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    Can I Get A Loan After Bankruptcy?

    Lyn Ridley
    Lyn Ridley - 2020-02-05T22:00:00.000Z

    Bankruptcy is a major financial event - and it’s true that it can have a damaging effect on your credit score.

    What many people don’t realize is that it’s possible to qualify for credit after bankruptcy if you follow the right steps.

    How Bankruptcy Affects Your Credit Score

    Declaring bankruptcy is a shock to your credit score.

    You could lose anything from 100 to 200 points immediately.

    This will make it considerably more difficult to get credit for some time given your score could go from excellent to fair or from fair to poor overnight.

    Some of the consequences may include:

    • Rejected credit applications
    • Higher APRs
    • Bigger down payments
    • More collateral required
    • Refused requests for limit increases in your credit card

    Now here’s the good news: there are ways to repair your credit after bankruptcy.

    The Two Types Of Bankruptcy

    There are two types of bankruptcy - Chapter 7 and 13 - and each one will affect your finances and credit score differently.

    • Chapter 7 bankruptcy involves the forced sale of most of your assets. You may be able to keep your vehicle and equipment that is necessary for your profession - but you could lose your home.
    • Chapter 13 bankruptcy is less severe. It involves a repayment plan on your debt and you’ll probably be able to keep your primary residence if you can afford to service the mortgage.

    The Steps To Take

    If you’re thinking of declaring bankruptcy, there are certain steps you’ll need to take.

    It’s important to note that it will appear on your credit history.

    Chapter 7 bankruptcy could stay on your credit report for a decade while Chapter 13 may fall away after 7 years or so.

    First Things First - Proper Reporting

    Bankruptcy isn’t something to be embarrassed about.

    In fact, it’s sometimes the best way to deal with unmanageable debt and get your finances back on track.

    You don’t need to hide the fact that you’ve gone through a bankruptcy.

    It’s always best to inform the credit bureaus, prospective employers, and especially lenders about your financial history.

    • Always answer the bankruptcy declaration on application forms honestly.
    • There’s no need to mislead lenders about your financial history - because if they run a credit check they’ll find out anyway - and you may appear dishonest.

    Wisely Using Your Credit Card

    The first way you can repair your credit after a bankruptcy is by using your credit card the smart way.

    You need to use credit to boost your credit score.

    You can achieve this by applying for a secured credit card.

    • Secured credit cards require you to pay a cash deposit equal to the limit on your card before you can use the card.
    • You’ll still need to pay the balance on your card each month - and keeping it low is a great idea because that will help to repair your FICO score.

    Assessing Assets

    Some of your assets may be protected from liquidation if you declare bankruptcy.

    These are some of the exempt items you may be able to keep:

    • A vehicle that is your primary means of transportation
    • Tools of your trade - this applies especially to skilled artisans, electricians, and construction professionals
    • Necessary household items like your refrigerator, bed, sofa, tables and other essential furnishings
    • Pension funds

    Note that these items may only be exempted up to a certain value - and this differs by state.

    Some of your personal belongings may still be sold by the liquidator.

    Loans That Help Build Credit

    One of the best ways to repair your credit is by taking out a personal loan.

    There is a special type of loan that may be ideal for borrowers who are coming out of bankruptcy.

    • A credit builder loan is specifically designed for borrowers who want to boost their FICO scores.
    • You’ll find many lenders offering this type of loan - especially local credit unions.
    • It may be possible to secure the loan using some of your exempt assets to obtain a lower APR.
    • The loan amount you qualify for may be lower than the amounts you used to be offered before you declared bankruptcy. This should change over time as your score improves.

    You’ll want to make sure that you pay your loan installments on time each month to rebuild your payment history and boost your credit score.

    Employment

    If your credit score has dropped considerably you may find that lenders will insist on knowing a little more about your job situation before they approve your loan applications.

    • Bad credit borrowers with stable incomes are less risky. If you have a full-time job and your salary gets paid into your bank account each month it will help to support your application.
    • If part of the reason for your bankruptcy was cash flow problems caused by being unemployed, searching for a job may give you the stability you need to repair your finances.

    Having a stable job is the first step in bankruptcy recovery.  

    With careful budgeting you may be able to create a surplus and use it to get your finances back on track.

    Conclusion

    Bankruptcy is a serious financial decision that shouldn’t be taken lightly.

    By knowing the difference between Chapter 7 and 13 bankruptcy you’ll be able to take the best decision for your financial future.

    Getting credit after bankruptcy is challenging - but it’s definitely possible.

    Secured credit cards, personal loans secured using your exempted assets, and credit builder loans are some of the options you can consider.

    One of the best ways to put your bankruptcy behind you is to find a stable job.

    The income it produces will allow you to rebuild your finances.