but you must have a good reason and be able to prove you can make your Chapter 13 payments even though you have additional monthly debt.

Best Loans for Discharged Bankrupts

There are specific underwriting rules that apply to government-backed mortgages that specify how long a person must wait after bankruptcy to qualify for a mortgage loan. Depending on the type of conventional mortgage and the chapter of bankruptcy filed, a debtor could qualify for some mortgages in as little as two years after bankruptcy. Non-conventional mortgage loans may be available sooner.

On the other hand, getting a loan after bankruptcy is much easier when you are applying for a consumer loan. Many lenders offer consumer loans to debtors as soon as the bankruptcy case closes. 

The best loans for discharged bankrupts depend on the unique financial situation of the person applying for the loan. Some options that you might have for a getting a loan after bankruptcy include, but are not limited to:

Types of Loans for Discharged Bankrupts

  • Secured Loans – By using collateral, you might be able to qualify for a lower-interest secured loan. Just keep in mind that if you default on the loan, you lose the collateral.
  • Pay Day Loans – Some lenders may charge ultra-high interest rates and fees. Many of these lenders advertise “no credit check loans” or “loans for bankruptcy filers.” It can be difficult to repay these loans because of the high interest rate.
  • Credit Union Loans — If you belong to a credit union, it might be easier to qualify for a consumer loan through your credit union.
  • Secured Credit Cards — Secured credit cards allow you to rebuild your credit while enjoying the benefits of a credit card. You are required to deposit a certain amount with the company to secure your charges, but it does provide a great way to have access to a credit card after bankruptcy.
  • Cosigned Loans — If you have a family member or close friend willing to cosign a loan, you might qualify for a lower interest rate as well. If you default on the loan, the cosigner is legally responsible for the debt.
  • Online Lenders — Many online lenders specialize in assisting individuals who filed Chapter 7 or Chapter 13 in getting a loan after bankruptcy. Just make sure to read the fine print so that you understand the terms, conditions, and interest rates for these loans. Also, avoid taking more money than you need.

Getting a Loan After Chapter 13 or Chapter 7

Getting a loan after Chapter 13 or Chapter 7 is easier than many people realize. While there are many rules regarding how long you must wait to qualify for a mortgage after bankruptcy, many individuals can qualify for consumer loans as soon as their bankruptcy cases close. 

There are some things that individuals should keep in mind before going back into debt after bankruptcy. One consideration would be that you may not be able to file bankruptcy again if you get into debt over your head. Debtors are limited in the number of bankruptcy discharges they may receive during a specific period. 

For example, you have to wait at least eight years to receive a bankruptcy discharge under Chapter 7 after a prior Chapter 7 discharge. You must wait two years after receiving a Chapter 13 discharge before filing another Chapter 13 case. Therefore, if you get into trouble with debt again, you may not be eligible for another bankruptcy discharge for a few years.

Take Control of Personal Finances

Getting a loan after bankruptcy may be necessary. However, there are other steps you may need to take to protect your financial wellbeing. 

Ascend provides numerous services for consumers, including teaching fun, simple, habit-forming steps that can help you improve personal finances and increase financial wellbeing. If you are interested in learning more about our services, let’s get started now.

Post Author: Ben Tejes

Ben Tejes is a co-founder and CEO of Ascend Finance. Before Ascend, Ben held various executive roles at personal finance companies. Ben specializes in Chapter 13 Bankruptcy, Debt Settlement, Chapter 7 Bankruptcy and debt payoff methods. In his free time, Ben enjoys spending time going on adventures with his wife and three young daughters.

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